Diversified Trend Trading Approach

Time to check earthquake after NFP and redraw stuff.

Edit: GBP CAD was good catch, as employment data out of maple syrup country was stellar. Redrew old SDC short, SL now is even wider.

That's it R. I love the way the SDC breathes with volatility.

Copernicus,

This is one of the best trading methods I've ever come across.

I don't know if this has been discussed before, but are there any further examples of the DTTR method? This wasn't linked from the first post unlike other methods discussed.

I have been using EDTTI with some success.

What's Trending?

It's the weekend. Time to abandon the noise from last week and put things into perspective. It's easy to lose the plot in the fury of the markets. Time to chill and look at what the big picture is telling us and get back into the market groove.



We will use the DTTR technique to have a look at various markets and decipher where price currently lies in the context of historic price movement and a primary trend (if it is evident).

Active Trades:

Active Trade Details:





















To be continued......

What's Trending?....cont'd



Active Trades cont'd......

Attached Image (click to enlarge)

Undecided/Pending Trades



















........a few more to go and we are done :-)

C

What's Trending?....cont'd

Undecided/Pending Trades.....cont'd

Inserted Video

Aveagreatweekendguys :-)

C

Sorry renjer. I missed your post. It was probably when I was writing up my recent posts.

Thanks for the query :-)

The DTTR was a late edition to the discretionary systems and a method to incorporate a bit of mean reversion into a trend entry. All the other techniques discussed are breakout techniques. The DTTR is explained in a bit of detail here. I started forward testing the DTTR in April 2016 so it is a bit slim on the stats at the moment. I first started discussing it from this post on.

The DTTR currently only trades on D1 and is a long slow process but offers a potentially great R:R trade if you get it right. Unfortunately you can miss some great entries as what looks great in hindsight is a bit more difficult when trading at the right hand side of the chart. Despite the good results so far.....I still prefer the breakout techniques as you simply do not miss any trends when they are running but during a trend change the DTTR technique can become a bit problematic given the inability to assess whether price will revert back into the prior trend or take of in another trend direction. Unfortunately you might have to take several bites at the cherry before you get it right. Aside from that it has some great benefits and as an addition to the trend trading arsenal, helps to smooth the equity curve of the portfolio.

Cheers

C

Hi R. With the DTT you trade only a single timeframe (H1) but you use the higher timeframe as confirmation for what you do on the lower timeframe.

With the EDTT variants you use multiple timeframes and you try to configure each SDC to be appropriate for that timeframe. All these different variants make life a bit confusing :-)


How you have drawn your SDC's are fine so sometimes the stop is a long way away. No probs with that mate. I know we would like nice tight stops to get good position sizing in our trades but the initial stop and trailing stop are specifically located where where define that our trend has ended. If we break that rule we could slip into the trap of over-trading. The way we increase trade frequency in this technique is through diversification. We don't try to squeeze the lemon too hard on a single market. I hope this makes sense mate.

C

I could not find parameters of SDC in DTTR in these posts.... Is it 0.5 and 1 SD or 2 SD?

Also what would happen if DTTR will be used on 1h?

I am sorry, I meant that I trade DTT on 30M but look for 4h for trends.

In EDTT we also look for one level higher timeframe for trend as in DTT, no?

I just ran my instruments by correlation matrix and I am unhappy. Most of them are correlated....

I don't know if you are aware, but every podcast has transcript. Isn't it just awesome?

http://www.toptradersunplugged.com/insiders-only/

Yep R...the SDC in the DTTR is variable and has no defined value. We simply plot the SDC to fully encompass adverse historic volatility on D1. It therefore is a moving feast.

EDIT. If you want to apply the principles below on H1 then I would recommend that you commence from D1 as a proxy for W1 before reverting to H1 for trade details. In a nutshell use D1 to define the broader trend conditions and then use H1 to define what is overbought and oversold in terms of the D1 definition. I haven't applied H1 with DTTR yet....but let logic be your guide.

Here is how I go about it.

First we work with W1 to Define Broad Characteristics of price history

Step 1 - Raw price chart on W1
To commence we take a raw price chart on W1 to get the ball rolling. We use W1 (or even MN) to ensure we are using the longest timeframes to capture the prevailing primary trend.




Step 2 - Identify our swing highs and lows on the W1 chart.
There is a bit of subjectivity here (discretion) as there and no clear cut rules in how we do this, but in general we are visually looking for highs and lows to reflect the fractal swings of price history. Interpretation will vary here between traders but the idea is just to capture the broad nature of price movement.



Step 3 - Infill the swing highs/lows with the SDC at say 1.0 width
Here we just apply the SDC between the swing highs and lows to trace the broad features of the swing move. Once this is done we then need to adjust the SDC to encompass adverse volatility (next step).




