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Diversified Trend Trading Approach

  • #621
  • Edited 9:53am Feb 6, 2016 8:47am | Edited 9:53am
Quoting Copernicus
Today is a day that I have had to eat my words about the use of filters. Thanks to Koglkama and Atokys who questioned the exact nature of the Wisdom Donchian Breakout strategy I noted that they also included a MACD trend filter in their range of trend following systems. As a result, I tested the DON-L, DON-M and DON-S systems from wisdom using a simple MACD filter of 12 Fast EMA, 26 Slow EMA and 9EMA for the signal bar and the results have been pretty impressive. Here are the results. First the un-scaled individual test results for each strategy....
Try this and change your mind, watch all the video .
https://m.youtube.com/watch?v=pYM6H-OVWkE
Master Your Setup, Master Your self. (NQoos)
  • #622
  • Feb 6, 2016 8:56am Feb 6, 2016 8:56am
Quoting bassramy
{quote} Try this and change your mind, see all the video https://m.youtube.com/watch?v=pYM6H-OVWkE
Thanks for the vid Bass. The MACD trade manager certainly improved performance. After today, I certainly have had to eat my words about the MACD inclusion. The testing is starting to bear fruit.

That Trading Blox looks like a great portfolio systems tester. Very impressive outputs.

PS. I will have a crack down the track of trialing a few more MACD settings without too much curve fitting as today I only focussed on one range of settings.
  • #623
  • Feb 6, 2016 10:28am Feb 6, 2016 10:28am
It's on it's way Bass. Let me know if you get it. :-)

C
  • #624
  • Feb 6, 2016 11:44am Feb 6, 2016 11:44am
Quoting Copernicus
{quote} Thanks for the vid Bass. The MACD trade manager certainly improved performance. After today, I certainly have had to eat my words about the MACD inclusion. The testing is starting to bear fruit. That Trading Blox looks like a great portfolio systems tester. Very impressive outputs. PS. I will have a crack down the track of trialing a few more MACD settings without too much curve fitting as today I only focussed on one range of settings.
With the monte carlo analysis u can easily see what robust and whats not.
Free version on excel is available here : http://www.kjtradingsystems.com/freesys.html
With a bunch of other stuff.

And while you'r at it, enjoy this top notch content : http://www.tradingblox.com/forum/vie...1&hilit=Turtle
Master Your Setup, Master Your self. (NQoos)
  • #625
  • Edited 10:21pm Feb 6, 2016 7:20pm | Edited 10:21pm
Quoting bassramy
{quote} With the monte carlo analysis u can easily see what robust and whats not. Free version on excel is available here : http://www.kjtradingsystems.com/freesys.html With a bunch of other stuff. And while you'r at it, enjoy this top notch content : http://www.tradingblox.com/forum/vie...1&hilit=Turtle
Thank you kind Sir......... dadooo and I were trying to get our hands on Kevin Davey's monte-carlo simulator the other day with no luck. I should have realised you would have your fingers on the pulse. :-)

PS Bass, that intro video on Kevin Davey's website you referred me to regarding the 'strategy factory' process is great. It is just the ticket for me in developing a robust process for taking ideas to fully fledged trading stategies so I am going to take it on as a process.
  • #626
  • Edited Feb 9, 2016 12:50am Feb 8, 2016 7:55pm | Edited Feb 9, 2016 12:50am
Some excellent new podcasts for those with a passion for systematic trading.

Murray Ruggiero - http://bettersystemtrader.com/042-murray-ruggiero/ - Interesting that he turns off those system strategies that outperform expectations based on his back-testing. It certainly makes sense but to do it in practice.....well that takes a systematic mindset.

