Diversified Trend Trading Approach

Short term, long term, a good trader should thrive on these outliers, i wait impatiently for these kind of Black Swans, it turns out that i'm not the only one, all the Serious Bankers in the UK Ordered their own private Exit polls and they where ready for the Results and made Billions from it (Bankers spend BILLIONS betting on EU after paying for private exit polls ) like any other NFP, ECB or FOMC Event.

Now they are called (Bankers) traitors by the rest, by trying to benefit from everyone misery, in the chaos they didn't know that they (Bankers) are simply doing their Job ( Profiting from up and down swings ), nothing more and nothing less .

Have a good Trip and a great Weekend .

My tip, buy GU and company after the Dust settle down, sell the Buck because no Rate Hike is in site, but that is Just me.

Well, Andrea Unger is Keep hammering me with this :

http://skilledacademy.com/courses/ho...ectures/445411

Cheers C.. have a cool time at the farm..

She does look Guilty Bass . .

Guys

I apologise for my quietness of late on the forum. I have a pressing matter that I need to focus my attention on and as a result will need to put my contributions on this thread on hold for a short period.....but I will return once things settle down to continue. So please be patient and if any visitors to this thread would like to continue with further contributions in my absence....then feel free to do so.

All the best and stay safe.

C

Some time to kill so here is a very quick update without any fluff......sorry guys for the brevity.

Trend Following Performance Report - June 2016


Overall performance - Trend Following (TF) Index


Fund Performance Table

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Best CAGR - Jan 2002 - Jun 2016

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Worst Drawdown - Jan 2002 - Jun 2016

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Lowest Drawdown - Jan 2002 - Jun 2016

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Best Performer (Adjusted CAGR) - Scaled to Drawdown Exposure - Jan 2002 - Jun 2016

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Best Performer - Annualized Sharpe - Jan 2002 - Jun 2016

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Best Performer for the Month of June 2016

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Best Performer for the Last 12 Rolling Months to June 2016

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Cheers guys

C


PS Hopefully will be back shortly to get back into more detailed postings.

Performance Report - Discretionary Breakout Strategies (DTT, EDTT, EDTT1)

Trade Statistics


Equity Curve


Performance Graphs


Open Positions as at 24 July 2016





Performance Report - Discretionary Retracement Entry Strategy (DTTR)


Trade Statistics


Equity Curve


Performance Graphs


Open Positions as at 24 July 2016


Cheers

C

Well, I am back for the moment....at least on this (my home) thread. I unfortunately will not have the time to commit to progressing the thread "Diversified Trend Trading - Excel Projects" until things slow down a bit on my end.

....anyway, without more ado....it's back to business as usual.

....and it's good to be back talking "trendy things" :-)

Performance Summary - Discretionary Systems - Breakout Techniques (DTT, EDTT, EDTT1)

Unfortunately we are back in the doldrums following Brexit volatility....so this is where we raise our defenses and take our hits. Of course we expect we are going to be more wrong than right in our trade decisions but that is the name of the game in trend following. Sit back and relax and wait for our next 'blitzkrieg event' where we will once again clean up. In the meantime, simply apply the process...again and again....wax on....wax off......with a bit of melody to keep you occupied :-)




Overview
Trending activity following Brexit has been very subdued. Fortunately, the gains achieved from the volatility surrounding Brexit have not been given away due to aggressive capital management being applied since June. What is typical of most trend following strategies is that significant equity uplifts are usually accompanied by a substantial slice of that profit being given back to the market when markets re-equilibrate after volatility shocks. Fortunately, this has not been the case so far despite the recent difficult market conditions where mean reversion has been the name of the day since June.


Trade Statistics - Closed Trades
The calendar year to date performance stats are exceeding the 2015 calendar year results, so it we continue to play cautiously and hold onto the profits this year, we may see a good result this year which significantly outperforms the 2015 calendar year result. However you can never be too cocky in this game. Just to rub salt into our optimism and remind us that the market is our master...we have effectively flat-lined since June and trading conditions for trend following have been difficult. Most of the activity during July and August so far have been associated with trade activities in the direction of the primary trend.

