Diversified Trend Trading Approach

EDTT - Preliminary Results of Medium Range Tests - Discretionary Systems

.......continued from post 1992

Tonight I took a trip to Norway with the USDNOK. I was eagerly anticipating the results because I love Grieg and the fjords and thought....let this currency pair bring a bit of natural beauty to the portfolio.



How wrong was I. The result tasted somewhat like their national delicacy, Farikal......yuccccck!!!!!

Not so surprising when you look at the longer term price chart. Unfortunately the good times...... when momentum reigned supreme......coincided with the good times of the broader portfolio so this time around we took a slight hit with the performance metrics. Well.....you can't win them all......and the results still are obscene.....so all is still well.

The good bit however was that the losses were strictly contained during the bad bits and we managed to keep our heads above water.




Annual Results



Summary



Portfolio Composition Return Profiles



Stay tuned...... :-)

11 instruments down now only 13 to go.


C

Price action took me out on both long trade. I would know look out for breakouts following Copernicus' s diagram.

Is this overtrading on CHFJPY?

Damn. Don't you hate the way it sniffs your weakness out. It also happens lot's when you set your pending orders wide..... but when you get it right.....with the surge of a tsunami behind you......that's when you go for a great fast surf on a longboard. :-)

I would wait R to get a head of steam behind you....but it sure is tempting with that prior H&S price formation . I try to not focus on TA price formations alone as a predictive measure but simply use a prior major swing high/low as a method to assess extreme stretch with a historic road map of momentum to guide me using the SDC.

DTTR got me into gold on H2 and long EUR and then North Korea happened.... now I have 0.25 SDC to not leave profits on the table.... 5R achieved.

Kaboom!!!!!!!

Great stuff R :-)

A wind up for the weekend...blessed be the end of a work week :-)

EDTT - Preliminary Results of Medium Range Tests - Discretionary Systems

.......continued from post 2001

Since our last portfolio update I have added two more liquid instruments to the blend. It's time to go to the land down-under with the addition of our little Aussie equity index (the ASX200) and also the forex pair AUDJPY. A moments silence please as we bow our heads....to avoid the blow fly's and turn up the gas to cook the prawns on the barbie.




In typical Aussie tradition these were hard nuts to crack....but given our penchant for setting our pending orders well away from the noise, we did not compromise the performance returns of our portfolio during the tough times and were able to take advantage of a few rare golden moments of raw momentum in action.

Now at this point in time it is worthwhile bringing up a point that some readers might make at this point in time........why trade these instruments if they are poor performers?

Well in a nutshell we simply cannot predict for any liquid instrument, when conditions are right and will hold while trading them. The assumptions we make in regards to assessing whether conditions are favorable or not are always made from a position of hindsight. On the right hand side of the chart you simply cannot assess with confidence whether market conditions are favorable or unfavorable at the decision point of entry, particularly when conditions become extreme. For example to reach our pending orders to trigger an entry, price action already needs to be 'unusual' in nature as we simply avoid the daily churn. If price action to the point of entry has been exhibiting all the characteristics of good steady momentum along it's path, then we simply must assume that any touch of our pending orders is a valid entry.

Unless we can find some extraordinary market regime filter that I haven't heard about that is applicable to our strategy and stands the test of statistical scrutiny.....then we simply don't bother making an assessment of whether market conditions are or are not favorable for a trade entry. Let others tell you that a suitable market regime filter exists ....and then try them out yourself to see if it works. I have tried many....and they are a bit like finding a pink unicorn. They inevitably are very lagging in nature and that defeats the whole purpose of attempting to trade the fat tails that are by definition unpredictable in nature.

In terms of the philosophy we apply to this technique ......."All liquid instruments have their time in the sun in terms of momentum (eg crisis alpha) at various unpredictable points in time"......our entire philosophy rests on an assumption that the momentum we are looking for is a result of participant behaviour during those rare events of stress or euphoria. We are not hunting for any standard form of momentum that may exist in the noise of everyday price action.....we are hunting for 'extreme' momentum. Our trade frequency is very low as we simply avoid the noise of the regular market churn. Have a read of this article and focus on the term 'absolute momentum'. That is what we are hunting for with this technique. A specific form of momentum that arises from participant 'crowd' behaviour but cannot be predicted. If we diversify wide enough their are greater chances of catching this rare event.

For example, look at the market conditions of both the ASX200 and AUDJPY over the timeframes we deployed our backtests. I have highlighted to favourable and unfavourable market conditions.

First the ASX200 (or the SPI200 proxy).
We had a single good period of market conditions inter-dispersed with 2 difficult periods where we were snagged a few times and one flat period where we went no-where. Given our technique, when we get snagged once we reset our pending orders further away from the sideways congestion to avoid perpetual whipsaws. This works well and the chart below might demonstrate why.



Now let's have a look at AUDJPY over the back-test period.
In a similar manner, we had one good performance period where we could capitalise on some good unidirectional momentum surrounded by difficult times of frequent whipsaws.



Despite these less than optimal market conditions for both instruments we still contributed positive equity to the portfolio. Now look what we miss in the longer term if we decide to not include these liquid instruments in the portfolio.

ASX200 - Longer term market conditions.
Just look at those great market conditions immediately prior to the back-test commencing. If we excluded this instrument from the portfolio we could miss something huge in the future. We simply cannot predict when market conditions are going to be good or bad....so don't bother doing it. WE can still survive admirably in tough market conditions with our technique, so let the market decide what it gives us.



AUDJPY - Longer Term
Just to demonstrate this is not luck....here is a longer term chart of the AUDJPY



Once again you can see the fantastic market conditions that we missed in our back-test.

