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Systematic Trend Trading

Quoting Copernicus
{quote} Hi Blue. Paul Tudor Jones made the bulk of his success with discretionary swing styles of trading. He doesn't fit neatly into the diversified systematic trend following space commonly assigned to trend trading. :-)
Hi, Copernicus

that is different trading style so there is different concept, right?

We should stick with our belief which fit our trading style.

thanks for your reply
Keep DISCIPLINE, control RISKS, and don't destroy your DREAM easily.
Quoting Bluesky8635
{quote} Hi, Copernicus that is different trading style so there is different concept, right? We should stick with our belief which fit our trading style. thanks for your reply
"When learning to trade, follow all of the rules. But as you mature, start to ask which ones align more with your style, and which ones don't. Deeply embrace those that do, and discard those that don't. "

"I knew all the rules, but the rules did not know me." - Eddie Vedder
tradewith60
Sorry about the lack of progress on the thread. Here are the next strategy rules

Inserted Video
tradewith60
Simple trend trading
Find an entry in the direction of the trend and trail your stops
Cant get much simpler
" check out The Traders Outpost "
Quoting RedLineFred
Simple trend trading Find an entry in the direction of the trend and trail your stops Cant get much simpler
That's all there is to trading. I wish I knew this sooner.

Determine the trend.

Enter in line with the trend.

Trail your stops. No profit targets

Keep risk very small.

If you follow these rules without fail, you will not fail.
Quoting 60minuteman
Sorry about the lack of progress on the thread. Here are the next strategy rules https://www.youtube.com/watch?v=39vH...ature=youtu.be
Thanks Darren
Quoting RedLineFred
Simple trend trading Find an entry in the direction of the trend and trail your stops Cant get much simpler

Will appreciate if you provide any guidelines on the size of the trailing stop for EURUSD and GBPJPY?

thank you.
Practice makes a person perfect
Your question is too simply stated, its not just about the size of the trailing stop (TSL) but a combination of the initial Stop Loss (SL) and the type of trail used.
Should you set your trail purely on the size of the initial SL, which would be considered a TSL of R. or a multiple of R?
Do you trail off the closing price of the bar, or would you be better off trailing the High, or the Low of the bar.
Should you use a stepped trail or a continuous trail, per tick or on a new bar?
Or another option, rather than trailing xR, would it be better to trail using a volatility measure such as ATR, or xATR.
The only way to get clarity on these options is to test each using historical price action and make your own evaluation.
We at ATS are doing just this and are working on a tool to assist in this testing.
When ready to release, the tool will be shared. In the meantime suggest you experiment yourself and explore the possibilities. You might be surprised at the differing results.
cheers
Fred
" check out The Traders Outpost "
Inserted Video
tradewith60
Quoting simnz
{quote} Will appreciate if you provide any guidelines on the size of the trailing stop for EURUSD and GBPJPY? thank you.
Still a work in progress S...but we are getting closer :-) The core strategy that 60 is describing is being used as a model for diversification which we are stepping thru slowly as we work thru it. Fred is punching out tools to assist in it's development but they are still in beta stage at the moment. We plan to lay it all out but hopefully get a bit of interest in the actual process we take in construction.

Traditionally on trading forums there usually is a lot of emphasis placed on actual systems (aka strategies), but the edge under diversification resides in the processes undertaken. Once you get a feel for the processes, then you no longer have to worry about the specifics of any particular strategy. The specifics arise as an outcome of the actual process and is vastly different to what we might traditionally think is the best option as they are configured to complement a portfolio as opposed to achieving a singular result on their own.

At the end of it all the process results in a robust systematic portfolio designed for all seasons comprising an array of different strategies configured for an array of different markets. This process is also regularly undertaken to continuously update the portfolio to keep it 'tuned' to the market and eliminate weak portfolio components. This can be easily achieved under automation but a different kettle of fish if you stay discretionary. Each strategy in the compilation is unbounded with no profit target and a trailing and initial stop, but we might have many different trend following variations each with different trailing conditions and initial stops in a single market.

The premise surrounding this process is that the resultant portfolio outcome is robust where each constituent system cuts losses short at all times but let's profits run.....but as a collective can address a broad array of different trend types with different trajectories and volatility.

In playing the Law of Large Numbers, you need a Large array of solutions to address it. If you attempt to be all things with a single system, you will meet curve fitting head on...but diversification using simple variations of a core system is your way around that obstacle.

The key idea to keep in the back of your mind when compiling portfolios designed for trend following is that there are a broad range of different types of trend so there is no real 'one size fits all' type of trend following strategy. The system elements that comprise the entry, stop, and trailing stop create design constraints that dictate how successful a particular strategy is in navigating a particular class of trend and how successful the system is in preserving your capital when markets don't trend. Each variable is not independent and frequently all are inter-related. To address a range of different market trends requires a broad array of different system configurations.

The simpler your system is, the less design snags that will whipsaw you out of a particular volatile trend, but there comes a finite point to simplicity in price following techniques where risk management prevents you from going further towards simplicity...... so your only other choice left to capture a range of different classes of trend is to diversify using an uncorrelated collection of different systems.