Just a reminder that the name of this game is risk adjusted returns. Many of you will be familiar with some of the high impact threads on this forum that focus on delivering heady returns at a cost....and that cost is frequently account blow up. When trading with serious equity, the game has to change to one of risk adjusted returns. That is what any conservative investor is after, and that is the intent of this thread. What this means is that we scale our returns in terms of how much risk is involved in producing those returns. Now some of you may be after short term hedonistic "instant gratification'. If that is what you crave....then perhaps it is time for you to move on to other threads in this forum.

The core assumption of any trend following strategy is that you never know what is around the corner and as a result, the only tools you have to manage future uncertainty are the tools of risk management. In the game of long term survival, the secret sauce is 'capital preservation'. If you can achieve this....then wealth creation is a default result.




Equity Performance & System Health
The equity curve has now plateaud since June but drawdowns have been minimized. During these difficult market conditions, it is best to keep the powder dry and closely monitor trade frequency to ensure that you are not tempted to over trade. It is preferable to reduce trade frequency by stretching entry conditions beyond normal market volatility. This way you can avoid the 'noise' of the market when mean reversion becomes the name of the day. While this may result in some 'give-back' of potential profit on entry, a risk management mechanism such as this is more likely to assist in preserving capital.

The Win% and Average Win $ chart highlights the outperformance of June with respect to the historical cumulative average. Obviously when both these metrics sit above the cumulative average, things are rosy........ so at the moment you can see that market conditions are currently less than optimal for trend trading in general.




The Trade Profit Frequency chart highlights the positive skew of the current strategy which is what we are after with this technique, namely lot's of small losses that are more than compensated by a few large wins which is symptomatic of trend following strategies in general.





Trade Highlights
For the month of June, the trade highlight was the DJI despite what many would consider as a late entry. Following Brexit, I embarked on an aggressive defensive posture to protect capital and as a result, delayed entry on trades that had 'trending potential' to minimise drawdown exposure.



The SPI200 (ASX200) made a small contribution for August, and apart from this meager trade....not much else to crow about so far this month.



Current Open Positions
The unrealised profits sitting in the portfolio of approximately $6K or 7.32R provide a handy buffer to defend against future drawdowns and mitigate portfolio heat.






What's Trending According to this Technique
Not much on the radar at the moment.

EURJPY




USDJPY




Below is the analytic spreadsheet for those that want to get into the detail.

It's good to be back guys.

Cheers

C

My eyes bleed when I read many of the posts on this forum. Here is an idea. You could read through eleventy billion posts of garbage or take heed of those with a proven track record such as Ed. It's not that hard......"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."

