The TREND Following Machine
A Mechanical System That Rides Every Major Move
You've been told that to make money in the markets, you need to know where they're going. You need a view. An opinion. An edge based on information.
The traders who made the most money over the last fifty years had none of that. They had a system that followed the price. When it went up, they bought. When it reversed, they sold. No prediction. No thesis. No opinion.
A rancher in a Texas cattle town of 2,000 people beat Wall Street for three decades. His neighbor, one of the most famous oil investors in the world, lost a fortune on the same market in the same year. The difference: one followed signals. The other followed conviction.
A trader turned $5,000 into $15,000,000 while being wrong on 62% of his trades. Another system generates 200 trades per year. Six of them pay for everything.
This guide builds the machine. 13 chapters. Every component explained. One checklist to implement it this weekend.
13 chapters · ~45 pages · Instant access · Read online, any device · Yours forever
The Legends Behind This Guide
Built from 3 investor playbooks
Every principle traced to a specific trader. Every claim sourced.
Ed Seykota
Turned $5,000 into $15 million
Richard Dennis
Trained 23 strangers to trade — 19-year-old made the most
Curtis Faith
The youngest Turtle who outperformed them all
What readers say
“
I thought trend following was just moving average crossovers. Chapter 4 on Richard Dennis teaching complete beginners to trade futures — and those beginners beating 99% of professionals — made me realize the system matters more than the trader. Built my first rules-based system after chapter 10. Paper trading it now.
Sarah — Self-directed investor, 2 years
“
The Salem Abraham story in chapter 1 hit different. A rancher in a town of 2,000 making more money than T. Boone Pickens on the same oil trade, because one used a system and the other used conviction. I've been trading on conviction. Switching.
Ryan — Swing trader, 4 years
“
I manage systematic strategies for a living. Bought this to see how they'd explain it to a general audience. Chapter 8 on position sizing and chapter 11 on diversification across uncorrelated markets are genuinely well-sourced. The Harding and Clenow material is solid. Sent it to three clients who keep asking why we have losing months.
Anita — CTA, 12 years
Inside the guide
What you'll learn, chapter by chapter
Chapter 1 — The Rancher Who Beat Wall Street From a Cattle Town
Salem Abraham set up his hedge fund above a steakhouse in a town of 2,000 people. His employees came from feedlots. "This beats shoveling manure at 6 in the morning." The New York Times called it "A Homespun Hedge Fund, Tucked Away in Texas."
T. Boone Pickens lost a fortune on crude oil in 2008 while his neighbor Abraham made a fortune. Same market. Same months. Same commodity. One traded on conviction. The other traded on signals.
The same pattern repeated in 2022: systematic trend followers posted positive returns while the S&P 500 fell 18% and bonds fell 13%
Chapter 2 — The 800-Year Backtest
Alex Greyserman's dataset spans 800 years of price data, from commodity markets in the 1200s through global futures in 2013. The strategy has worked through wars, famines, and monetary regime changes.
Andreas Clenow demonstrated that a single trend following strategy is sufficient to replicate the performance of the top managed futures hedge funds in the world
From 1976 to 2011, buy-and-hold stocks returned 8% per year with a 55% maximum drawdown. A diversified trend following strategy produced comparable returns with dramatically lower drawdowns.
The academic paper by Moskowitz, Ooi, and Pedersen confirmed it: time-series momentum produced significant positive returns across dozens of futures markets over decades
Chapter 3 — The Father Who Lost Everything in the Crash of 1929
Richard Donchian lost virtually all of his money during the Great Depression. His response: the first mechanical trend following system. One rule. Two numbers. No discretion. He traded it for decades.
The 20-day breakout channel that bears his name is still used today. Not as a historical curiosity. As a live trading signal.
The lineage is unbroken: Donchian in the 1950s, Seykota in the 1970s, Dennis and the Turtles in the 1980s, and hundreds of managed futures funds today
Why the parameters matter less than you think, and the one thing that matters more than any entry signal
Chapter 4 — $5,000 Into $15,000,000
Ed Seykota built the first commercial computerized trading system by testing strategies on weekends using an IBM 360 that filled an air-conditioned room. His results confirmed what Donchian's letter had claimed.
One client account went from $5,000 to over $15,000,000 in sixteen years. Jack Schwager wrote: "I know of no other trader who has matched this track record over the same length of time."
Seykota's management overrode his system on a sugar trade, waiting as the price went from 5 cents to 9 cents before buying. The market peaked shortly after. They ignored the sell signal too.
His win rate was around 38%. He was wrong on more than six out of every ten trades. And he is one of the greatest traders who ever lived.
Chapter 5 — The Buy and Sell Rules Are the Least Important Part
"The buy and sell rules are the least important part of a strategy" — the conclusion of a former hedge fund manager who spent a decade running systematic strategies
A former AHL portfolio manager (managing tens of billions) proved mathematically that every parameter you add increases the probability of failure. Five parameters with ten values = 10,000 combinations. At least one will look perfect by pure chance.
The difference between the traders who make money and those who do not has nothing to do with entries. It has everything to do with position sizing, diversification, and discipline.