The moral of this story is avoid any potential hindsight decision that is simply not based on sound verifiable evidence. Pick up any chart of any liquid instrument and have a look at market conditions over the longer term market cycles and you will see what I mean. The rarities are the exceptions to this rule. The majority of liquid instruments in mature markets exhibit significant market variation over the longer term.....there are extended periods of whipsaws and sideways congestion inter-dispersed with some great periods of trending conditions. The technique we deploy specifically avoids sideways congestion and is particularly selective on when we pull that trigger.

......anyway without any further ado....the results of the portfolio blend to date.


Annual Results



Summary


Notice how we are still producing a CAGR of approximately 60% and keeping our max drawdown to low levels (currently 12.6%) using our position sizing multiplier that is now trending towards more realistic prudent levels.

We are still travelling exceptionally well in our tests as we build our diversification and increase our sample size. Have a close look at the significant variability in the frequency of trades per instrument. The reason for this variability is that if momentum is absent in market conditions, our trade frequency naturally significant drops off in response to our application of very wide pending entries that avoid the churn of efficient markets.

I need to stress this again and again because there is a huge tendency to over-trade with the squishy grey stuff in our skull tempting us at any opportunity to pull that trigger.

Portfolio Composition Return Profiles



Stay tuned...... :-)

13 instruments down now only 11 to go.


C

Less is more

USD CAD

Spot on R. Less is definitely more in regards to this breakout technique.

USD TRY profit mode phase 2 (.25 of SDC)

Poor NFP helped

Food for thought...

https://pensionpartners.com/put-thes...ampaign=buffer

Those charts are definitively going up on the wall. Pension Partners write a good article. Thanks for this T :-)

EDTT - Preliminary Results of Medium Range Tests - Discretionary Systems

.......continued from post 2009

Sticking to the Aussie tune today we added AUDCAD to the portfolio blend. Nothing like a bit of Maple Syrup with Roasted Koala :-)



Once again....this was a tough beast to ride given the sideways churn with little blue sky opportunity offering significant momentum rides....but again.....this has not always been the case as you can clearly see in the long term chart below. We just have had tough conditions post 2010 and simply do not know if and when conditions will revert to favourable momentum opportunities.



Despite the tough conditions, the EDTT coped admirably by managing to keep our heads above water and not significantly contributing to portfolio heat.

I have shown the before and after impact of the addition of AUDCAD in the annual summary below. There was no material change to the performance metrics of the portfolio apart from increasing trade frequency which is a good thing considering that a larger sample size is always more preferable to a smaller one.

What you will be noticing now is that the marginal benefit of increasing the size of the portfolio is minimal in terms of performance metrics....but what is critical is that these performance metrics stay relatively constant no matter what additional instruments we include in the mix. This is extremely important with respect to curve fitting. For example I could have simply selected the good historic performers for my investment universe and thereby would have contributed to a result symptomatic of selection bias. What we are therefore focussing on now are two critical things:
1. Testing the portfolio for selection bias; and
2. Progressively reducing our multiplier to reduce overall drawdown to levels attractive to investors without significantly compromising portfolio returns.

Here are the results so far.

Annual Results


Summary


Portfolio Composition Return Profiles



Stay tuned...... :-)

14 instruments down now only 10 to go.


C

July Results for the Long Term Trend Following Fund Managers



July provides a glimmer of hope to the trend following community that perhaps....just perhaps....trend following is not dead. Who would have thunk it :-)

Volatility was sufficient to offer a small (put your magnifying glasses on and look at the chart below for a small uptick in the equity curve) but appreciated respite to the otherwise ugly trading conditions since Jan 2015 of mean reversion....mean reversion....mean reversion and more mean reversion.

Below are the results for the Trend Following Index that represents the equal weighted compiled returns of 54 Trend Following funds that have been in operation since 1 January 2000.



As a class of trading style, the diversified trend followers are testing their all-time high drawdowns of about 15% and the smell of investor frustration is starting to take it's toll.

How many times must I say this Mr Grinch.....you need to be patient!!!!

Attached Image

Here are the results of the Top 10 in terms of Raw CAGR.

Top 10 - Raw CAGR
A CAGR of 14.92% with a Max Drawdown of 19.69%.......or a MAR ratio (CAGR/Drawdown) of 0.77.






The top 3 in this category are as follows:







.....to be continued.......

July 2017 Results con't

Here are the results of the top 10 in terms of risk adjusted return (using the MAR ratio). Don't you just love that white line. These guys are the creme de la creme of the professional community who investors just love. All gain with little pain. This is who we want to grow up and be like when we can get these trainer wheels off.





....and the top 3 in terms of MAR for the entire 17 year plus period is......*drum roll please*.....and pay homage to these masters of the universe.










Well that's it for this month's roundup. A summary of the big guys in action......but heh....I believe the returns that are posted on this forum. Unfortunately these pro's can't compete with the resources at our disposal..../tic.

Cheers

C



PS Here is a spoiler of what we may be in store for for August 2017. *Copernicus sings*....there'll be blue birds over the white cliffs of Dover :-)

EDTT - Preliminary Results of Medium Range Tests - Discretionary Systems

.......continued from post 2016

We are about to leave the land of the gum trees as we look for additional liquid instruments for inclusion in the portfolio but not without the last word from EURAUD. We luv ya Europe.....oy, oy oy..what with your wines, cheeses and friggin' Edelweiss.



Thanks to EURAUD we managed to slice off more drawdown and improve our CAGR.

Market Conditions



Annual Results



Summary




Portfolio Composition Return Profiles




Stay tuned...... :-)

15 instruments down now only 9 to go.


C

Most liquid pairs, where more robots and eyes will spot trends.



from

http://www.bis.org/publ/rpfx16fx.pdf

page 11