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Diversified Trend Trading Approach

  • #341
  • Mar 19, 2015 1:10am Mar 19, 2015 1:10am
Quoting j4d
Hey C.. Thanks for the trend following summation.. It will be interesting to see how large the fall-out is from the FOMC..
Hi Ja

Yep, the FOMC was a real test. I reckon Erebus summed it up most succinctly here. :-)

C
  • #342
  • Mar 20, 2015 1:10am Mar 20, 2015 1:10am
IS IT TIME FOR A RECAP?

Guys. I have been thinking that it might be time for a recap to get everyone up to speed if you are interested in this approach. The format this recap would take would be a lengthy series of posts that discusses a single instrument and how to trade this instrument from the information that has been progressively gathered in this thread. Following that we can then discuss the technique of managing a large portfolio of instruments.

It is a bit of a verbose read from Post 1 to now, so we can consolidate and summarise the technique to perhaps make it easier to understand this approach and in particular the rationale for the why's and why not's that you might be asking yourselves at this point in time.

Let me know if this interests you and I would kindly ask that you ask questions along the way to keep this lively. Hopefully at the end of this you will then be able to test the approach yourselves. I can only demonstrate what I do and that amounts to nought in the scheme of things........The challenge lies in you applying this and 'owning it'.

I know that I use ProRealTime as a platform but MT4 works as well so don't let the choice of platform deter you.

Let me know if this would be a worthwhile exercise. If not I will continue on with my idle chit chat in the format that this thread currently takes. If yes, then I have the weekend ahead to get deep down and dirty with this technique.

Regards

C
  • #343
  • Mar 20, 2015 1:38am Mar 20, 2015 1:38am
Quoting Copernicus
IS IT TIME FOR A RECAP? Let me know if this interests you ~~ Regards C
Yes.
Good Trading
  • #344
  • Mar 20, 2015 1:53am Mar 20, 2015 1:53am
Quoting aud
{quote} Yes.
Thanks Aud. Bear with me for a bit and I will wait to see who else is interested. Will probably start tomorrow if that's Ok and step through step by step without rushing it. :-)

C
  • #345
  • Mar 20, 2015 3:21am Mar 20, 2015 3:21am
I have designed and already profitably use a low time frame system (M15).
I would really like to go through the thought proccess of a profitable trader like yourself on higher time frames like D1
which I would like to implement sometime in the future.
Enter Signature
  • #346
  • Edited 4:13am Mar 20, 2015 3:56am | Edited 4:13am
Quoting thomasK
I have designed and already profitably use a low time frame system (M15). I would really like to go through the thought proccess of a profitable trader like yourself on higher time frames like D1 which I would like to implement sometime in the future.
Hi thomasK. More than happy to help you but could you just be a bit patient. I need over the next week or so to focus on my approach in ensuring that interested participants are on the same page with this technique. As you know, some of us have difficulty multi-tasking and when discussing various approaches it does tend to contaminate the thought processes.

After the recap however we could either go over your approach on this thread, a thread of yours or via PM (and then via email). Whatever suits you. :-)

PS. Thanks for the vote of confidence but be aware that I am forward testing these various approaches of mine at the moment attempting to play the real game with time on screen. Given my roller-coaster 'real-life' track record in other systems, I have learnt a thing or two about patience and now am VERY patient in ensuring the approach finally taken is a valid and sustainable one.

Of course once the approach is chosen by empirical statistical testing then I will be on Demo for at least 6 months before ultimately going live. This is my final hoorrah with trading given I have had a lifetime at it, so I want to ensure that this approach is sustainable as this will be my early retirement plan. I welcome others to become familiar with this technique as this will be my legacy to the community and of course my family and friends.....and I am not concerned about others using the IP. The reason most traders fail is attributed to their mindset. If you earnestly wish to succeed in this industry, like any other, you have to be prepared to work for it......and that is where most fall off the rails.

There could be a pot of gold out there with a number of great systems....but unfortunately only a very few will be able to see the wood for the trees. The mindset needed to see that 'wood' is a mindset with experience in the field who understands the realities of trading for a living and has experienced the trauma and tribulations that this market can deliver. If I can get just a few traders of the required calibre and 'attitude' to trade this approach with me, then the learning bit is the easy part and it is going to make my life easier as this approach requires 24/5 attention...but if necessary, if the skill sets aren't there, I will go it alone (or with at least a few capable traders who are prepared to go with me on this). Sleep is for pussies...and something to do when you are dead /tic

PPS This time I won't be trading other people's money. All participants, if they 'cut the mustard' strictly will be trading their own money and overseeing others via a PAM account....but this is where training, oversight, trust and personal responsibility is essential.....as unfortunately I have yet to see a successful EA developed for this technique.