40 Classic Quotes of Ed Seykota

1. If I am bullish, I neither buy on a reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical.
2. Fundamentalists figure things out and anticipate change. Trend followers join the trend of the moment. Fundamentalists try to solve their feelings. Trend followers join their feelings and observe them evolve and dis-solve.
3. The feelings we accept and enjoy rarely interfere with trading.
4. Systems dont need to be changed. The trick is for a trader to develop a system with which he is compatible
5. It can be very expensive to try to convince the markets you are right.
6. There are old traders and there are bold traders, but there are very few old, bold traders.
7. I would add that I consider myself and how I do things as a kind of system which, by definition, I always follow.
8. Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change.
9. Trying to trade during a losing streak is emotionally devastating. Trying to play catch up is lethal.
10. The elements of good trading are: 1, cutting losses. 2, cutting losses. And 3, cutting losses. If you can follow these three rules, you may have a chance.
11. Losing a position is aggravating, whereas losing your nerve is devastating.
12. The markets are the same now as they were five to ten years ago because they keep changing just like they did then.
13. Luck plays an enormous role in trading success. Some people were lucky enough to be born smart, while others were even smarter and got born lucky.
14. Having a quote machine is like having a slot machine at your desk you end up feeding it all day long. I get my price data after the close each day.
15. A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. Thats the kind of thing winning traders do.
16. If you cant take a small loss, sooner or later you will take the mother of all losses.
17. It is a happy circumstance that when nature gives us true burning desires, she also gives us the means to satisfy them. Those who want to win and lack skill can get someone with skill to help them.
18. Risk no more that you can afford to lose, and also risk enough so that a win is meaningful.
19. Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.
20. Be sensitive to subtle differences between intuition and into wishing.
21. The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small. 4. Follow the rules without question. 5. Know when to break the rules.
22. I usually ignore advice from other traders, especially the ones who believe they are on to a sure thing. The old timers, who talk about maybe there is a chance of so and so, are often right and early.
23. I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as
    the trend continues. Sometimes, I take profits when a market gets wild. This usually doesnt get me out any better than waiting for my stops to close in, but it does cut down on the volatility of the portfolio, which helps calm my nerves. Losing a position is aggravating, whereas losing your nerve is devastating.
24. I intend to risk below 5 percent on a trade, allowing for poor executions.
25. I dont judge success, I celebrate it. I think success has to do with finding and following ones calling regardless of financial gain.
26. (On losing streaks and over-trading) Acting out this drama could be exciting. However, it also seems terribly expensive. One alternative is to keep bets small and then to systematically keep reducing risk during equity drawdowns. That way you have a gentle financial and emotional touchdown.
27. In order of importance to me are: 1) the long term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.
28. Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
29. Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them funny-mentals. However, if you catch on early, before others believe, you might have valuable surprise-a-mentals.
30. If you cant measure it, you probably cant manage it Things you measure tend to improve.
31. The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.
32. If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when its coming in, itll never happen. The market is always right
33. To avoid whipsaw losses, stop trading
34. Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top
35. Markets are fundamentally volatile. No way around it. Your problem is not in the math. There is no math to get you out of having to experience uncertainty.
36. Our work is not so much to treat or to cure feelings, as to accept and celebrate them. This is a critical difference.
37. Before I enter a trade, I set stops at a point at which the chart sours.
38. Trading requires skill at reading the markets and at managing your own anxieties.
39. The positive intention of fear is risk control.
40. Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. This is essential as large fluctuations can engage {emotions} and lead to feeling-justifying drama.

Performance Summary - Discretionary Systems - Trend Following Retracement Entry Technique (DTTR)




Overview
This portfolio crawls along when compared to the multi-timeframe discretionary breakout strategies. The very selective trade entries combined with the restriction to the D1 timeframe results in trades that are few and far between, but what a breath of fresh air. For those who do not like staring at your screens all day and taking perhaps 15 mins a day to review your portfolio and maintain trade alerts, then this is perhaps for you. This strategy reminds me of some of those long term wealth building techniques on this forum like DIBS and the Equity Millipede.

We could be holding some of these positions for years providing that market structure is maintained. Despite the apparent inactivity and low trade activity, unrealised profit is progressively ratcheting upwards so now we are sitting on a great nice war chest. This just goes to demonstrate that we really don't need to trade lower timeframes. A far more peaceful and profitable trading life can be enjoyed out in the longer term timeframes. This is also evident when looking at the most successful CTA's in the industry (eg. Dreiss and DUNN) who trade the weekly timeframes. Once again, it demonstrates that over-trading is the greatest enemy for the trader. It unnecessarily introduces drawdowns into the system and also significantly increases the trading cost base associated with trade frictional costs (spread, SWAP and slippage).

Given the mean reversion nature of this strategy back into the primary trend, it is anticipated that this system will prove a useful addition to the discretionary system portfolio arsenal which so far is focused on trend breakout strategies. When trend breakouts are few and far between, this strategy is anticipated to shine attributed to mean reversion activity.

