Way of the turtle

Trader Memory
A good example of trader memory is gold and silver. When I first
started trading, it was impossible to make any money in gold
because the memory of the enormous 1978 trend (when gold went
to $900 an ounce and silver went to over $50 an ounce) was still
too fresh in people’s minds. Every time the price even started to
look like a potential up trend, everyone and his brother would start
buying gold. That made the price movements very choppy. The
price would run up and run down and then run up and run down
again. In short, it was very hard to trade as a trend follower. Now,
20 years later, most people do not remember the 1978 trend any-
more, and so the move in the spring of 2006 was much easier to
218
•
Way of the Turtle

---

trade than it had been earlier; if you looked at the charts, you would
say that gold had changed its character. 
I do not think one can tell when the next market such as gold is
going to change or when the next market such as cocoa is going to
trend again. The fact that a market has not had a large trend in the
last 20 years does not make it a bad market to trade. For me, if a
market has enough volume to trade and is different from the other
markets in your portfolio, you should trade that market. 
The constraint to market diversification is often the amount of
capital required to trade many markets within acceptable risk lim-
its. This is one of the reasons successful hedge fund operators have
an easier time than do individual traders and why large traders have
more consistent performance than do smaller traders. If you can
afford to trade only 10 markets, you can expect more erratic per-
formance than will be the case if you can afford to trade 50 or 60
markets simultaneously. It takes at least $100,000 to trade a long-
term trend-following system using futures contracts with reasonable
diversification. Even at that level the risk required would be too
high for most traders.