Trendchannel: Trend Following Futures Trading System

Welcome to Trendchannel.com. I'm John Tolan, the developer of Trendchannel. To read "My Story" continue scrolling down this page. (To Print this page, set the left and right margins in your File, Page Setup to 0.5".)  If you have questions, or if you want additional information, please e-mail or call me. e-mail address:    tolan@Trendchannel.com phone number:     970-948-6211 mailing address:   1501 Walz Avenue, Glenwood Springs, CO 81601

Trendchannel has been included in the Futures Truth "Top 10 Trading Systems" since 2001.

John Tolan - Biographical Information

CTA - Commodity Trading Advisor
Trendchannel System Developer
Scientific Trading Solutions, Inc.
http://www.Trendchannel.com
tolan@Trendchannel.com
970-948-6211
1501 Walz Avenue
Glenwood Springs, CO 81601  (Jan 1999 - present date)

Sales Executive
CQG  - software and trading system development.
Glenwood Springs, CO  (June 1995 - Sep 1999)

Futures Broker
Fox Investments 
Chicago Board of Trade  (Aug 1987 - June 1995)

Futures and Securities Broker
Merrill Lynch 
Los Angeles and Laguna Hills, CA  (April 1981 - July 1987)

Futures Broker
ACLI International
Chicago Board of Trade  (April 1977 - March 1981)

Farm Manager
Tolan Farms
Springfield, IL  (May 1976 - March 1977) 

B.S. in Agricultural Economics
University of Illinois
Champaign, IL  (Sept 1972 - April 1976)

This is "My Story", my background as it relates to the development of Trendchannel.   

I grew up on a 2200 acre farm near Springfield, IL. We raised racing Quarter Horses and Thoroughbreds, Angus Cattle, corn, and soybeans. This was my introduction to both risk taking and the commodity markets. Even as a young boy, I was fascinated with the markets. Prices moved enough each year to make the price that we got for our grain more important to our bottom-line than our yields. In other words, if we were smart enough or lucky enough to sell at the right time, that decision made us more money than anything we could do on the production side of the business. I was even more fascinated that a guy could make more money buying corn or soybeans on the Chicago Board of Trade, than a farmer could earn by taking all the risk and doing all the work in raising the crops.

I went to college at the University of Illinois and majored in Agricultural Economics. My plan was to return to help my father on the farm after graduation. I took a commodity course taught by professor, Thomas Hieronymus, entitled "The Economics of Futures Trading". We took a field trip to the Chicago Board of Trade, saw the trading floor in action, and met some traders. At the time, I thought I was pretty smart, and it was obvious that a smart guy could make a lot of money - fast - trading futures. After that, no other business interested me or could equal the potential financial rewards and intellectual challenge of trading. I was hooked. I was going to be a commodity trader.

When I graduated, I went back to help my dad run the farm. At the same time, I opened a futures account with Don McMurray, a fraternity brother, who was a broker at the CBOT. I sent him a $400 check to cover the margin to go short one contract of corn. For whatever reason, that trade worked, so I used the profits from the corn position to buy one contract of soybeans. That was in 1977, and I rode soybeans from $7.00 a bushel to $10.64. That was all the confirmation that I needed that I was a genius and that I was going to get rich trading. Sorry Dad, but driving tractors doesn't make a lot of sense when I can make $1500 a day trading soybeans.

So, I moved to Chicago and became a broker with ACLI International, the company I was already trading through. I planned to buy a mansion on Sheridan Road with my soybean profits, so, I added 4 more contracts to my soybean position. Shortly thereafter, a judge ruled that the Hunt family was trading in collusion, and that they were to liquidate their 23 million bushels of soybeans. (The position limit at the time was 3 million bushels.) By the time I got out, I had lost everything that I had made trading and every penny of savings that I had. I was now a broke, broker. As Frank Sinatra sang from the Juke boxes on Rush Street: "Riding high in April, shot down in May". Here's a chart showing the history of the soybean (my) rise and fall:

So now, at this point in my trading career, I had no money, but I had gained some experience - which is what you get when you don't get what you want. I was also very lucky. I had a good job as a broker working under a legendary commodity and stock trader and great man, Joe Klein. I was now obsessed with learning everything about markets and trading. I was determined to beat this thing. I spent the first 6 months working from the trading floor of the Chicago Board of Trade. I read everything. I memorized and could quote from Edwards and Magee's book: "Technical Analysis of Stock Trends". I studied charts and technical indicators. We even had one of the first computers with charts and studies, Videcom by Comtrend. I learned from other traders, especially from my mentor, Joe Klein. I traded both stocks and futures for my own account, watched customers trade, talked to floor traders, and followed the trading of CTA's like John Henry.