An interview with Bill Dreiss - Absolutely fantastic. still going strong after all these years. It's true, surfers live longer!!!! Dreiss is one of the funds I am monitoring and it is cleaning up at the moment. It's long term nature does produce hefty drawdowns as he mentions but it is certainly robust. I have results spanning back to 2000 but the fund has been going since early 1990's and produced excellent returns in the 90's as well with very little change to the core system. I had my head nodding off my shoulders with this podcast. Probably worth a good look at his fractal trend trading systems. Sounds very interesting and robust. http://www.toptradersunplugged.com/l...h-corporation/

C
  • #627
  • Feb 9, 2016 12:34am Feb 9, 2016 12:34am
Quoting Copernicus
Some excellent new podcasts for those with a passion for systematic trading. Murray Ruggiero - http://bettersystemtrader.com/042-murray-ruggiero/ - Interesting that he turns off those system strategies that outperform expectations based on his back-testing. It certainly makes sense but to do it is practice.....well that takes a systematic mindset. An interview with Bill...
Thanks C..
Memories caught in time but never forgotten
  • #628
  • Feb 9, 2016 2:40am Feb 9, 2016 2:40am
Quoting j4d
{quote} Thanks C..
No probs Ja. Had another listen on the way home from work to Murray Ruggiero. A lot of what he said made great sense. :-)
  • #629
  • Feb 11, 2016 11:51am Feb 11, 2016 11:51am
Hey C!
i hope you are doing well, buddy.
i am not a long term trend follower but looking at what is happening in the markets, not difficult to figure out some long term trend followers are having hard times. euro and yen are either going through a major retracement or even a trend reversal. the same is relevant to all equity and commodity markets. anybody who is doing well now is i suspect the swing traders.
i would like to hear your opinion what you think about the recent developments with eurusd and usdjpy? just your general thoughts.
thank you!
As Above, So Below
  • #630
  • Feb 11, 2016 5:17pm Feb 11, 2016 5:17pm
Quoting tashkent
Hey C! i hope you are doing well, buddy. i am not a long term trend follower but looking at what is happening in the markets, not difficult to figure out some long term trend followers are having hard times. euro and yen are either going through a major retracement or even a trend reversal. the same is relevant to all equity and commodity markets. anybody who is doing well now is i suspect the swing traders. i would like to hear your opinion what you think about the recent developments with eurusd and usdjpy? just your general thoughts. thank you!...
Hey Tash :-)

It's very difficult for trend traders to all have a common answer regarding your queries as each trend follower uses their own definition regarding what a trend or swing trade will be. As you are are aware, we all draw trendlines or interpret trends differently. It's a pretty subjective game when you think about it.

To get some objective sense out of this dilemma, I use linear regression channels drawn from major swing highs/lows to at least objectively define price bias which I use as my own personal definition of trend. If others used this same technique then we could all at least agree that we are looking at the same trend.

Below are multiple timeframe chart pics of EURUSD using this methodology.

Attached Image (click to enlarge)
Click to Enlarge Name: EURUSD.PNG Size: 340 KB


On the MN chart you can see we are in a consolidation phase defined by the blue highlighted square. Not much happening with EURUSD at the moment for trend trading opportunities at least. This long timeframe consolidation on MN is therefore translated into and influencing the lower time-frames with general ranging conditions that only present swing trading opportunities on the shorter time-frames. I actually am in a short trade on MN (entered in March 2013) timeframe and a long trade on H4 (entered in February 2016) timeframe as we speak. In general using my interpretation at least, there is not much to get excited about with EURUSD at the moment. As a trend trader you need diversification so you aren't influenced to over-trade on a particular instrument as good trends tend to be few and far between.

Below is USDJPY using the same methodology.

Attached Image (click to enlarge)
Click to Enlarge Name: USDJPY.PNG Size: 354 KB


There is a bit more interest in this pair in relation to my trend trading techniques. The MN timeframe is signalling a critical turning point in trend. We may be entering a bear phase with this instrument for the long term. The W1 chart also signals a trend reversal point is at hand. I am short on D1, H4, H1 and M30. Deep in profit on M30, in good profit on H1 and only fairly recently entered D1 and H4 trades. You can see that soon I will have a short on W1 timeframe if the trend reversal continues.

Effectively the M30 and H1 timeframes take care of swing trading opportunities for me whereas the H4, D1, W1 and MN timeframes take care of any longer term trends. I stagger entries into these timeframes where I only enter a new trade when all other trades are beyond breakeven. This way I avoid being overly exposed with correlation.

So mate....at least from my perspective, USDJPY needs special attention at the moment from the trend traders amongst us as things are looking quite good for this instrument right at the moment.