Of course anyone can go solo of course or develop their own teams with this.......each to their own.

Take care and let me know after the recap if you still want assistance.

C
  • #347
  • Mar 20, 2015 4:46am Mar 20, 2015 4:46am
Copernicus, thanks for sharing with us. 1 point im not understanding is, why the need to re-draw the SDC on each different timeframe? For example, why cant I use the Daily SDC on my H1 chart, since both has the same lower low (for uptrend)?

Can you show a step-by-step example of drawing SDC on the lower timeframes please?
  • #348
  • Mar 20, 2015 5:04am Mar 20, 2015 5:04am
Quoting Copernicus
IS IT TIME FOR A RECAP? Guys. I have been thinking that it might be time for a recap to get everyone up to speed if you are interested in this approach. The format this recap would take would be a lengthy series of posts that discusses a single instrument and how to trade this instrument from the information that has been progressively gathered in this thread. Following that we can then discuss the technique of managing a large portfolio of instruments. It is a bit of a verbose read from Post 1 to now, so we can consolidate and summarise the technique...
Sorry, just saw this. I have read the whole thread though. YES please
  • #349
  • Mar 20, 2015 5:10am Mar 20, 2015 5:10am
Quoting genie
{quote} Sorry, just saw this. I have read the whole thread though. YES please
Thanks genie. Looking forward to it :-) Things have changed quite a bit from the original DTT technique and we can get right up to speed. I will commence tomorrow and look forward to your participation.

C
  • #350
  • Mar 20, 2015 5:21am Mar 20, 2015 5:21am
Quoting Copernicus
{quote} Thanks genie. Looking forward to it :-) Things have changed quite a bit from the original DTT technique and we can get right up to speed. I will commence tomorrow and look forward to your participation. C
Really looking forward to it
  • #351
  • Edited 9:55am Mar 20, 2015 9:44am | Edited 9:55am
Quoting Copernicus
Summarised Extracts from "Two Centuries of Trend Following" by Y. Lemprire, C. Deremble, P. Seager, M. Potters, J. P. Bouchaud Capital Fund Management, 23 rue de lUniversit, 75007 Paris, France - 15 April 2014 We establish the existence of anomalous excess returns based on trend following strategies across four asset classes (commodities, currencies, stock indices, bonds) and over very long time scales. We use for our studies both futures time series, that exist since 1960, and spot time series that allow us to go back to 1800 on commodities and...
Great article and good summary. Now that I am an expert on psychology after reading a few posts on it, LOL, it is interesting to see what parts you focused on and then the bits you highlighted in bold. Validation bias perhaps! I found section 4.4 of most interest. How something that has existed basically since data has been collected in a meaningful way in all the markets analysed can then be described as an statistically significant anomaly to me is an anomaly or oxymoron in itself.

Are markets efficient? Maybe the question should be instead are they really that inefficient. People tend to think that markets move from one equilibrium level to another equilibrium level. Fact is they are always tending towards equilibrium but never really get there. Never. It is a journey rather than a destination. Markets only really achieve an actual state of equilibrium when they are closed. Otherwise the journey is the price mechanism at work battling away trying to constantly balance opposing forces. Adam Smith called this the invisible hand. It is very visible to us now as the market progresses tick by tick. There is always price movement or trends and as this study shows always has been. Trends exist across all time frames. Section 4.4 provides a contemporary rationalisation of why trends occur. It is all very nice and logical. On one hand it is about imperfect information and then on the other we have too much information.
Audentes Fortuna Juvat
  • #352
  • Mar 20, 2015 9:45am Mar 20, 2015 9:45am
Hi Copernicus

I came across your thread a couple of days ago and have just finished reading it. A very interesting approach to trend trading and a lot to absorb. I also would look forward to a recap and appreciate the enormous amount of work you are putting into this. I particularly like your method of defining the trend. For me the more objective/mechanical the better.
  • #353
  • Mar 20, 2015 10:00am Mar 20, 2015 10:00am
Quoting Nijee
Great article and good summary. Now that I am an expert on psychology after reading a few posts on it, LOL, it is interesting to see what parts you focused on and then the bits you highlighted in bold. Validation bias perhaps! I found section 4.4 of most interest. How something that has existed basically since data has been collected in a meaningful way in all the markets analysed can then be described as an statistically significant anomaly to me is an anomaly or oxymoron in itself.
Validation bias.....heh....I resemble that remark. I think you hit the nail on the head as my focus did stray to those areas that appealed to me and my technique. Maybe I should have a session on the couch with you Doc :-)

Regarding their use of the term anomaly, it also struck me as an oxymoron. Maybe they were just being nice to the efficient market crowd.....it was a pretty b-oody persistent anomaly LOL.

