ETMA_The Evolution

A sneak peak of my Private Island .

Hey Bass, welcome back..

Vive la liberté

Comex Gold, 10 Year U.S. Treasury Notes and the Dax Today.

By Moritz Seibert, edited by Niels Kaastrup-Larsen

Everyone involved in the systematic trend following business has probably heard it many times, and I have heard it again last week: Why invest with you when I can buy and hold the DAX for zero cost and, when holding my position for a number of years, I always end up making money?

First, I still need (and want) to meet the investor who has truly held the DAX for years and years without interfering a single time. Consider a 10-year time period. Looking at a 10-year chart and interpreting what you see as real performance is one thing. But actually achieving that performance is quite another, because it requires you to stay away from the markets and do absolutely nothing for 10 years. Yes, do nothing! However, sitting still is a difficult thing to do when the alternative is to participate in some seemingly exciting price action, attempting to outsmart the market. Doing nothing means you dont panic during crises and you dont get overwhelmed during strong bull markets. If you can manage to do that, then thats true buy and hold (and hope). Sounds easy, but its very tough in practice. So, does your personal equity index performance really look as good as the charts you are looking at?

Second, comparing the performance of a single equity market to a large, multi-asset trend following program misses the point. It has no relevance. It makes no sense.
Discussions of that sort give me the impression that some (maybe most) investors like to dislike trend following.
Its a love-to-hate relationship!

It seems theres a strong mental desire to avoid it. How can it be that a price-based system designed to buy highs and sell lows outperforms the fundamental trader who studies and analyzes the markets each day? How can it be acceptable that simplicity can do better than complexity? Its hard to embrace that. And so, rather than accepting the facts (e.g., by reviewing the multi-decade performance record of the CTA industry), the preference is to manufacture new arguments against trend following, the latest of which is trend following is just beta.

Its so easy to say this sentence, but its lacking deeper thought. How can a trend following system that dynamically trades in and out of multiple markets, long and short, with different entries and exits at different points in time, be pure beta?
The answer isit cant

The notion that trend following has turned into beta seems to be a result of indexation as several trend following indexes, some fully transparent, have emerged during the past couple of years. These indexes aim to replicate the performance of certain trend following strategies at lower costs; however, index-based replication does not equal beta. A pure beta return stream cannot produce better risk-adjusted returns than the market to which it relates. Thats because it is identical to such market.
Take the smart beta industry, for instance. Smart beta indexes exist to give investors something better than pure beta, i.e., to produce a certain amount of alpha. With respect to equities, smart beta equity indexes cannot comprise all outstanding shares because they are not weighted by market capitalization (any deviation from a market capitalization-based weighting represents a certain part of the market, but no longer the complete market). Hence, there must be an alpha component in any smart beta index whether such alpha component yields something to the investor and whether it is priced fairly is a separate question.

The same is true for trend following indexes, i.e., theres alpha in these indexes. But, when trading rules are spread to the market and replication becomes possible, then the alpha is no longer unique and the price for these trading rules drops (maybe even to zero). But this does not mean that alpha has turned into beta.
Investors seeking to maximize their trend following alpha should instead turn their attention to managers which have demonstrated that they can outperform trend following indexes over many years net of fee

(even if the required due diligence means a bit of extra homework compared to an index investment).

Farnam Street Brain Food

Your weekly digest of interesting reads & mind-expanding content .

What I'm Reading

+ Mindware: Tools for Smart Thinking (Highly recommended) Richard Nisbett, a world-renowned psychologist, explores how scientific and philosophical concepts change the way we solve problems by helping us think better. We're talking mental models like the law of large numbers, statistical regression, cost-benefit analysis, sunk costs, opportunity costs, and causation and correlation. The point of the book is to show us new ways to frame problems that allow us to apply these mental models.

+ Superforecasting: The Art and Science of Prediction Attentive readers will note this is the second time I've read this book this month. I'm interviewing the author for The Knowledge Project soon.

Last Week:
+ The Devil's Financial Dictionary Inspired by Ambrose Bierces masterpiece The Devils Dictionary, Jason Zweig takes an equally beautiful and cynical view of the entire finance industry. Consider his definition of Annual Meeting: "A gathering held once a year, often at a hotel serving bad food and stale coffee somewhere near an airport, at which the companys management gilds its results and pretends to listen to the wishes and grievances of the people who own the company."

+ City of the Century: The Epic of Chicago and the Making of America In light of hosting several Re/Think events in Chicago, I wanted to read about the history of the Chicago fire. This was the most referenced book I could find and it did not disappoint. Hint: Mrs. O'Leary's cow had nothing to do with it.

+ The Eisenhower Matrix "Whatever the job that lands on your desk, begin by breaking it down according to the Eisenhower method [see model], and then decide how to proceed."

+ How to Train Your Brain by Thinking Like an Expert "People who are concrete thinkers aren't going to come up with the insights. People who are speculative, who engage in hypothetical as opposed to concrete reasoning, they're the ones that are likely to generate insights -- that's the personality difference. Curiosity is something that I've been wondering about recently, because curiosity seems to be one of the primary engines for insight."