Cheers mate

C
  • #631
  • Edited 6:35pm Feb 11, 2016 6:23pm | Edited 6:35pm
Quoting Copernicus
{quote} Hey Tash :-) It's very difficult for trend traders to all have a common answer regarding your queries as each trend follower uses their own definition regarding what a trend or swing trade will be. As you are are aware, we all draw trendlines or interpret trends differently. It's a pretty subjective game when you think about it. To get some objective sense out of this dilemma, I use linear regression channels drawn from major swing highs/lows to at least objectively define price bias which I use as my own personal definition of trend. If...
excellent.
i really appreciate your time spent on explaining your thoughts. everyone of us has a bias, which is good and bad at the same time. bad when we start denying the reality. i just want to look at the things through the perspective of someone who is a long term trend follower and i think, you have a lot more experience than most of us here specifically on this methodology.
sure i do have my own biases on these two pairs and the reason i asked those questions were if i am on the right path with my short bias on both these pairs.
just one thing to add, the lost correlation and synchrony among currency markets and some leading pairs seems to start appearing again after several months of insanity and we are going to see soon clear skies in regards to directions but it will take a few more weeks for madness to calm down.
regards.
As Above, So Below
  • #632
  • Feb 11, 2016 6:44pm Feb 11, 2016 6:44pm
Quoting tashkent
{quote} excellent. i really appreciate your time spent on explaining your thoughts. everyone of us has a bias, which is good and bad at the same time. bad when we start denying the reality. i just want to look at the things through the glasses of someone who is a long term trend follower and i think, you have a lot more experience than most of us here specifically on this methodology. sure i do have my own biases on these two pairs and the reason i asked those questions were if i am on the right path with my short bias on both these pairs. just...
No probs Tash

Everyone sees things differently but the market has only so much alpha to deliver. Many of us try to fit the market to their systems whereas the reality is that it is the market that decides which systems prosper.

Last year, from a trend followers perspective, was pretty meagre as the majority of markets were in consolidation phase after a cracker 2014 volatile session. Of course those trading mean reversion or counter-trend might have had a stellar year. Things started hotting up for trend followers in December which ran through to early Jan and then it got ugly again with retracements. Early Feb was very subdued but in the last week things are hotting up again. An FA expert would have the reasons at hand for why this is the case......IMO China is causing a bit of angst in the market it appears with their slowdown in commodity demand.

I am continually blown away with how correlated all these instruments are. I see this not only in my methods but also the results of the CTA's which I am tracking.

The activity we are seeing now with the equities is translating across all sectors including forex, commodities etc. Each year things seem to be more correlated.....it says something about this global marketplace and probably can be directly linked to market intervention and HFT. When one instrument moves, you can almost be guaranteed that it will translate across the sectors. This means you need to pay attention that your portfolio does not become overexposed with correlated instruments otherwise you may suffer the consequences.

Gold is going like the clappers at the moment as it silver (more subdued) and of course the indices (which all appear to be reversing) are now getting exciting as with most USD and Yen related currencies. We may be in for a good ride ahead.......*crosses fingers* :-)
  • #633
  • Feb 11, 2016 7:21pm Feb 11, 2016 7:21pm
Quoting Copernicus
{quote} No probs Tash Everyone sees things differently but the market has only so much alpha to deliver. Many of us try to fit the market to their systems whereas the reality is that it is the market that decides which systems prosper. Last year, from a trend followers perspective, was pretty meagre as the majority of markets were in consolidation phase after a cracker 2014 volatile session. Of course those trading mean reversion or counter-trend might have had a stellar year. Things started hotting up for trend followers in December which ran through...
yes, agree with your general observations. the global finance is something like a spider net, you touch one edge and get a resonance at every other single point. correlations always exist, no matter what, just the pairs change to due economic environment. consistency of correlations among markets is just another product of globalization.
another point about market interventions: in my opinion global economy does not obey anyone and can't be regulated. it is a sovereign entity by itself and any participant, no matter how big or powerful, must play the game by rules. i find interventions totally fruitless in long term. the policy may have effect for 5 maybe 10 years but it will eventually fail miserably. in that sense i find BOJ as one of the main pretenders awaiting the judgement day for their policies which are not only inline but against the nature of global economy. BOJ is like a martingale trader who will take benefits in short term but eventually blow up the account and it is not a matter of if but when.
As Above, So Below
  • #634
  • Feb 11, 2016 7:38pm Feb 11, 2016 7:38pm
Quoting tashkent
{quote} yes, agree with your general observations. the global finance is something like a spider net, you touch one edge and get a resonance at every other single point. correlations always exist, no matter what, just the pairs change to due economic environment. consistency of correlations among markets is just another product of globalization. another point about market interventions: in my opinion global economy does not obey anyone and can't be regulated. it is a sovereign entity by itself and any participant, no matter how big or powerful,...
Nice way to express things Tash :-)