Trade Statistics - Closed Trades
There is not sufficient data to make any informed decision relating to trade statistics. The low Pwin% of 29.7% YTD is very deceptive as the strategy only commenced in late April and as a result, the statistics associated with closed trades only relate predominantly to losing trades as the majority of profitable trades currently are still open and not currently reflected in the results.





Equity Performance & System Health
Currently with the limited trade history, not many conclusions can currently be drawn regarding equity performance or system health. Needless to say, things appear to be tracking Ok.









Trade Highlight
Silver has enjoyed a nice bull run which has allowed us to take half our position off the time with a nice profit of 3xR. The remaining position is maintaining it's value and we have have the ability to benefit from any additional upside.

For those who do not like seeing their unrealised profits vapourising away before their eyes as the trend 'bends' then this is an option to eases the pain somewhat. While in the long term this will probably be detrimental to our overall returns, the benefits to cashflow for such a long term strategy need to be considered.





Current Open Positions
Good unrealised profit is currently sitting in the portfolio allowing us to maintain an active aggressive stance in the market and not be concerned with portfolio heat.






What's Trending According to this Technique

GBPUSD



CADJPY



XAGUSD



AUDJPY




That's it for the week. detailed spreadsheet of analytics is attached.

Best of trading for next week.


Cheers

C

The Lifestyle of Trend Following

A worthwhile podcast to get your fangs into that highlights what crazy and self-destructive creatures we humans are.

Enjoy

C

Some Very Simple Short Term Retracement Entry Systems

This thread will change tack over the next few posts and investigate some very simple short term mean reversion (or Retracement Entry) systems and evaluate their long term robustness and application across a blend of asset classes. These posts have been inspired by some simple stock market strategies highlighted in the book "Stock Market Edges" by Philip Reschke.

These posts will be of particular interest to NorthTrader (PS. Thanks mate for the heads up on this book).

The book seeks to identify equity index momentum based trading strategies with a definitive statistical edge and challenges the notion of 'buying high' and 'selling low'. Each strategy evaluates between short term 'buying high' and 'Selling Low' versus short term 'buying low' and 'selling high' approaches.

The analytical results from the indices tested clearly conclude that:
1. Long only strategies are favored to short only strategies or a combination of both long and short strategies; and
2. That 'buying low' is the preferred option to consider amongst all strategy variants.

It also utilises time based holding periods as a basis for all exits in preference to buy and hold strategies that are commonplace in the equities market.

On this basis I will be applying this logic to a universe of 40 instruments across asset classes that span:

1. Forex - 15 markets
2. Metals - 4 markets
3. Soft Commodities - 7 markets
4. Energy sector - 4 markets
5. Treasuries - 3 markets
6. Indices - 7 markets

Buy Short Term Lows - Consecutive Low Setup with the Entry Signal on the open of the following Bar.
The first strategy we will explore is a very simple strategy that operates on the daily timeframe. This strategy is a variant to a version described in the book in Chapter 2 but at least it acts as a starting reference point.

The basis for the setup and entry signal is as follows:
1. We need x consecutive bars of lower lows;
2. We buy on the open of the X+1 bar;
3. We are only ever in 1 trade at a time per market;
4. Position sizing uses 2 X ATR (14 day period);
5. Initial stop is placed 2 x ATR (14 day period) below entry price less commissions;
6. We hold the trade for a period of Y bars and exit on the open of the Y+1 bar OR we exit on the open of the bar following the triggering of the initial stop; and
7. This is a long only strategy.

There are lots of things we can do to hone the broad conditions of this strategy to improve results but the following analytics demonstrate that this technique has a definitive edge across a diversified portfolio.

The following analytics are food for thought and for discussion purposes. Note that profits are not reinvested in these analytics so we can focus on performance metrics as opposed to compounding principles.

NT let me know your thoughts and we can run variations to this core strategy to address some of the current issues.

Enjoy.

