Diversified Trend Trading Approach

Gulp....I think I am guilty of some of that in there. I need a detox :-)

I was aghast when I heard that but nothing is certain in this world I suppose....but my gut tells me that trend following still breathes but we just need to more patient than ever. Investors on the other hand would not be so patient. This must put huge pressure on the CTA's at the moment. But the flipside of participants leaving this style of trading is that it increases the future potential spoils if the trend persists....so sad to see them leave.....sort of :-)

There has been so much central bank intervention since the GFC coupled with a gargantuan increase in monetary supply and an exponential rise of new participants in the market in the form of bots that it is impossible to think that market conditions have not fundamentally changed from the past with new emergent features and increased complexity.

Taleb makes an interesting and thought provoking comment in relation to this. He suggests that as markets evolve towards increased complexity, they become more stable given their self-regulating nature. Risk however is still carried by the market and it cannot be arbitraged away. Risk therefore commensurately increases in the form of intrinsic risk which is dispersed throughout the financial system.

It was easier to identify where risk was lurking during the GFC as its major resting spot was fairly restricted to sub-prime mortages and derivatives, however in the current environment, the fundamental risk associated with too much leverage in the economy (debt) is still lying in the system....however it has been spread far wider and this recent emergence of more correlated assets across the board might be a symptom of this. Given that this risk has potentially spread wider it may take more time to build to the point of brittle failure and this brittle failure may not be a sequence of building events evidenced by a progressive decline like the GFC over a few years but a snap like 1987.

While markets become more 'quasi-stable' they commensurately become more prone to catastrophic risk. These catastrophic events may become less frequent because of this self-regulating feature of complex systems but their impact is typically more devastating when it occurs to this 'quasi-steady-state'.

My intuition tells me he is right. I look at our civilisation now and think, it appears so much more stable than it did in the past, however lurking within that civilization is a catastrophic failure element waiting to happen....such as an electromagnetic pulse or a sunburst that renders our digital technology worthless, a magnetic pole flip, or a sudden release of the atmosphere from a gravitational anomaly nearby etc etc etc.. You can never protect yourself from all risks..... as that is what a risk event is....the likelihood and consequence of an adverse event. You can mitigate against known risks, but there will always be risks we don't see coming.

All we need is for something to trigger mass coordinated participant behaviour and trends will once again arise like the good ol' days. There is nothing more compelling to trigger instinctive fight or flight behavior than catastrophic risk. If a tsunami is coming, I have a good idea which direction the crowd will run. We just need the boat to take us out to sea when we watch this event happen.

OMG talking about rubber bands snapping that song is bouncing around my head again!!!!!!!! :-)

Interesting read for trading robots,
"The trick to learning when to cut your losses".



Happy diversifying guys ;-)
LuXing

Thanks Lux. Nice article

That is the last time I walk to the shop on a Sunday to buy my milk when it is closed. I am going to buy a milk vending machine (aka a cow). :-)

Eeeeek. Sorry about the delete to the last post....but it was endorsing a commercial product which is a no_no of us non-commercial members.

Not bad. Getting a galaxy named after you. We are in the wrong game I tells ya :-)