As smart as the central banks think they are, this tampering is ultimately going to end in tears with some big whales rising to the surface as markets stretch further from equilibrium. The ultimate arbiter is going to be the market. There are just too many inefficiently priced markets at the moment....it makes you wonder when the rubber band is going to snap. That's why as a trend trader I am patient despite the subdued returns for the last 5 or 6 years as I sense that when the volatility returns it is simply going to become progressively more pronounced for the future. My underlying philosophy is that if I keep the powder dry and exercise patience, it may well pay dividends in the long term.

Certainly here in AUS we managed to escape turmoil in 2008 despite our dependencies on commodities (thanks to China).....but a bit of grief over here is edging closer to a reality....despite the rhetoric here in AUS about our fiscal and economic prudence. A major hiccup in China is going to have significant impacts here across asset classes that are correlated to resources such as property, equities, and of course our currency as our dependency on the financial services segment and resources comes home to roost.
  • #635
  • Edited 9:23am Feb 12, 2016 7:57am | Edited 9:23am
Quoting Copernicus
Today is a day that I have had to eat my words about the use of filters. Thanks to Koglkama and Atokys who questioned the exact nature of the Wisdom Donchian Breakout strategy...
I don't recall, but now that you've mentioned it those rules seem strangely arbitrary. I would opt to skip the filters and further simplify the core strategy.

This guy does a fine job of detailing such a strategy. (Disclaimer for the rest of Forex Factory: The author of the linked page doesn't trade Forex and hence doesn't know a thing about trading, you may wish to skip clicking the link and resume browsing the FF Trading Systems forum filled with upstanding intraday, high frequency, high win rate scalping systems that use only leading indicators.)
Quoting pakeha
For trend systems most people use some method to identify a breakout...
Basically, some kind of line on a price chart. Same concept, different method. As you indicate some traders also use "filters", which is typically some kind of oscillator - MACD, CCI, RSI, Stochastics etc etc (there are also tons or these). These are of course all lagging indicators. As the skeptic states "its like trying to drive forward by looking in the rear view mirror". Not exactly a recipe for success.
I concur, look at these utter failures:
Attached Images
  • #636
  • Feb 12, 2016 8:15am Feb 12, 2016 8:15am
Quoting Atokys
{quote} I don't recall, but now that you've mentioned it those rules seem strangely arbitrary. I would opt to skip the filters and further simplify the core strategy. This guy does a fine job of detailing a such a strategy. (Disclaimer for the rest of Forex Factory: The author of the linked page doesn't trade Forex and hence doesn't know a thing about trading, you may wish to skip clicking the link and resume browsing the FF Trading Systems forum filled with upstanding intraday, high frequency,...
The Same system and the same settings that i trade from the same legend.
"Make everything simple as possible but not simpler".
"May the expectancy be on your side".

Best,
B.R.
Attached Image (click to enlarge)
Click to Enlarge Name: ed_seykota_simple_SR2.png Size: 91 KB
Master Your Setup, Master Your self. (NQoos)
  • #637
  • Edited 8:42am Feb 12, 2016 8:29am | Edited 8:42am
Quoting Atokys
{quote} I don't recall, but now that you've mentioned it those rules seem strangely arbitrary. I would opt to skip the filters and further simplify the core strategy.
Evening A (and Bass)

I have had to eat my words once again from post 619 as I made a fundamental error with that MACD filter for the Donchian systems which resulted in such disparate results from earlier tests on the Donchian variants........do you want to hear what it was?.........I still am embarrassed about it............well that entire result was from long only trades. No wonder there was such a difference. Talk about a frustrating day. If you look closely at the stats on the left hand side of the equity curves, you will see what I mean.

So now I am back with my original thoughts......and with yours, Bass's and Mr Ed as well...... that simplicity rules. Farewell filters for the Donchian strategies....it was not nice to know you.