C

Variations to the Core Strategy Described in Post 1092

A simple change reducing the number of consecutive lows from 5 to 3 with all other variables retained produces the following result across the portfolio.



The result poses the following challenges:
1. Improved CAGR which comes at a cost of a higher drawdown. The CAGR/Drawdown ratio prevents the same degree of scaling potential than the latter version.
2. Increased degree of positive contribution across the portfolio with 30 markets offering positive returns.
3. Slightly reduced Pwin and Expectancy;
4. Significant increase in trade frequency (hence sample size) which is a positive factor to consider;
5. Reduced overall profit factor.

Conclusion: The most significant material contribution of this variation is the increased sample size of trades from 1,800 to 4,700 . Despite the increased drawdown and lower expectancy, these perceived advantages are over-ridden by the increased trade sample size that increases our confidence in it's statistical validity. We can perhaps address the sacrificed metrics through other key amendments such as holding period or adjustment of the entry signal. We will therefore lock in the number of consecutive bars to 3 and run a further variation that extends and reduces the holding period to observe portfolio effects.

Cheers

C

Hey C,

Thanks very much for looking into this. I didn't get a whole lot further with my testing since we last chatted, and I'm back to work from tomorrow so will have to revisit this next week hopefully. I've been trying a variation of this setup with single trades per setup, multiple trades per setup (entering on every setup and not waiting for the last trade to expire) and various directions (long after consecutive down days, short after consecutive up days, and both combined) on a limited portfolio and test period (two years). The results were generally good but some instruments were awful in certain directions because the system was trading against the long-term trend. If we could add a filter to determine which direction we should generally be trading then the results should improve dramatically. Maybe an MA-200? I don't know.

About the results you posted so far (nice presentation by the way ), yes it appears that there is an edge but the performance is not that great unfortunately (CAGR under 3%). You can usually get at least 4% over 16 years by investing in a balanced portfolio of stocks and bonds, with rebalancing every year. But it is a positive start and warrants some further investigation I think.

Also, I think testing the setup as it was described in the book (2 bars, 5 or 10 days, no SL) would be useful too, even though in practice it would be dangerous to trade without some kind of SL.

Great work C, even though you're so busy at the moment, and I'll try to share some of my results next week.

Cheers,
NT

Morning NT

Good points mate. After I have played around with the holding period on this strategy, I will then trial some variations before moving on to Reschke's other strategies. I will leave the other variations you are working on mate as unfortunately I am stuck with a single trader using my excel models. Some of the variations that might be worth testing using my excel modelling include:
1. removing the stop loss condition and simply applying a time exit (limited adverse risk for a diversified portfolio where each trade carries very low trade risk);
2. using a Bollinger Band exit in conjunction with a time exit to at least exit following a bounce after an adverse excursion.
3 application of a trend filter (no probs with MA's as they should do the trick but might trial a range of different SMA's such as 50, 100, 200 to capture different types of momentum moves).

I must admit that I prefer applying blended strategies than single strategies in isolation. A single strategy such as this which clearly has positive expectancy and offers a CAGR of approx 4% (profit reinvested) and a tolerable drawdown of up to 20% can really assist in constructing system blends that can offer CAGR of up to 15-20% over long term periods with acceptable drawdowns of say a max of 20%. These blends can deliver yield in a range of market conditions given that their composite nature responds to a range of market conditions.

....anyway, some better results are coming in if we extend the holding period.....and this will be improved if we reinvest profits (compound the result).

Extending the Holding Period to 30 Days (no compounding)



Extending the Holding Period to 50 Days (no compounding)


Conclusion:
The performance metrics start deteriorating as we extend the holding period beyond 30 days (eg. max drawdown) as does the trade frequency. As a result the 3_30 option so far stands out as a fairly robust solution for the given set of parameters.

Over the next few days I will look at further variations on this core strategy with the suggestions made at the beginning of this post.

Have a great day.