Quoting Nijee
Are markets efficient? Maybe the question should be instead are they really that inefficient. People tend to think that markets move from one equilibrium level to another equilibrium level. Fact is they are always tending towards equilibrium but never really get there. Never. It is a journey rather than a destination. Markets only really achieve an actual state of equilibrium when they are closed. Otherwise the journey is the price mechanism at work battling away trying to constantly balance opposing forces. Adam Smith called this the invisible...
Nice take on things and I agree. The eternal movement towards fair value with overshoots and undershoots that in reality is never actually achieved as a notion of fair value (equilibrium) itself is a moving target.
  • #354
  • Mar 20, 2015 10:02am Mar 20, 2015 10:02am
Quoting Koglkama
Hi Copernicus I came across your thread a couple of days ago and have just finished reading it. A very interesting approach to trend trading and a lot to absorb. I also would look forward to a recap and appreciate the enormous amount of work you are putting into this. I particularly like your method of defining the trend. For me the more objective/mechanical the better.
Thanks Koglkama. I have been preparing charts for tomorrow's commencement of the recap.....and need a triple scotch to recover. Looking forward to your comments and queries.

C
  • #355
  • Mar 20, 2015 11:00am Mar 20, 2015 11:00am
Quoting Copernicus
{quote} Nice take on things and I agree. The eternal movement towards fair value with overshoots and undershoots that in reality is never actually achieved as a notion of fair value (equilibrium) itself is a moving target.
Im going to get a little ladydooda here. I agree with you here C except for one part, the idea that the target itself is moving. I do think the target is moving at all. Taken from a post about a little bit ago.


"Price is constantly oscillating between the two forms of movement as it always tries to reach 0, which it never will because Phi. It will wind up via the female form of curving random walk movements & it will unwind because of the levy flight male, straight forward trending movements. Price will be changing between the two forms of movement forever."

Attached Image (click to enlarge)
Click to Enlarge Name: Screen Shot 2015-03-20 at 11.54.51 AM.png Size: 212 KB


The Random Walk & The Levy Flight...
  • #356
  • Mar 20, 2015 11:12am Mar 20, 2015 11:12am
Holy Moly Sis. That packed a punch. A wicked diagram.

Just a quick question regarding equilibrium. Let's take equities for example and then look back at forex. With a company stock at a particular time, isn't there a theoretical fair value level based on perfect information regarding the business value of that company at that time? At a later date when say productive capacity has increased, doesn't that theoretical value increase. I may be confusing fair value with equilibrium here but my assumption was that in the perfect world there was this notion of a 'correct price' but 'actual price' continuously oscillated around this value.

So you can see from this train of thought when I slip back into forex talk that there is a 'theoretical fair value of a currency pair' based on perfect information but the nature of price was to eternally oscillate around this value.

That's why I assumed that the target (being fair value) was never itself stationary and related to the 'true' valuation of an instrument at a particular point in time.

What am I missing here?

C
  • #357
  • Mar 20, 2015 11:24am Mar 20, 2015 11:24am
Quoting Copernicus
Holy Moly Sis. That packed a punch. A wicked diagram. Just a quick question regarding equilibrium. Let's take equities for example and then look back at forex. With a company stock at a particular time, isn't there a theoretical fair value level based on perfect information regarding the business value of that company at that time? At a later date when say productive capacity has increased, doesn't that theoretical value increase. I may be confusing fair value with equilibrium here but my assumption was that in the perfect world there was this notion...
Im sure there is not one right answer but here is how I see it.

The market is a sequence, like Pi. It goes on forever as the x value of the graph(time) is infinite and will always exist. Sequences that function like, that is sequences that are infinite, or never ending, are always moving towards perfection getting close and closer as time goes on. This constant move towards 0 is what I imagine to be the random walk, the ranging or choppy markets. They are not making new highs or new lows. They are winding tighter and tighter towards 0. As a diagram it would be like the lines moving closer and closer to 0, but never reaching 0.

Now the levy walk is the trend. Its the sequence of new highs and new lows. The levy walk is caused by things that do not belong in the never sequence this is what moves the price further and further away from the 0 line. Once the levy flight effect as left the market, the price begins to wind or range as the sequences moves closer and closer to the 0 line, that is until a another levy flight(economic news release, CB statement, Rate cut, etc) enters the market to unwind the sequence away from the 0 line.