Why 95% of retail traders spend 80% of their time on the wrong thing
Chapter 6 — 200 Trades, 6 Winners
Chesapeake Capital generates approximately 200 trades per year. Of those 200, roughly six will pay for all the losses and generate the returns.
"One would not want to invest too much negative emotion in the 194 losers" — the Turtle trader considered by some as the most successful, with a compound annual return of 12.62% since 1988
Most trend following strategies lose on over half of all trades, sometimes as much as 70%. The trick is to gain much more on the good ones.
The exact math that explains how a 38% win rate produces a fortune, and why chasing a higher win rate actually destroys returns
13 chapters · ~45 pages · Instant access · Read online, any device · Yours forever
Chapter 7 — Five Years of Losses, Then 100% in a Year
Bill Dunn managed over $2 billion from a small office. His Combined Fund returned 100% in one year. In another period, the drawdown reached 70%. He had five consecutive years of losses. The year after: 100%.
His assets went from $2 billion to $22 million. Not because the system stopped working. Because investors panicked during the drawdown and left.
An emergency room doctor learned under Seykota and ran $100 million from Hawaii with one assistant. Trend following does not scale with headcount. It scales with patience.
Why the people who quit during the drawdown are the only people who lose money at trend following
Chapter 8 — How to Build the Machine
The machine has four components. Most traders obsess over the first one. The one that actually determines whether you make money is the one they skip.
The exact position sizing formula used by professional trend followers, explained step by step with a worked example on a $50,000 account
Why volatility-based position sizing is the mechanism that allows the law of large numbers to work, and without it your diversification is an illusion
Every component is publicly documented. Every component is available for free in 2026. The barrier to building this machine has never been lower.
Chapter 9 — The Correlation Trap
LTCM held positions with correlations below 10% for five years. Then every position moved against them simultaneously in a matter of weeks. Nearly $5 billion gone.
Why assets diversify on the way up and unify on the way down, exactly when you need protection most
A rancher in Texas was short crude oil during the 2008 crash while experts lost fortunes. His system did not care about correlations. It followed the price in each market independently.
The difference between asset allocation and signal-based diversification, and why one fails in every crisis while the other profits
Chapter 10 — The Strategy That Made Money in Every Crisis Since 1970
Black Monday 1987, Asian crisis 1997, dot-com 2000, financial crisis 2008, Covid 2020, inflation 2022. In each one, systematic trend following produced positive or flat returns while conventional portfolios lost money.
Managed futures posted positive returns in 2008 while stocks, corporate bonds, real estate, and most hedge fund strategies all lost money
Even without the crisis periods, trend following is still a solid investment. The crisis alpha is a bonus, not the whole story.
The specific data that shows why trend following is the closest thing to an all-weather strategy that exists
Chapter 11 — Why 95% of Fund Managers Lose to a Simple Rule
Standard & Poor's SPIVA report: less than 16% of US domestic equity funds beat their benchmark. Large-cap growth: over 95% failed. Over five years: 62% underperformed. Mid-cap growth: less than 10%.
A simple trend following system matches or exceeds the returns of the top managed futures hedge funds. Without the PhDs. Without the technology budget. Without the management fees.
Why an individual trader with a laptop has a structural advantage that no institutional fund manager can replicate
The academic confirmation from decades of research on time-series momentum across dozens of markets and geographies
Chapter 12 — The One Reason Trend Followers Fail
The system works. The trader quits. That is the single most common failure mode. Not a broken model. Not a changed market. The trader could not handle the drawdown.
$2 billion to $22 million. Not because the system stopped working. Because investors left during the drawdown and missed the recovery.
The structural solution: how to set your risk level so the inevitable drawdown does not force you out of the game
The question you must answer before you start, and why getting it wrong is the only way to lose at a game where the math is on your side
13 chapters · ~45 pages · Instant access · Read online, any device · Yours forever
Chapter 13 — Your Trend Following Checklist
Ten specific steps to build your trend following machine this weekend. From choosing your markets to the one rule that most traders think is a joke — until they ignore it and blow up their account.
The exact position sizing formula with a worked example on a $50,000 account
Why step ten is "turn off the notifications" and it is not a joke
This is the system that Donchian built from the wreckage of 1929, that Seykota computerized in the 1970s, that Dennis taught to 23 strangers in 1983, and that has been validated across 800 years of data
A rancher in Texas beats Wall Street from a room above a steakhouse. A trader turns $5,000 into $15,000,000 while being wrong 62% of the time. A system generates 200 trades a year and six of them pay for everything.
The strategy has been profitable across 800 years of data. It made money in every major crisis since 1970. It beats 95% of professional fund managers. And it takes five minutes a day to run.
13 chapters. One system. One checklist. Implement it this weekend.
About the author
I'm Lorenzo — trader and software engineer.
I've been trading futures for 8 years. I've blown up an account, rebuilt it, and spent more time reading about other people's mistakes than making my own.
These guides are the result: the rules I wish someone had given me on day one, traced back to the traders who paid for them with real money. Every quote sourced. Every number checked against the original book. No invention.
13 chapters · ~45 pages · Instant access · Read online, any device · Yours forever