LITMIR.BIZ

      Dunn Capital is riding the trend up that first big hill of the yen in March 1995. They are making decisions within the context of their mechanical system. Bill Dunn continues: “Then we have significant retracement, which caused a short signal for the WMA program; our model has always incorporated near-term volatility and this volatility as we went long was far less than the volatility that was going on when we went short.”90

      Bill Dunn summarizes the trade: “Now also because the volatility was very high here, this rise was not enough to give us a long signal and as a result, we rode this short position for nearly a year all the way down – where we got a long signal that was wrong and we reversed and went down to short. Now that was a very, very good market for our program, but some markets are not so good.”91

      The confidence in Bill Dunn’s tone and delivery cannot be replicated in print. I feel fortunate to have the original tape.

      Bill Dunn, with a straight face after riding a trend to great profit, once noted: “The recent volatility in the energy complex has been quite exciting and potentially rewarding for the nimble.”92

      What does Dunn mean by nimble? They mean they are ready to make decisions based on market movement. When an opportunity to get on a potential trend appears, they are prepared. They take the leap. They are nimble when relying on their system; they react to the Japanese yen move with precise rules because they trust their trading plan and risk management.

      The second chart is the British pound (Figure 2.3) where, unlike the Japanese yen, the market proved unfavorable for Dunn Capital. It was a whipsaw market, which is always difficult for trend followers. You can see how they entered and were stopped out; then entered and were stopped out again. Remember, trend following doesn’t predict market direction or duration, it reacts – so small losses are always part of the game. Dunn managed the small losses because the British pound was only a portion of their portfolio. Their yen trade more than made up for losses on the British pound trade, because no matter how uncomfortable others are with that approach, for Dunn, big winners offset small losers in the long run.