Perhaps the simplest form of system is the 'buy and hold approach' that investors tend to use for equity indices....however that level of simplicity fails to address an essential part of the price following equation which is 'how to cut your losses short'.....so there is actually a limit to how simple you actually can go.,,,despite the rhetoric you may hear on this principle.
Quoting RedLineFred
Your question is too simply stated, its not just about the size of the trailing stop (TSL) but a combination of the initial Stop Loss (SL) and the type of trail used. Should you set your trail purely on the size of the initial SL, which would be considered a TSL of R. or a multiple of R? Do you trail off the closing price of the bar, or would you be better off trailing the High, or the Low of the bar. Should you use a stepped trail or a continuous trail, per tick or on a new bar? Or another option, rather than trailing xR, would it be better to...

Hey Fred,
nice to see your input. Yes, thats the challenge.
I challenge this problem with EA that gives me different variations of trail. FX itself is a beast on its own..and the average rule is probably somewhere. At least I see it this way.

Besides the entries of course and the waiting game..

Look at the counter signals.

One needs to put a sign on the monitor: 20% of trades will deliver 80% of gains.
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Quoting 21vs7
{quote} Hey Fred, nice to see your input. Yes, thats the challenge. I challenge this problem with EA that gives me different variations of trail. FX itself is a beast on its own..and the average rule is probably somewhere. At least I see it this way. Besides the entries of course and the waiting game.. Look at the counter signals. One needs to put a sign on the monitor: 20% of trades will deliver 80% of gains. {image}
I see just a bunch of trades but really unable to understand what are you trying to show or achieve
What our testing has shown is there is never a perfect trail but there is an array of settings with favorable results. The secret is understanding the power of diversification and the reality that single strategies are doomed to fail (unless you get lucky). It is very unusual to find retail traders using diversification and we believe it's the main reason the majority lose. Another way of looking at it is, pick a single stock and invest your lifes savings in it, even to a novice investor it doesn't sound very smart.
tradewith60
Quoting Copernicus
{quote} Still a work in progress S...but we are getting closer :-) The core strategy that 60 is describing is being used as a model for diversification which we are stepping thru slowly as we work thru it. Fred is punching out tools to assist in it's development but they are still in beta stage at the moment. We plan to lay it all out but hopefully get a bit of interest in the actual process we take in construction. Traditionally on trading forums there usually is a lot of emphasis placed on actual systems (aka strategies), but the edge under diversification...
Thank you for further enlightening us on the model for diversification.

I am setting up Follow the Leader TE for diversified portfolio trading with GBPJPY, USDJPY, EURJPY, EURGBP, USDCAD, AUDNZD, USDCHF.

I will trade with trailing profit and keeping both SL and TP open to intervention.

Purely random trading driven by currency strength logic coded in the EA . Long, short or even long and short on both side in a couple of seconds.

Will welcome iff you can give any inputs to this idea.

Thank you.
Practice makes a person perfect
  • Post #1,035
  • Quote
  • Edited Oct 8, 2019 6:17am Oct 7, 2019 7:52pm | Edited Oct 8, 2019 6:17am
Quoting simnz
{quote} Thank you for further enlightening us on the model for diversification. I am setting up Follow the Leader TE for diversified portfolio trading with GBPJPY, USDJPY, EURJPY, EURGBP, USDCAD, AUDNZD, USDCHF. I will trade with trailing profit and keeping both SL and TP open to intervention. Purely random trading driven by currency strength logic coded in the EA . Long, short or even long and short on both side in a couple of seconds. Will welcome iff you can give any inputs to this idea. Thank you.
Hi S

There are so many different techniques that can be deployed under systematic applications that a single system in the scheme of things is a small part of the total equation. The key thing to ensure for any core strategy is that:
1. It has strong positive skew;
2. It always has risk measures applied to cut losses short;
3. It attempts to let profits run at all times which necessitates some type of trailing mechanism and preferably an open ended profit condition.....but remember that this does not exclude performance exits but does exclude profit targets. A performance exit may for instance be an ADX exit condition, an RSI exit condition, an MA cross exit condition etc. .....but it is the market that decides the exit, not a predetermined profit target.

When thinking of what it means to be diversified, there are several caveats that restrict the degree of diversification you can achieve:
1. Risk management ensures that you must manage your adverse loss position at all times between trade entry to exit and ensure that over the large sample size you enforce positive skew into each return stream. A trail is a certain technique to ensure that you do not leave too much profit on the table when the trend turns, and also ensures that some mechanism is used to ratchet your stop up behind your trade as it matures. This repeated process enforces an impact on your long term statistics from your strategy design;
2. The use of a filter to prevent trading 'randomness' and focus on more abnormal market conditions where fat tailed events are more likely to dominate overall price movement; and
3. The use of a profit target is inappropriate when seeking to benefit from the fat tails of market uncertainty. It may give you comfort in allowing for a higher Pwin% but it snuffs out any chance of catching the unpredictable outlier where the edge of a price follower resides.

