Momentum & Trend Following

Soros taught him that the crowd is right 80% of the time — you just can't be caught in the brutal other 20%. He gets intellectual satisfaction from the contrarian 20% but admits that's ego, not edge. He doesn't care if a trade is crowded if the thesis and the trend are right. Extreme conviction plus no believers doesn't make him doubt — it makes him more convicted.

"I think contrarianism is overrated. I do like it when I have extreme conviction and no one else believes it. It gives me even more conviction."

Coming out of the 50% drawdown, Zhang read the core O'Neal books and converged on a style he calls thematic catalyst momentum — a form of trend following rooted in CAN SLIM principles but modified. The key modification: the team doesn't strictly require earnings and sales for every trade, since sectors like crypto have no earnings but still carry the same momentum characteristics. The style sits within trend following as the broad category, with growth and fundamentals as a useful but not mandatory filter. The goal is to find the biggest movers in the hottest themes and ride the cycle.

Not all themes are equal: secular themes (tech revolutions, AI, rare earths) produce multi-year compounding moves because underlying earnings growth is structural. Cyclical themes (housing, financials, retail) rise and fall with the economic cycle and interest rates. Zhang focuses on secular themes for the big sustainable moves. When two stocks both clear the magic elixir criteria, the tiebreaker is linearity: how consistently does the stock trend upward without violating prior lows? A stock that makes new highs without breaking the previous day's low, day after day, is categorically different from a choppy stock. GDX vs. the choppy version of that same chart two years earlier is his go-to example of the distinction.

Ted quickly applies the same magic elixir framework to three more positions. Nugget (a leveraged GDX product) was a small starter at a 20/50 moving average reclaim with an RMV flash; it worked immediately and he pyramided into strength as a prior high became support. Silver (SLV futures) exhibited near-perfect linearity — consecutive tight flags holding the 10 EMA — and his one regret was not pyramiding more aggressively at all-time highs; a bearish engulfing triggered his first trim but he held through two 10-EMA undercut-and-reclaims before the final new high squeezed shorts. Palantir was an episodic pivot trade off a guidance beat: he bought the gap up and held a linear trend above the 10, trimming at the measured-move target.

Schwager traces trend following from Ed Seykota's era in the late 1960s — when running a simple moving average program on a brokerage firm's mainframe over the weekend was so unusual that the edge was enormous — to today, when every retail trader has access to the same tools and concepts. As trend following became widely known and universally taught, the edge degraded: more practitioners created more fake breakouts and shorter-term counter-trend moves that made staying in trends far harder. The underlying rationale still holds — real supply-demand imbalances take years to resolve, so genuine trends exist — but the return-to-risk ratio has compressed substantially and drawdowns have grown.

"Once it becomes too popular, you start getting a whole bunch of fake breakouts and very short-term wild swings. The trends are still there, but they become choppier — and the edge that once printed money is now much smaller."

After two years of day trading, Kristjan began studying thousands of historical charts and noticed a pattern: the biggest moves in stocks take weeks and months to unfold, not minutes. Day trading was inherently limiting — even a large intraday move is a ceiling on what you can capture. Swing trading let him stay in momentum stocks through their full trend and capture exponential returns that no intraday approach could replicate. This insight — that momentum compounds over time, not within a session — was the foundation he built everything else on.