That's where logic should prevail in strategy development. What good is a MACD filter with a Donchian breakout strategy? Logic alone tells you it is not necessary as the Donchian entry is a filter in itself with no necessity to further complicate things. As I was blindly following someone else's system (Wisdom) and applying what I thought were the rules, you can see how I might have stepped into that quagmire. It's all fun and games until someone loses and eye. :-)
  • #638
  • Feb 12, 2016 9:23am Feb 12, 2016 9:23am
Quoting bassramy
{quote} The Same system and the same settings that i trade from the same legend. "Make everything simple as possible but not simpler". "May the expectancy be on your side".

Quoting Copernicus
{quote} Evening A (and Bass) I have had to eat my words once again from post 619 as I made a fundamental error with that MACD filter for the Donchian systems which resulted in such disparate results from earlier tests on the Donchian variants........do you want to hear what it was?.........I still am embarrassed about it............well that entire result was from long only trades. No wonder there was such a difference. Talk about a frustrating day. If you look closely...
lol, hope your testing goes well.

My gripe with filters is the implicit suggestion that they add value with no drawback. People tend to think of filters in the context of "filtering out bad trades". After having spent much time wrestling with these ideas I came to the conclusion that simplicity prevails for two reasons:
1. More filters increase the likelihood that a good historical performance is the result of curve-fitting.
2. The inescapable fact of trend trading is that profits come from being exposed to market risk during a trend. The more confirmation your system requires the less opportunity is realized.
  • #639
  • Edited 8:15pm Feb 12, 2016 6:38pm | Edited 8:15pm
Quoting Atokys
{quote} After having spent much time wrestling with these ideas I came to the conclusion that simplicity prevails for two reasons: 1. More filters increase the likelihood that a good historical performance is the result of curve-fitting. 2. The inescapable fact of trend trading is that profits come from being exposed to market risk during a trend. The more confirmation your system requires the less opportunity is realized.
I reckon that's spot on A

It's a bit like designing a car that has a habit of crashing sometimes.......... so we insert a filter into the design to stop it doing this. Another engineer would view this as a weak (curve fitted) design principle and so would design a car that can respond to road conditions without crashing in the first place.
  • #640
  • Edited 9:40pm Feb 12, 2016 9:18pm | Edited 9:40pm
Donchian Suite

I have decided to use logic alone to construct a suite of trend following systems that adopts the principle of 'simplicity with no filters' combined with 'Letting the Profits Run and Cutting the Losses Short'. The logic utilises the broad principles used for the discretionary approach of this thread, namely trading across multiple timeframes to capture any market trend that exists across the short, medium and long term and adopting stringent trade risk parameters so that $ risk exposure (accumulated consecutive losses) during protracted sideways ranging markets are minimised.

To keep things as simple as possible, the composite suite of systems will be adopting a simple Donchian Breakout/exit strategy. ATR will be used for setting an initial stop on entry and adjusting position sizes according to volatility (that is relevant to the timeframe concerned). I have yet to find a more robust trend following technique than the simple Donchian strategy for my fully automated strategies, so I will be sticking with it.

The range of systems that will be deployed vary from short term to long term trend following and swing trading strategies. By combining both trend following and swing trading variants, we will be targeting the best of both profit worlds and not leaving too much profit on the table when the trends turn. The shorter timeframe variants will obviously also be capturing counter-trend trades with respect to the longer term trend following variants.

The only floor in this logic according to Van Tharpe's matric of market conditions is that sideways ranging markets are not specifically addressed with this system suite. We may have some short term successful swing trades during longer term market consolidation, however clearly we are going to suffer drawdowns when extended sideways market congestion rears it's ugly head. We will see how this composite of system copes with these conditions and if necessary, will include specific mean reversion systems to address sideways congestion but let's see how things go with the suite.

Before testing commences we will therefore determine the systems and their variables to avoid any chance of curve fitting with this exercise.

Attached Image (click to enlarge)
Click to Enlarge Name: Donchian Suite.JPG Size: 49 KB


I will post discreet system results in the next few posts before we get into blending the Donchian Suite. Bear with me as I am starting now so it will take a while to crunch across the portfolio.

Cheers

C
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