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Diversified Trend Trading Approach

  • #761
  • Mar 21, 2016 8:01am Mar 21, 2016 8:01am
Complex financial markets.......increasing fragility........inability to predict fat tails......countered with an Anti-Fragile Strategy offering Non-linear benefit.....sounds like trend following to me.

Enjoy a bit of Nassim Taleb in action.

C

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  • #762
  • Mar 21, 2016 8:06am Mar 21, 2016 8:06am
Quoting Copernicus
Nice Article from HedgeNordic Comparing and Contrasting Macro and CTA funds. {image} {image} {image} A possible Bright Future ahead.......from the Editor.... {image} https://www.youtube.com/watch?v=lDOo...=RDD0y87BGWtzg Have a great week ahead. C
Another nice article Nick. You and bass always bring intellectual heft to the mountains of fluff at this place.
If you are good at something, never do it for free--Joker
  • #763
  • Mar 21, 2016 8:13am Mar 21, 2016 8:13am
Quoting jmn5611
{quote} Another nice article Nick. You and bass always bring intellectual heft to the mountains of fluff at this place.
Cheers J. It was a good article......The trend followers are not too different from the FA camp. The proof of the pudding is demonstrated by the comparability of returns.......the minor difference lies in whether you predict or just follow.
  • #764
  • Mar 21, 2016 8:15am Mar 21, 2016 8:15am
Quoting Copernicus
{quote} Cheers J. It was a good article......The trend followers are not too different from the FA camp. The proof of the pudding is demonstrated by the comparability of returns.
I think that is because given a long enough time horizon, it is actually FA that drives trends.
If you are good at something, never do it for free--Joker
  • #765
  • Edited 8:50am Mar 21, 2016 8:19am | Edited 8:50am
Quoting jmn5611
{quote} I think that is because given a long enough time horizon, it is actually FA that drives trends.
Spot on mate. Fundamentals drive the secular trends. The secret sauce is in the timing. Do you predict the change and nail the trade some of the time or do you simply miss the initial movement and ride the wave more of the time?

If I was to break it down, IMO fundamental analysis is the logical choice to trade normal markets, but where the icing on the cake lies with trend following is dealing with the fat tailed non-predictive events that Taleb discusses, which is an all too frequent symptom of complex systems.

In dealing with the unpredictable 'black swan', vote 1 trend following.

Spoken on behalf of the MTFLG (miserable trend following lobby group).
  • #766
  • Mar 21, 2016 8:25am Mar 21, 2016 8:25am
Quoting jmn5611
{quote} Another nice article Nick. You and bass always bring intellectual heft to the mountains of fluff at this place.
Agreed.. A golden post as usual.. ( thanks C)
Memories caught in time but never forgotten
  • #767
  • Mar 21, 2016 8:35am Mar 21, 2016 8:35am
Quoting j4d
{quote} Agreed.. A golden post as usual.. ( thanks C)
Evening Ja. Have you recovered from your whirlwind trip to Florence? :-)

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  • #768
  • Mar 21, 2016 9:23am Mar 21, 2016 9:23am
Quoting Copernicus
{quote} Spot on mate. Fundamentals drive the secular trends. The secret sauce is in the timing. Do you predict the change and nail the trade some of the time or do you simply miss the initial movement and ride the wave more of the time? If I was to break it down, IMO fundamental analysis is the logical choice to trade normal markets, but where the icing on the cake lies with trend following is dealing with the fat tailed non-predictive events that Taleb discusses, which is an all too frequent symptom of complex systems. In dealing with the unpredictable...
For me, I sacrifice wave one. I am only smart enough to enter at the end of wave two to catch wave three and five. That's the best I have ever been able to do.
If you are good at something, never do it for free--Joker
  • #769
  • Mar 21, 2016 2:29pm Mar 21, 2016 2:29pm
Quoting Copernicus
{quote} Evening Ja. Have you recovered from your whirlwind trip to Florence? :-) https://www.youtube.com/watch?v=61TTX_ELCTE
Great Company - Great Vino (served in Juice Tumblers- love it) - great place ( I love the Italian philosophy ) .... and consuming 1K t-bone steaks that melt in your mouth... No ! I haven't recovered .... I'm gradually get conditioned back to normality..but its painful...

