Diversified Trend Trading Approach

Hey C,

Did you listen to this Meb Faber podcast?

http://mebfaber.com/2016/08/17/episo...nt-world-envy/

Methodology of inverting not working strategies might be interesting to you... Mr. Eric did it with success and it happened to be trend following...

Also example of bombers of World War II and solving problems philosophy is quite intriguing.

And a lot of valuable insights.

Gold and USD SEK on DTTR caught the Draghi moves very nicely:

I've just loaded it up and will listen to it on my long drive to work this morning. Ta muchly Mr R :-)

Wow mate. That's a great podcast. I will add this to my 'Food for Thought' posts as it is worth multiple listens.

What I love about some of these informing podcasts is how you can observe the powers of critical thinking being applied. It is the inversion of our thinking processes as you suggest that can often break down the cognitive biases that we all have.

Trend following will never die provided that the majority make their decisions from their intuition and innate biases. What makes trend following successful is that it flies in the face of human thinking and is fundamentally hard to apply in the long term (when other systems are performing well and when you have prolonged drawdown periods)....and thereby enjoys a less competitive marketplace that is unlikely to be arbitraged away. Of course the bots and systematic trading applied by the trend following community that is slowly eating away the market share...however provided we humans are the ultimate designers of the bots....the alpha will undoubtedly persist for some time yet.

I loved that discussion on the insights taken from WW11 bomber damage.......it just goes to show how careful we need to be in considering survivorship bias. It also shows that we can't restrict our thinking to the markets alone as so many great insights can be drawn from other disciplines and broader philosophies. Trend following is more than just an application applied to the markets. It has far wider application to a range of complex systems.

....anyway.....back to the daily grind. :-) C

Let's Go Surfing Now....



Below are the weekly updated performance stats of the EDTT which is representative of the broader breakout techniques discussed in this thread. This week we have been hanging ten on some great volatility.

Base Model ("The once bitten twice shy version")
Below are the performance stats of the base model upon which we scale up or down to our liking using position sizing multipliers.




Unrealised Trades - Base Model



Modest Scaling of Base Model ("I am a confident bastard version") - 2 x position sizing



Aggressive Scaling of Base Model ("I am a confident bastard with a death wish version") - 4 x position sizing


Best Closed Trade of the Week - Thank you AUDUSD


What's Currently Trending well with these Models?








Aveagreatweekend C :-)

C

Thank you AUD USD indeed and USD NOK and USD CAD.
Risking 0.5% on each. Latter 2 still in play.

Great stuff R. I hope all is well mate.......it's Friday evening and I am now kicking back. I am really liking that trend following podcast you introduced me to. So far after 6 episodes my head has been nodding off my shoulders. :-)

Food for Thought

Attached Image

 

1. The Unsung Heroes of Investing
2. Your brain hallucinates your conscious reality
3. Why Commodity Traders are Heading to the Trading Houses
4. Where are the Dips?
5. What is the Future of Algorithmic Trading?
6. Best Trading Platform, as Voted by Readers - Kevin Davey
7. A Critical Behavioural Economics & Behavioural Science Reading List
8. The Importance of Being Scared: Polish Nobel Laureate Wisława Szymborska on Fairy Tales and the Necessity of Fear
9. Indicators that Adapt to Changing Market Conditions
10. Its Not Greed And Fear That Drives The Investment World; Its Envy - Thanks to Ramadas for this :-)
11. Trading the Trend Podcast - A new kid on the podcast block (once again thanks R)
12. Quant Hysterics with Michael Covel
13. The Dark Side of Jesse Livermore
14. Hedge Fund Uses Algae to Reap 21% Return

Enjoy

C

Hey C,

Did you run Kelly formula on your 2.5 years of data to see the optimal R?

Did you read this book?

http://www.vantharp.com/products/def...ion-sizing.asp

Morning R

Yep that Definitive Guide is a beauty...but you need a good holiday or two to get through it all. :-)

I haven't run the Kelly formula or Ralph Vince's Optimal f over the data set for a few reasons.

1. Laziness.
2. If I was seeking to max out my performance with limited capital and not trading a portfolio....then it would be worthwhile considering some diluted version of these methods. At full tilt these position sizing methods will have you developing a neat ulcer despite their mathematical power. If you were planning to enter the World Cup Trading championships....then Optimal f is your baby.
3. Because I practice the shady art of portfolio magic and demand that my strategies are applied to any liquid market for robustness testing, I need a volatility adjusted standardised position sizing system used across the board. It was Tom Basso (I think) that put me onto Volatility Adjusted Fixed Fractional Position Sizing as the easiest and most effective method for managing risk across the portfolio....and I have stuck with it ever since. It is easy to then use your history (as I do in my recent posts of EDTT) to run different scaled up versions of position sizing to determine where your drawdown tolerance lies.

R...when we use our SDC you will notice that the width of the SDC alters with respect top volatility. This acts like an ATR adjustor to place our trailing stop at positions that takes into account the volatility of the data history. When things get chaotic the SDC widens and when volatility dries up, it thins. This is one of the very powerful features of the SDC which I actually prefer to other methods of volatility adjusted position sizing method.

If trading with significant capital, I firstly place my emphasis on risk management before looking at ways to juice up returns.

If you happen to do any testing using the Kelly Criterion or Optimal f......then please share as it is something I probably should be checking out.

PS Ralph Vince has appeared on FF before.....it's good to know that the gods occasionally pop in from time to time. He might even give our resident quant gurus like PipMeUp and FXEZ a run for their mathematical money and keep them honest/tic :-)

Some Resources on the Topic:
1. On Position sizing
2. Optimal Bet Sizing
3. Interview with Tom Basso
4. A huge compilation from Tom Basso if you have time

Hasta La Vista AUDJPY......It was nice knowing you :-(



Don't you just hate the way the market sniffs you out. Look at the way price has teased me on the exit......and we wonder why we start thinking that the market can read your mind!!!!!!

Here is another recent example of price playing with your emotions. Notice how it is teasing me by following my trailing stop immediately after exit.



The number one lesson with this is simply follow your rules and avoid the tendency for superstition. You testing concludes that you appear to have an edge so don't let the mind play games with you.....*easier said than done I know* :-)

Well, here is my remark .....


Jaco ... last of the WR knights ...

That takes me back BN Weather Report and Spyro Gyra had me tapping my feet when I had a head full of hair.....and then came Benson and Grover Washington et al.

OMG .... still have couple of their records (SG).....
the other ones I loved ....
have nice weekend!

Luvin' it BN. You are cranking them out today. It's time to raise the heat. :-)

Chick Corea obviously was a Trend Trader.

The power of Improvisation - Patterns and Variations of Patterns in the now :-)

Brilliant stuff ... first time can hear them (Snarky Puppy), must spend more time with them, definitely....
and now akuna maru ....

hope you like it ....

Phew....That steamed up my glasses. Nice stuff mate. It's time for me to have a cold shower now

So much talent today with very little recognition thanks to the suffocating power of marketing.

There are so many talented people , probably we will never hear about them... what a pity/waste ...