I spent the next 17 years as a broker and a trader, mostly learning from trial and error. As they say, "Good judgment comes from experience. Experience comes from bad judgment." You've probably heard the estimate that over 90% of all futures traders lose money over time. Over the years, I have witnessed this sad phenomenon occur over and over again. Most traders eventually lose money in the markets and are forced to quit trading. I've seen many ups and downs in trading, both for my own personal account and for hundreds of customers and fellow traders. Believe me, I've spent my time in the trenches. Earning my B.S. Degree in Agricultural Economics from the University of Illinois may have started my trading career, but it's my degree from the "School of Hard Knocks" that fully qualifies me to answer the following 2 questions:

1). What are The Big Mistakes Traders Make - 
     the ones that will almost guarantee that they will lose money trading in the long run?

2). Why Do 90% of All Traders Make These Mistakes?

To share the answers to these questions and to make it possible for other traders to avoid these mistakes, 
I developed The Trendchannel Trading System.

The Trendchannel System gives you exact rules to systematically apply to prevent you from making "The 5 Big Mistakes". In other words, you can avoid "The 5 Big Mistakes Traders Make" by following "Trendchannel's 5 Essential Rules for Successful Trading".
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Over the years, I was always intrigued by the possibility of creating a successful trend trading system - one that would automatically indicate the trends and generate entry and exit signals. And taking it one step further, I imagined directing someone to track and trade the system for me. That would then give me both CONTROL and FREEDOM to do whatever I wanted to do with my time. 

Advances in technology finally enabled me to do the research needed to develop the system. I used a computer with TradeStation and CQG back-testing software and over 30 years of data on all the markets. I began my search by testing the popular trend trading approaches with the standard indicators that were already available: like price channels, moving averages, standard deviation, etc. I tested everything, including a lot of ideas that I had never been able to quantify or test in my earlier trading career. I approached this research project objectively, applying the scientific method: Start with an idea or hypothesis, express the idea as an exact mathematical formula, test the the idea on at least 40 futures markets and 30 years of data, record and evaluate the results, draw conclusions. That's why I named my company - Scientific Trading Solutions, Inc.

After 3 years and literally 100's of computer simulated tests, I was able to identify the most desirable trading system characteristics and to correct what I found to be flaws or drawbacks with previously available methods. I continued to improve and simplify the system formula design. I confirmed the final system's robust nature, that is, the same formula can be applied to all markets including futures, stocks, and forex, and I got a realistic idea of the system's potential performance in the future.

The final solution, Trendchannel, is a medium to long-term, trend trading system. Trendchannel is not an "OVER-optimized" or "curve-fit" system. These systems generate outstanding results in testing because the system rules and parameters have been adjusted, with the benefit of hindsight, to fit the data being tested. The problem with curve-fit systems is that actual performance has little chance to equal back-tested performance. The more rules and parameters a system has, the more likely the system has been curve-fit. Some other signs include the use of different, specifically formulated rules for each market, or varying the parameter settings for each market the system trades. Curve-fit systems also generate erratic results when parameter values are changed. 

When a system is based on a sound testing methodology, it should produce a wide range of profitable results when parameters are modified, and it should produce positive results over a wide range of markets. The Trendchannel formula has only 2 parameters, length and width, and the same parameter values are used across all markets. In historical tests, the Trendchannel System produces consistent, positive results, even with changes in parameter settings. The parameter settings that are used with the system are in the center of the bell curve, the profit plateau, when measuring the largest total profits on the 40 highest volume U.S. futures markets tested on 30 years of market data.

I released Trendchannel in June 1998 and we began trading actual accounts with Trendchannel System Assist Brokers in September, 1999. 

Trendchannel has been included in the Futures Truth "Top 10 Trading Systems" since 2001.

Summary of Trendchannel and Capital Flow Market Theory: 

Supply and demand determine prices. Prices move in trends. Trends are made up of waves that create a trend channel. Waves and trends are continuous, recurring patterns -caused by sudden or gradual changes in trader sentiment or psychology - a continual ebb and flow, from optimism to pessimism, from hope to fear, creating waves of buying (demand) and selling (supply) - capital flow.

When supply and demand are in balance, prices move sideways.
When an imbalance occurs, prices move in trends.
When demand > supply, prices move in an up trend.
When supply > demand, prices move in a down trend.

As long as perfect balance or equilibrium of supply and demand can be maintained in the stock market, in interest rates, in currencies - the dollar versus the Euro and Yen, and with the price of crude oil, we will have sideways markets.

However, it is highly unlikely that we are entering a new unprecedented era of price stability. With record U.S. trade and budget deficits and record oil prices, we are not in a state of global economic equilibrium.

In the same way that trends do last forever (divergence from the mean), trend-less markets and declining volatility (convergence or regression to the mean) do not persist indefinitely. Sooner or later something happens to upset the balance, and profitable trends develop.

To continue, please go to the Trendchannel website home page.
Please click this link to go to our home page: http://www.Trendchannel.com
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