Step 4 - Adjust SDC's to encompass adverse volatility.
What I mean here is that if we are long, adverse volatility is the extent of adverse price movement short. We are taking special note and defining this line as this will be our crucial trailing stop line that defines when the trend has ended. We therefore ensure that the lower SDC line lies just outside averse price history. We don't worry about beneficial volatility. If price extends above or below the deneficial volatility line then that's ok and we do not adjust further. We therefore simply ensure adverse volatility is contained in our SDC.

This is vice versa for short trends. Adverse volatility on a short trend is the upper SDC line while beneficial volatility is price movement in the short direction.



Before we refine things on D1 at this stage it is really useful having a look at the broad characteristics of price history to see if it makes sense. When you are trading on a lower timeframe it is easy to lose the plot thinking that something is going on when in reality it is just following the trend on a higher timeframe. Using the higher timeframe for analysis is a way to eliminate the noise on the lower timeframe.

For example, have a look at general price characteristics on the W1 chart since 29/7/2012 to current day. There only have been 5 general price trends over the period. Refer to the slope of the SDC for each trend. You can see that in general momentum in trend has been similar for each phase. By visualizing this way you can determine if current momentum is not sustainable or is set about right. This gives you clues you use when you trade on D1. Also have a look at the varying widths of the SDC for each swing phase. Some swings are smooth and orderly with a narrow SDC while others are messy with high volatility and are wide. These clues are used to assess the quality of trend when you are trading on D1. For example I would view current momentum on the current trend as a bit high compared to history and therefore would be looking for an SDC with a lower slope (at least parallel with history) to make me think it was sustainable.

Now it's time to Refine the SDC's on D1 and get ready to trade

Step 5 - Fine Tuning on D1
Drill down to D1 and now it is time to refine the swing highs/lows and SDC's in accordance with the more granular data of D1. This is where we fine tune the swing highs and lows to the D1 timeframe, adjust the SDC's to reflect the amended placements of the swing highs/lows and also adjust the width of the SDC to fully encompass the D1 data. It is important that you pay specific attention to where current price is at on the right hand side of the chart. Note how I have adjusted the SDC settings on the current trend to ensure I have fully encapsulated adverse price movement. Also ensure you have accurately placed your swing high or low on you current trend.



Now that we have fine tuned our visualizations on the price history and have defined our primary trends for the purposes of this technique we are now ready to define zones where price is overbought or oversold in this context. These zones will represent ideal areas to enter the primary trend with good position sizing and the potential for great R:R opportunities.

Step 6 - Define Overbought and Oversold zones on the current trend.
We already have a primary trend defined of 1.0. So now we want to define our 'kill zone' for a sniper entry. All we do is draw another SDC and superimpose it over the primary trend SDC with half the value. For example if the primary SDC is 1.0 width. Then superimpose another SDC of 0.5 width on top of it. It should now look like this. We now have created an SDC array which is split into quarters. Two quarters above the median line and two quarters below the median line. The median line is the linear regression line (line of best fit of the data).

If we have a long primary trend, we want price to clearly retrace into the lowest quartile to reflect an oversold condition where we would like to jump on board the long primary trend with good position sizing. Vice versa for a short primary trend where we are looking for an overbought condition.



Step 7 - Define our Kill Zone
If the trend is long then our kill zone is the lower 1/4 of the SDC array. If our trend is short then our kill zone is the upper 1/4 of the SDC array.
Here is how I label things at this stage. We define our kill zone. This zone is where we lie in wait for price to retrace to before we start to get itchy trigger fingers. Also note how I have defined my pending entry line (an extension of the SDC in green). I also already have a trailing stop defined (an extension of the lowest SDC line. Now remember that I am assuming that we have started using this method now and hence will wait for price to enter back into this zone. You will however notice that it already has popped it's head into this zone recently....so we have missed trading opportunities already.



So now we are set up and we lie in wait. This is why I refer to this technique as setting an ambush for a sniper entry.

Conditions of entry and Initial stop.
Wait until price retraces into kill zone. We wait till we have a new bar that opens in the kill zone. We then need price to start resuming back into the direction of the primary trend and cross the retracement entry line. If this occurs we go long when price crosses the retracement entry line. We define our initial stop where we vertically drop a plumb bob on the entry bar to where it intersects the the trailing stop line. Vice versa for shorts. This is our maximum loss point that we are prepared to accept. Thereafter our stop trails along the trailing stop line as we progressively build our SDC with new price data.

For position sizing I currently use 0.5% of trade risk which uses fixed fractional position sizing (between the entry and the stop placement).

I treat the original order of 0.5% trade risk as two distinct positions of 0.25% trade risk each. The first position is used for profit taking purposes if price extends 3xR. The latter position is used to let profits run and is exited when the trailing stop condition is reached.