+ Sharpening Your Forecasting Skills "Ultimately, we want our leaders to be confident, decisive, and visionary. But the lesson of Superforecasting is that thinking is an important precursor to action. Further, circumstances change and it is vital to update views and change strategic course appropriately. "

+ The Psychology of Risk and Reward "Unfortunately, when reason is in apparent conflict with our instinctsabout markets or a hot stock, for exampleit is our instincts that typically prevail. Our reptilian brain wins out over our rational brain, as it so often does in other facets of our lives. And as we have seen, investors trade too frequently, and often at the wrong time."

"Blessed is he that expects nothing, for he shall never be disappointed."
Benjamin Franklin

Courtesy of Shane Parrish

Friday, October 16, 2015
Learning from past mistakes - and the markets

For those who have not traded through such a period in the markets before, you have been all geared up for an important educational experience over the three months or so. We have seen a big jump in volatility, combined with a sharp move to the downside followed by a 'V' shaped reversal in the general markets. Ideally, when experiencing these changes in the market state you want to keep your tuition fees as low as possible.

At times like this, you need to avoid all the talking heads on CNBC or Bloomberg, the opinions of other traders, or thinking about market mechanics as well.

What DO you need to focus on? Simple. Your own method, risk management, and ensuring that your thought processes are not disturbed by outside forces. Do not be influenced by others - even those who you think may trade in a similar manner to you. You need to think clearly and objectively as possible.

You need to be blinkered in your own thought processes. Concentrate on what can make you money within the framework of your trading plan. Also, do not waste your time and effort thinking about things which may or may not happen, or other matters related to the market which form no part of your own trading plan. Concentrate on YOUR method. If it is proven, then what do you have to fear?

And if the markets are acting in a manner which is not favourable to your own method, then you need to develop the ability to see that, accept it, and step aside.

"While the speculator doesn't have the product knowledge or the speed, he does have the advantage of not having to play. The speculator can choose to only bet when the odds are in his favour. That is an important positional advantage." - Larry Hite

See how your method works in such conditions. Also, remember that cash is a position. If you are uncomfortable then retreat to the sidelines and learn. This is a great time to reinforce certain key trading principles, as well as working on your method and yourself.

As an example, you may only encounter a market downtrend once in a while (or a major market downtrend every few years), but it is critical to know not only how your own method works, but also how YOU as a trader react to what is going on.

Earlier in the year, when the major market averages were not trending, and were relatively quiet, then those traders who like to play off support and resistance probably did very well. Then, as volatility started to increase, those who trade short-term or on an intra-day basis were the ones making the money. Those who trade with the trend probably found the markets more difficult. Then, as downtrend tried to get under way, those who follow trends would have started making money. But then the 'V' shaped reversals may have put paid to that. Going forward, who knows who will profit - and when?

Other traders who I know and respect have likened the last few months to that of the second half of 2011. I can certainly relate to that, as I struggled in that period. This year, I put into practice what I learned from that period, by retreating to cash for most of the time. Yes, it is frustrating that conditions have not been favourable towards my style of trading. But, by learning from my previous experiences, I have kept my trading equity intact, and avoided a lot of stress.

Even if you do not rely on what the major market averages are doing, you can still identify when conditions are favourable to your own chosen method.

In my own case, very occasionally I am putting on a single position as a 'probe', testing the market, and seeing how it reacts. So far, none of those trades have worked. But, by keeping an eye on the quality and quantity of the setups I am seeing, by looking at what is coming up on my scans, and by observing whether breakouts are starting to work again, I will know when the odds are moving back in my favour.

​Courtesy of Trader Steve - http://www.thetrendfollower.com/

ZE Advertisement.

USDJPY, is this the turning point.

#Trend Following + #Richard Dennis + #The Turtles + #Jerry Parker = Top Trader Unplugged | Jerry Parker of Chesapeake Capital Corp.

http://bit.ly/1LnwJ9S

The Majors overall Long Term Trend.

Trend Following Wizards – September

A near-perfect month for the Wizards. Only one fund is down in September and the collective average performance is +2.52%, taking the index close to break-even for 2015 with the YTD number at -0.55%.

And another CTA's Tracker is publishing his September Results, leverage aside these results is inline with mine.

Performance of Managed Futures in September

After a good September performance, the YTD performance is modestly back into positive territory for managed futures as a whole. All funds we follow here had a positive return last month, and over half of them show a positive performance for 2015.

- September average return: +3.29%
- YTD average return: +1.84%

Main Indices Returns

As a comparison, please find below the returns for several indices tracking the managed futures/CTA industry as a whole:

Thanks for the updates Bass. Nice month for the wizards.

I have pulled ther pin on my discretionary approach (as just to busy elsewhere) and as a result have been slack lately in not keeping up to date with the wizards. :-)

C

Trend Following power, in the making.

Yeah i noticed, you are busy searching for the Nature of Angels .

Anyway whatever you do you excel @ and i wish you the best of luck.