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Memories caught in time but never forgotten
  • #770
  • Mar 21, 2016 2:53pm Mar 21, 2016 2:53pm
Quoting jmn5611
{quote} For me, I sacrifice wave one. I am only smart enough to enter at the end of wave two to catch wave three and five. That's the best I have ever been able to do.
And sometimes my friend thats all that u need to beat (if that's your goal) the other 95%.
Master Your Setup, Master Your self. (NQoos)
  • #771
  • Mar 21, 2016 2:55pm Mar 21, 2016 2:55pm
Quoting j4d
{quote} Great Company - Great Vino (served in Juice Tumblers- love it) - great place ( I love the Italian philosophy ) .... and consuming 1K t-bone steaks that melt in your mouth... No ! I haven't recovered .... I'm gradually get conditioned back to normality..but its painful... https://www.youtube.com/watch?v=wEB85Nwf15s
Heaven or almost on earth, arrivederci.
Master Your Setup, Master Your self. (NQoos)
  • #772
  • Mar 22, 2016 12:54am Mar 22, 2016 12:54am
Quoting bassramy
{quote} And sometimes my friend thats all that u need to beat (if that's your goal) the other 95%.
Something to tell myself when I get impatient.
If you are good at something, never do it for free--Joker
  • #773
  • Mar 22, 2016 9:25am Mar 22, 2016 9:25am
Quoting Copernicus
Nice Article from HedgeNordic Comparing and Contrasting Macro and CTA funds.
Thank you for sharing the article.

This corroborates my understanding that any kind of speculative strategy is ultimately beholden to overall market direction and volatility. I am pleasantly surprised that the systematic index beats the Fundamental macro index handily.
Quote
In dealing with the unpredictable 'black swan', vote 1 trend following.


"The black swan theory or theory of blackswan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight." - Wikipedia.

Price moves first. Fundamental opinions adjust accordingly after the fact and lag behind.

In my opinion, there are no black swan events when following trends. When you respect risk and approach markets with the perspective that literally anything can happen nothing comes as a surprise anymore. Surprises tend to happen to the guy taking the opposite side of the trade.
  • #774
  • Edited Mar 23, 2016 7:57am Mar 22, 2016 6:07pm | Edited Mar 23, 2016 7:57am
Quoting Atokys
"The black swan theory or theory of blackswan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight." - Wikipedia.
Nice definition


Quoting Atokys
In my opinion, there are no black swan events when following trends. When you respect risk and approach markets with the perspective that literally anything can happen nothing comes as a surprise anymore. Surprises tend to happen to the guy taking the opposite side of the trade.
I agree. You get two bites at the risk management cherry with diversified trend following. Diversification itself helps dilute any negative impacts associated with a flash crash event that you simply cannot passively ride as a trend follower (such as the 'almost' instantaneous Swissy event) PLUS trend following itself ensures that you trade on the correct side of any sustained protracted price movement. You certainly cover your risk management bases with this philosophy and is why IMO this technique reigns supreme in the world of trading.

It is all about dealing with uncertainty. Profits are just a necessary side effect for participants (if they survive long enough) of the fact that markets are complex and cannot be predicted with certainty. This uncertainty in any nested open system/s actually guarantees that there will be periods of sustained asymmetrical anomaly that can be exploited by those that simply follow price and flies in the face of normal distributions that are an artifact of simplified mathematics and not representative of the reality of open/nested systems.

Thermodynamic fact (the second Law): Any theoretical closed system will over time obey principles of entropy and tend toward equilibrium. Any open or nested system will never achieve equilibrium (effective random fully dissipated systems where no useful energy can be extracted to create ordered structure). Markets that are globally connected and open to the extent that inputs can be added to the system (eg. new money or new participants) will never achieve equilibrium. There will always be localised regions where order (eg. local concentrations of equity) can go against this overarching global trend of entropy. This is why markets exist and why normal distributions are too simplified to cope with the reality. Fat tails and localised power laws are a consequence of localised asymmetries and they cannot be predicted without perfect information about the entire system. If the system is open, this in reality can never fundamentally be achieved due to it's intractable nature....move over Newton you reductionist dreamer.....it's time for Carnot, Schrodinger and Mandelbrot.

For example biological systems take advantage of this asymmetry and is why 'life' using nested subsystems can locally defeat physical laws of entropy in this universe and create order from disorder.
  • #775
  • Edited 9:37pm Mar 24, 2016 9:25pm | Edited 9:37pm
Thanks to Ja for this excellent article on Diversification from Kevin Davey.