If we find that we have a favourable move in momentum where we have already closed half the position in profit.....if price then retraces back into the kill zone, I then load up with another 0.25% trade risk from that point using the current retracement entry line and current trailing stop to define position sizing the the new trade.

I hope this all helps. Once you digest this info then have a look back at the charts I posted yesterday of the DTTR and it might make better sense to you.

Cheers

C

PS Putting it all together, here is my active trade example from the forward test. I entered long on 27/62017 where we had what appears to be a nice trend retracement entry position. This is where we cross our fingers and hope that the game plays out. One day you will catch a super trend with the method....so we just rinse and repeat with this procedure every time.

With EDTT I tend to treat each timeframe separately. Hopefully I can catch a combination of swing moves and trends that are pertinent for each timeframe. By trading 6 separate timeframes, my greed ensures I capture anything of significance that has directional momentum to it :-)

With EDTT1 because I am trading in the direction of the primary trend only we need to define the direction of the primary trend on MN and W1.

With DTT and also DTTR, I use higher timeframes to discern what is going on with the lower timeframe.

C

PS. All these acronyms of the different variants are getting confusing. IHA.....which means I hate acronyms. Sorry if this gets confusing R...but this thread has been going on a long time and it's probably better to have all the same general principles in the same thread as opposed to 4 or 5 separate threads for each variant. I just hope that I have been fairly consistent in my explanations throughout it as the times and techniques have altered since this thread's commencement.

Nice correlation table R. I can hear you mate. I use visualizations of the equity curves generated by each system to give me my info about correlation....but like you I am seeing growing correlations (positive and negative) across all asset classes since the GFC of 2008. Nothing is spared. Looking for low correlation is now like looking for a needle in a haystack.

Your best hope when things get like this are to use system diversification as your best method to employ principles of diversification. At least with system design, you can deliberately address correlation and design blends that produce low correlation. Unfortunately with market and timeframe diversification you are at the mercy of the market....and all assets are building in their correlation relationships at the moment.

This is one of those 'smells' that something is fundamentally wrong with the markets at the moment (this and also the suppressed low volatility of the VIX) is why I think a big snap is imminent. It's quiet.....too quiet.....and the natives are restless.



Put your crash helmet on and buckle up. While we may not know the specifics of the timings, at least if we rigorously follow price with strict risk management applied, then we will likely be the beneficiaries when the &*&^ hits the fan.

Mate....the podcasts have been an invaluable source of info for me. The more I listen to them, the more I grow as a trader. They just demonstrate the variety of different techniques that can be successfully applied to the markets but ram home the principle that diversification is an essential part to sustainable trading. They also provide the necessary background from professionals in the industry to arm your bull **** detector when discerning what is BS or not on this forum.

My personal fav's currently are: Better Systems Trader, Chat with Traders, Top Traders Unplugged and Meb Fabers podcast. These 3 give me more info about the actual techniques as opposed to the philosophy. Meb's podcast and also Anthony Crudele's 'The Futures Radio Show' gives a broad viewpoint across the FM space. I have my good days and bad days with Covel's podcast (due to his aggressive positivism, tireless self promotion, black/white verdicts and defence of trend following at all costs....but he does get v. interesting people on his podcasts (eg. Kahneman) and can be humorous), Cam Hawkins '52 Traders' (which can get frustratingly annoying with Cam's interview techniques) and Etienne Crete's 'Desire to Trade' (which I find can at times can lack consistent logic).

Mike Mellissino's 'Trend Trading Podcast' is another new kid on the block for me which is right down my alley.

The problem however lies in having the time to listen to them all. If you have a long drive to and from your primary work....then that helps :-)

What To Do If You Are Making Too Much Money! | with Mike Harris

Campbell and Company have had a long term track record but to be honest, performance has been struggling since May 2007 (refer to performance below).....but they do have a powerhouse of good researchers . It is worthwhile having a listen to this.



Enjoy

C

Andrea Unger - I love this guy. A magnificent educator :-). 4 times winner of Futures World Cup Trading Championships:

2008: 672% return
2009: 115% return
2010: 240% return
2012: 82% return

Note: Andrea admits that for the purposes of the championship, his style was purposely aggressive.

The video's below describe his journey deep into portfolio diversification.

Video 1:
https://ps.ungeracademy.com/ps-launc...65%40gmail.com

Video 2:
https://ps.ungeracademy.com/portfoli...65%40gmail.com

Video 3:
https://ps.ungeracademy.com/titan?em...65%40gmail.com

Video 3 has a very interesting flow chart used to identify how to select optimal strategies for the portfolio that offer excellent current performance metrics. To understand this, listen to Video 3.

Thank you for the explanation. Only missing puzzle piece was the value of SDC in DTTR.

I see, that means I am doing DTT, because I am looking at 4h for trend direction to trade on M30.

If EDTT is not taking into account any other timeframe then it simplify things.

We have only 4 acronyms. I will start to worry at 15.