I apologize if this explanation is very rough and hard to follow, this is just the best way I can think to put it at the moment.

PS. If you are going Refine your thread over this weekend I will be very interested to read it I also imagine a lot of the other lurkers in here would find it very useful.

sis.
  • #358
  • Mar 20, 2015 11:32am Mar 20, 2015 11:32am
Thanks for the response Sis. I need to get my head around it....while at the same time listening to that great vid of yours on the other thread. Now that's multi-tasking. :-)
  • #359
  • Edited 1:34pm Mar 20, 2015 1:19pm | Edited 1:34pm
Quoting Sis.yphus
{quote} Im going to get a little ladydooda here. I agree with you here C except for one part, the idea that the target itself is moving. I do think the target is moving at all. Taken from a post about a little bit ago. "Price is constantly oscillating between the two forms of movement as it always tries to reach 0, which it never will because Phi. It will wind up via the female form of curving random walk movements & it will unwind because of the levy flight male, straight...
Hey Sis I saw your post on this previously and was struck by how much intuitive appeal it had for me. It provides a good explanation of how all markets tend towards equilibrium, their natural state, but never achieve it. The interaction of male and female movements, one converging, one diverging. This also closely aligns with Gann's internal (female) and external (male) vibrations theory.

But I also agree with Copernicus, that the O line does not have to be horizontal, especially when you are considering asset prices that tend to rise over time.
Audentes Fortuna Juvat
  • #360
  • Edited 9:38pm Mar 20, 2015 7:06pm | Edited 9:38pm
The Recap....An Overview

Ok guys. Time to make a start.

Firstly, a lot of you may have read the entire thread and for that I really appreciate it but I recognise that a lot of us are time poor.....so before they embark on a possble fruitless journey through 17 pages of undecipherable code that this thread may represent....they would prefer a brief summary of the main points to this working feast and then decide if further examination of the entire thread is worth it. That's the main intention of this recap.

The preferred methodology to this approach has had several iterations so that what is being proposed now may not be exactly representative of the approach as defined in earlier posts, but it ultimately will still be necessary to commence from page 1 if you are interested in trading this technique....as understanding the logic and rationale for why this approach has evolved this way is important to those that wish to 'own this strategy' and assists in providing clues to those who further wish to work with or tweak this methodology.

For the purposes of this recap we will be using a variant of the Enhanced Diversified Trend Trading Technique (or EDTT) which is a supercharged variant of the Diversified Trend Trading Technique (or DTT) which was the original technique applied in this thread. Now don't worry because I am continuing to test the various approaches as all techniques discussed are being guided by statistics as opposed to hunches or heresay. If the stats demonstrate a need for change, we will be right onto it and I will let you know if I am around.

So how does this variant differ from the EDTT itself. Well, this variant only trades in the direction of the primary trend defined on the monthly (MN) timeframe. No counter-trend trades to the direction of the primary trend are taken.......why?:

  1. Because this variant significantly reduces the number (frequency) of trades which is a necessity (for trade management purposes) given that this approach currently trades 24 instruments and it therefore filters those potential lower probability trend moves. Trading in the direction of the primary trend provides confidence that if a trend of any significant duration does occur, then it should ultimately be reflected on the higher timeframe if it has what it takes (eg. levy flight or probabilistic bias as opposed to random walk). The primary trend direction provides the impetus driving all the lower timeframe trends. While we can never tell if a trend is random or fundamental in nature, by adopting this directional bias to trading gives you the greatest chance of being correct, if the trend is a valid real one and not merely random walk. Adopting this variant is your best bet to riding the wave as oppossed to being slam-dunked by it.;

Attached Image

  1. The statistics, though early days, are demonstrating that this technique has a significant probability win rate in it's favour and that average wins are of larger proportion than the other direction "agnostic" variants. It does not mean that it will necessarily generate you more dollars, but it means that the total risk exposure from this technique is lower than variants. The nature of a trading approach that offers some hope for 'sustainability' lies more in it's risk management measures than on it's profit potential.

​Given that this is a variant of the EDTT and only takes in-trend trades, we will henceforth call it "EDTTI"......*gasps*....I hate acronyms but this will save me some considerable writing space.

Be patient with this recap as it may take some time and a number of days to achieve, but please ask questions and provide your input as it really makes my day in being able to verbalise my thought processes and I learn as much as you all do with this process.

Ok, ready to start. ........

C

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