Attached File(s)
File Type: pdf TheBigSecretToTradingSuccess -Diversification - Kevin Davey.pdf   243 KB | 620 downloads
  • #776
  • Edited 11:20pm Mar 24, 2016 10:14pm | Edited 11:20pm
Quoting Atokys
This corroborates my understanding that any kind of speculative strategy is ultimately beholden to overall market direction and volatility.
I agree mate. I think it is as simple....or as hard....as your philosophy suggests. If you can be around to take advantage of this simplicity in an inefficient market then that's all there is to it... :-)
  • #777
  • Mar 28, 2016 6:50pm Mar 28, 2016 6:50pm
Hi Nick, I was catching up on the people I follow, and the topic of edges is once again opened. Do you think an edge could be trading knowing that certain price patterns are rare? For example, I know that it is highly unlikely that a pair is going to end up in a Doji star on the monthly chart. I use that information to trade with. I see a lot of posts about people looking for things that are likely to happen, but rarely do I hear about things that are unlikely to happen. What are your thoughts on that?
If you are good at something, never do it for free--Joker
  • #778
  • Mar 28, 2016 7:50pm Mar 28, 2016 7:50pm
Quoting jmn5611
Hi Nick, I was catching up on the people I follow, and the topic of edges is once again opened. Do you think an edge could be trading knowing that certain price patterns are rare? For example, I know that it is highly unlikely that a pair is going to end up in a Doji star on the monthly chart. I use that information to trade with. I see a lot of posts about people looking for things that are likely to happen, but rarely do I hear about things that are unlikely to happen. What are your thoughts on that?
Morning Jim

The usual method of taking advantages of price patterns is one of pattern inclusion as follows: - You identify a particular price pattern as a predictive signal for future price behaviour. This is based on your assessment of the frequency that this predictive price pattern has emerged and the number of times that this signal has generated a subsequent profitable result according to your trading technique. Your trade sample will therefore comprise the number of times that this predictive pattern has unfolded (which will be your trade frequency) and your expectancy will be the average profit/loss achieved per trade.

Some strategies, particularly convergent strategies (eg. many small wins with occasional large losses) rely on pattern exclusion for positive expectancy. Examples include Martingale Strategies, averaging down techniques and some mean reversion strategies that trade without stop losses. An edge is delivered by the exclusion of those patterns which are unprofitable for the trade technique. For example, you may assume that over an extended history, the probability of a particular pattern emerging is virtually non-existant or of sufficient low probability to allow for positive expectancy. You therefore tilt your trading strategy to only achieve a loss only when this pattern emerges, but in all or most other instances a profitable trade results.

I am not sure how you would take advantage of this in relation to your doji example but assuming that this was the only time your trade technique was unprofitable, then this would probably fit into this class of examples.

The problem with this style of convergent strategies however is whether in fact the excluded pattern is one of simple luck or a non-random feature of market behaviour. For example some blatant examples of non-random market behaviour are pegged currencies that possess a particular profile that prevents certain outcomes from being achieved as long as the peg is in place. Unfortunately the fat-tails of market distributions turn some supposed irregular occurrences of normal distributions into far more frequent events.

C
  • #779
  • Mar 28, 2016 8:10pm Mar 28, 2016 8:10pm
Quoting Copernicus
{quote} Morning Jim The usual method of taking advantages of price patterns is one of pattern inclusion as follows: - You identify a particular price pattern as a predictive signal for future price behaviour. This is based on your assessment of the frequency that this predictive price pattern has emerged and the number of times that this signal has generated a subsequent profitable result according to your trading technique. Your trade sample will therefore comprise the number of times that this predictive pattern has unfolded (which will be your...

I was trading the morning of 911 here in the states. I was also in a position when the dot com bubble burst. I also saw the massive flight to safety in 2008 when all correlations collapsed. Even then, a perfect Doji star has never happened on a monthly chart. When I mean perfect, I mean open == close at the end of the month with two equidistant wicks. This is the only pattern that no system can defeat. Your post was excellent and I am indeed in class two, RTM. However, if I sense that something is amiss I will make adjustments to that. What I think we are all trying to find is whether there is a static formula to tell us quickly when something is amiss.
If you are good at something, never do it for free--Joker
  • #780
  • Mar 28, 2016 8:12pm Mar 28, 2016 8:12pm
One caveat. I never, ever, average down. I have been on the wrong side of that before.
If you are good at something, never do it for free--Joker
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