Thanks Mate

PS I wasn't able to open that link. I need a bit of heavenly inspiration

Just be inspired.
http://angels.about.com/od/AngelBasi...el-Genders.htm

How Do I Choose the Right Trading System?

BY ROBBOOKER ON JULY 10, 2015

Here is my 1-step method for choosing a trading system:

1) Choose whatever system you want.

Okay, that’s it.
You’re done.
Wait. What?
I’m serious. Choose a trading system you like.
If you like to trade with the trend, do that.
If you like to trade like the turtles and do moving average trend trading and hold trades for a long ass time, do that.
If you like counter-trend trading, do it.
Don’t listen to people who say your system is dumb.
Don’t worry if a famous guru or mentor “approves” your trading system.
Do what you like. Choose what you want to choose.
If you choose what you like, these amazing things happen:

1) You will obey the rules of the system. Why? Because you like the rules. Why do people break trading rules? Because they like something else MORE than their current trading rules.
So the answer is simple: do the thing you like, and you will stop breaking your rules.

2) You will enjoy your trading.

3) You will become the only person responsible for your success.When we choose a trading system that we think we are “supposed” to choose, guess what happens when things go wrong? We blame the system. Or we blame the creator of the system. This is called “Risk Transference,” otherwise known as “blame shifting,” or “being a whiny bitch.” My friend Shonn Campbell invented that phrase.

4) You will share what you are doing with others. Sharing is great – you learn more about your trading system when you teach it. You learn to think more clearly. You learn new rules.

5) You will stick to the system for a longer time. Focus is good. Most traders are fickle lovers of systems. They get take a loss. They get upset. They switch systems. They then get upset again. They don’t make money. They make changes.
That’s just the short list of the wonderful things that happen when you choose a system you like.
*But Rob, what if the trading system I like does not make money?*
You smart ass.
Okay, I’ll answer your question.
Here are three things you can do if the trading system you like does not make any money:

1) Cut your losses off more quickly. Most traders are drunken monkeys who hide from losses. They think that if they hide from the loss it will magically turn into a winner. Instead, face the loss head on and cut it off.

2) Or, instead of cutting your loss quickly, reduce the size of your trade. Then keep the trade open as it goes against you. If you use a very small trade size, you become the master of your fate. You get time to work out of a loss. You can add another trade later at a better price. This is cost averaging. There are a thousand jackass fake gurus who will tell you that this is a terrible idea.

I suppose all of these people get divorced as soon as their spouse forgets to take out the trash.
I suppose all of these dummies end their friendships as soon as the other person cancels plans one time.
I suppose all these idiots give up on everything the moment just one small thing goes wrong.
I encourage you to not be a total whimp. Invest a very small amount into your first trade. So small, in fact, that if it moves against you, it doesn’t matter.

Then you can add to it if it goes in your favor. You can add to it if it goes against you. You can work the position. This is glorious.
I love this approach because no one knows if the first trade is going to be a win. By starting small, you can see what the market thinks about your trade idea. And then act accordingly.

SIDE NOTE: This approach depresses traders who want to make a million dollars in five minutes, or who want to make a lot of money very fast. I am going to tell you something: you can trade small and make a lot of money over time, or you can trade like a coked-out cowboy and lose everything in your attempt to amass riches and glory as if you were starring in the next installment of Wall Street. Your choice. Don’t say I didn’t warn you.

3) You can hold your winning trades open longer. This is called “letting your winners run.” Most traders panic when a trade goes profitable. It is as if the high school cheerleading captain has just spoken to them near the lockers. They freak out. They don’t know what to do. They are unfamiliar with success.
So they panic and close the winning trade.

SIDE NOTE: In 1989, Katherine MacDonald asked me out before the start of our A.P. Government class. I acted like I didn’t hear what she said. Why? Because I did not know how to go on a date.

http://i2.wp.com/tfl365.com/blog/wp-...size=480%2C270

When Katherine asked me on a date, I acted like I didn’t hear her.

When you have a winning trade, perhaps try the following:

i) Move the stop-loss to break-even so that it cannot become a losing trade,
ii) Let it go a bit further.

And practice letting your good trades go just a little bit farther. Don’t try to go for the huge win on every trade. But maybe just try for a few extra dollars, points, or ticks, on your next trade.

These suggestions should help you improve an unprofitable trading strategy.
*Rob, I am worried about picking the wrong strategy and then losing a lot of money.*
Remember: This is not a life and death decision. If you make the “wrong choice,” no one is gonna die. And if you make the “right” decision, you are not going to wake up in a soft bed of a bajillion dollar bills.

And you control how much a trading strategy loses. Reduce your trade size, and you will not lose a lot of money if you make the “wrong” decision.
Everyone puts too much emphasis on the choice of a trading system. Traders get into dumb arguments about systems.

I implore you to pick something you like, focus on it, improve it, and then just let it run. Use it to make you some money before you change anything about it.
So, your first job is to chill out. Relax. There are a zillion great trading systems. I would love to hear from you when you find one that you like.

– Rob

Testing the Turtles Systems.