So working within these caveats, the essential elements of diversification relates to effectively your diversification of entry method and diversification of trailing stop and/or performance exit method. This diversification through system design enforces more static correlation benefits than what could be achieved through other methods of diversification such as market diversification. Time-frame diversification is a natural element of system diversification so that tends to be addressed through system design considerations.

We step through this on our website so if you want more info....then pop on over. The processes we undertake are not specific for a particular class of strategy and can be applied to any strategy that applies these overarching broad rules.

Cheers

C
Quoting Copernicus
{quote} Hi S There are so many different techniques that can be deployed under systematic applications that a single system in the scheme of things is a small part of the total equation. The key thing to ensure for any core strategy is that: 1. It has strong positive skew; 2. It always has risk measures applied to cut losses short; 3. It attempts to let profits run at all times which necessitates some type of trailing mechanism and preferably an open ended profit condition.....but remember that this does not exclude performance exits but does exclude...
Thank you for your insights.
I like your idea of training system traders. I like your website and will surely be joining you soon.
Practice makes a person perfect
Nice ebook showed up in my Kindle this morning .

Attached Image
Does anyone have a recommendation on where I can find reliable daily OHLC data for backtesting?

Ideally in .csv or .xls format.

edit: I’ve been using data from dukascopy, but I’m wondering how reliable/accurate it is
Quoting 60minuteman
https://youtu.be/iiYeaaHPtVI
Hi,
That's an interesting and simple approach to trend trading. So this morning I set up an EA to do my own backtesting, with the same rules (200 & 800 SMA for bias), and only adding a filter with the 100SMA that must have a slope in accordance with the bias (this helped in some choppy structures):

SL set at last BB high / low.
No TP, trailing set at 3x ATR(100).
H4, over 2015 - 2018 (4 years).
Risk at 1% per trade.

The results I got are:
EURGBP == +9.7%
EURUSD == +0.01%
GBPJPY == -4.3%
GBPUSD == +9.6%
EURJPY == -0.8%

So these results are drastically different from what you show, although as a portfolio is should be slightly positive. Now I know my trailing setup is probably different from yours, and from what I understand you have a fixed position size for your backtest, but still, what do you think explains such a difference? I tried with different ATR values for the trailing stop, it only gets worse.
Quoting Barraka
{quote} Hi, That's an interesting and simple approach to trend trading. So this morning I set up an EA to do my own backtesting, with the same rules (200 & 800 SMA for bias), and only adding a filter with the 100SMA that must have a slope in accordance with the bias (this helped in some choppy structures): SL set at last BB high / low. No TP, trailing set at 3x ATR(100). H4, over 2015 - 2018 (4 years). Risk at 1% per trade. The results I got are: EURGBP == +9.7% EURUSD == +0.01% GBPJPY == -4.3% GBPUSD == +9.6% EURJPY == -0.8% So these results are...
Hi B

You won't see the effect you are after unless you are heavily diversified and your tests are conducted over a much larger sample.

For example here is the portfolio result and also the individual composite equity curves used for this particular portfolio (I have highlighted in red where your 4 year backtest commences from, to give you an appreciation of the short term view you are taking). Unless you zoom out over a longer timeframe and have far wider diversification you will not see the effect that the anomalies have in the bigger picture of the entire portfolio.

So here is the total portfolio result that 60 discussed. Anomalies are embedded in this portfolio. The significant impact on the overall PL is attributed to these outliers. The rest of the trade results are effectively trading randomness.....but we never expose ourselves to negative outliers and take crippling losses. If you look at the period from 1/1/2014 to current day the overall portfolio result has experienced only slight growth until the most recent kick that we are experiencing today, as markets are becoming more unsettled....but importantly the capital over this disappointing period has not deteriorated greatly. Most of the growth was attributed to pre 2014 market conditions. The growth is stepped in nature where the major growth spurts were associated with outlier impacts such as the GFC. In fact if you look closely, the major outliers that helped the long term growth in this portfolio were during in 2019, 2012/2013, 2011 and 2008.

Attached Image


....and here are a few of the individual raw return streams of the portfolio with no cherry picking....just the application of some rules relating to risk management. Some are pretty ugly. If you have a look at your 4 year results, most of them are better than these results.....but a loss over such a short 4 year period is not a sign that the systems are broken.

This post gives an idea of how unlikely it is for a simple trend follower to make it long term unless they take the long term seriously and unless they are very widely diversified. You must have very wide diversification and strike only at the outliers or your journey is going to be cut short. Outliers can occur at any time....many don't show themselves over a 4 year period.

I hope this helps you understand the helicopter view you need to take in assessing a strategies long term performance and why diversification is so important.

This approach is totally contrary to a predictor's desires. A predictor's expectations are that the equity curve will rise as soon as they start to deploy their predictions. They use their win rate as a basis to gauge the success of their predictions. The only problem is that over the long term, this philosophy tends to fail.

A price follower is ambivalent on whether the equity curve rises or not. They only care when it falls. They base their long term success on outliers that cannot be predicted in advance. We simply adopt the philosophy that this technique has been successful over 200-300 years and that markets exhibit this phenomena from time to time. We therefore make very robust designs that can sit in the doldrums for long periods protecting our capital but still be capable of responding to the outliers when they occur.

Cheers

C
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