Knowledge vs. Skill

“Only the disciplined ones in life are free. If you are undisciplined, you are a slave to your moods and your passions.” – Eliud Kipchoge
This week Eliud Kipchoge of Kenya shattered the world record in the marathon by one minute and 18 seconds with a time of 2:01:39. This equates to an unfathomable average mile of 4 minutes, 38 seconds over 26 straight miles. He broke the record by a wider margin than any man in over 40 years.
In 1908 Johnny Hayes won the gold medal at the Olympics in London in the marathon with a time of 2 hours, 55 minutes and 18 seconds. At the time it was known as “the greatest race of the century.” That time today would barely offer breathing room to qualify for the Boston Marathon.
In the 1920s and 1930s there was a Finnish runner by the name of Paavo Nurmi who set all kinds of world records (22 to be exact) in a variety of distance runs. None of his competitors could come close to matching his times for a number of years. Although he was talented, his competitors would eventually figure out it was his training that set him apart. Nurmi would pace himself using a stopwatch, use interval training to build his speed, and train year-round.
These methods may seem obvious today but they were groundbreaking at the time. Once everyone else adopted them it lifted the competition and leveled the playing field, bringing down everyone’s times in the process.
In the past, knowledge offered many this type first mover advantage. Technology has leveled that playing field in many ways.
Almost everyone has the sum total of human knowledge in their handheld pocket supercomputer these days. It’s skill that now makes the biggest difference but even talent alone can only take you so far in life. Once a person reaches a certain level of performance, even additional years of practice won’t help them improve if they don’t approach it the right way. Going through the motions doesn’t improve your skills because you’re never pushed outside of your comfort zone.
Research on doctors shows that even those who have been in practice for 20 or 30 years do worse on objective measures of performance than doctors who are just 2 or 3 years out of med school. Harvard Medical School published a study in 2005 on 62 different individual research reports on the standard of care provided by doctors and how it changes over time. Almost three-quarters of the studies found a doctor’s quality of care declines over time. Older doctors knew less and performed worse in terms of providing care than those who had fewer years of experience. Just 2 of the 62 studies found doctors got better with more years of service.
The assumption that med school, reading medical journals, and attending seminars when combined with years of experience should be enough to improve their skills doesn’t seem to hold for many doctors.1
The problem, as outlined by Anders Ericcson in his excellent book Peak: Secrets from the New Science of Expertise by Anders Ericsson, is the difference between knowledge and skills:
This distinction between knowledge and skills lies at the heart of the difference between traditional paths toward expertise and the deliberate-practice approach. Traditionally, the focus is nearly always on knowledge. Even when the ultimate outcome is being able to do something—solve a particular type of math problem, say, or write a good essay—the traditional approach has been to provide information about the right way to proceed and then mostly rely on the student to apply that knowledge. Deliberate practice, by contrast, focuses solely on performance and how to improve it.
When you look at how people are trained in the professional and business worlds, you find a tendency to focus on knowledge at the expense of skills. The main reasons are tradition and convenience: it is much easier to present knowledge to a large group of people than it is to set up conditions under which individuals can develop skills through practice.
Knowledge is table stakes.
Mindless repetition isn’t going to improve your results.
Developing useful skills requires going outside of your comfort zone and determining a clear plan of attack for getting better.
*******
It’s easy to chalk up most people’s performance in life to their innate God-given abilities but talent can only take you so far.
Ray Allen is arguably one of the greatest shooters in NBA history. He had one of the smoothest deliveries I’ve ever seen but it wasn’t always like that. After scouting him in high school UCONN coach Jim Calhoun (who Allen would go on to play for) said, “That’s the flattest jump shot I’ve ever seen.”
Allen dispelled the rumor that he was born with the gift of a shooting touch in an interview with Jackie MacMullan a number of years ago:
“I’ve argued this with a lot of people in my life,” Allen said. “When people say God blessed me with a beautiful jump shot, it really pisses me off. I tell those people, ‘Don’t undermine the work I’ve put in every day.’ Not some days. Every day. Ask anyone who has been on a team with me who shoots the most. Go back to Seattle and Milwaukee, and ask them. The answer is me — not because it’s a competition but because that’s how I prepare.”
It’s hard to envision all the work that leads up to it when you only see the finished product.
*******
The New York Times did a profile of Kipchoge last Saturday that proposed he could capture the world record in Berlin on Sunday (nice call). Kipchoge shared that since he became serious about the sport he’s recorded every single workout he’s ever done in a notebook. He’s now up to 15 notebooks, one for each year he’s been doing it. That’s deliberate practice.
And even if you’re never going to set a world record, it’s worth understanding that even the best at what they do must work extremely hard to see improvements.
Source:
Peak: Secrets from the New Science of Expertise by Anders Ericsson

Nice. Just like Web 2.0, Cow 2.0.

Here's a bit of Vibe 2.0 ;-)



LuXing

Have a fun week ahead :-)

The incredible inventions of intuitive AI | Maurice Conti

Fascinating stuff CB. A peek into augmentation and where we are headed :-)

I think that 'scaling back' and 'bailing out' are significantly different. I don't know how anyone could look at a chart of the SP500/NDX/WS30 and think that trends are dead.

Sometimes a picture speaks a thousand words.

Attached Image

Convergent market rhythm around a single 'stationary' mean which is predictive in behaviour versus divergent behaviour of "relative non-stationary' means that leads to non-predictive behaviour.

Just watching that can be as mesmerising as the market. ;-)

The overall movement of the parts is technically the chaos theory, but if you slow it way down and are able to track those movements over a shorter period, you can see they move in very deliberate, trackable patterns. In that way, they are like the market, in that a small trend down in a shorter timeframe cannot 'resist' the pullback to an upward trend movement in the larger TF (or the bigger arm).

So someone could try to map the expectation of those two arms, in detail, over the course of a few rotations and fail.

But someone attempting to follow the end of the 2nd arm over a short period could do fairly well...as long as it doesn't approach a re-tracing/pullback due to the first arm. In the market equivalent of that type of movement, that's where you can make your money.