C

Yeah, absolutely. I agree that a mean-reversion system alone is not a good idea. Just imagine getting caught in a long strong bear market with a system that only takes longs back to mean! But combine it with some trend-following systems... and sparks might fly!

Well done so far C and I hope to share more next week when things settle down. Until then, have a good one

Buy Short Term Lows - Consecutive Low Setup with the Entry Signal on the open of the following Bar - No Initial Stop

Below are the results of the simple mean reversion entry strategy described from Posts 1092 to 1096 in which no initial stop loss condition is applied.

BuyShortTermLowsNoStop 5_30



BuyShortTermLowsNoStop 5_5



In both variations there is a clear deterioration in performance metrics when compared to the same variations with an initial stop defined as 2xATR from entry.

At least this demonstrates how for these particular variations, no stop leaves the portfolio overly exposed on the downside.

The next tests will be applying a trend directional filter to these simple models to hopefully accelerate performance returns and we will also be testing whether or not an initial stop contributes or detracts from overall performance.

Using trend filters we can afford to extend the holding period to benefit from longer duration momentum moves in the direction of the longer term trend. At the moment these models simply apply a long-only setup with a defined series of consecutive low bars to take advantage of mean reversion principles, however with an applied trend directional filter, we will turn these simple models into long-only short term retracement trend entry models.

While sample size will decrease with the application of a directional filter, it is anticipated that overall performance metrics will significantly improve......so watch this space.

Cheers

C

Buy Short Term Lows - Consecutive Low Setup with the Entry Signal on the open of the following Bar - Initial Stop & Trend Filter

The following variation to the base model applies a simple trend filter to the Setup that significantly accelerates performance returns.





The basis for the setup and entry signal is as follows:
1. We need 3 consecutive bars of lower lows;
2. We need the close of the 3rd bar to be higher than the 50 period SMA;
2. We buy on the open of the 4th bar;
3. We are only ever in 1 trade at a time per market;
4. Position sizing uses 2 X ATR (14 day period);
5. Initial stop is placed 2 x ATR (14 day period) below entry price less commissions;
6. We hold the trade for a period of 30 bars and exit on the open of the 31st bar OR we exit on the open of the bar following the triggering of the initial stop; and
7. This is a long only strategy.

1. All performance metrics are improved through applying the trend filter;
2. Produces a positive return on 32 of the 40 markets contained in our universe;
3. Produces a CAGR (without profit reinvested) of 3.90% or with profit reinvested of 5.32%;
4. Has a max drawdown over the 16.6 years of testing of 6.01%

The scalability of this strategy is significant as is it's potential contribution to a multi-system strategy. For example, assuming a max drawdown tolerance of 20%, the CAGR assuming profits were reinvested would be 10.87% over the 16.6 year period.

Clearly the addition of a trend filter does the trick.

We will test a few further variations of this model before we progress to other systems described by Reschke in his book. Stay tuned.

Cheers

C

Conclusion - Buy Short Term Low Strategy

We have now arrived at a solution that offers a distinctive equity curve and positive expectancy. On it's own as a single strategy it may not be everyone's cup of tea but as a possible inclusion in a multi-system strategy, this strategy ticks many boxes.
1. It has a defined edge over the last 16.5 years and is applicable to most liquid instruments across all asset classes;
2. It responds well to trending markets and extended directional momentum moves;
3. If offers a very manageable drawdown with significant scalability;
4. It offers a consistent return profile (while avoiding excessive curve fitting);
5. It does not accumulate risk heat and is a safe inclusion in a diversified system portfolio;
6. It's relative short term nature allows a sufficient trade sample size that is statistically meaningful;

Here is the best result so far for the 16.5 year period
1. It offers positive returns for 29 of the 40 markets;
2. It has a CAGR (no profit reinvested) of 4.33% or a CAGR with profits reinvested of 6.13%;
3. It is very scalable. Assuming a max drawdown of 20% then CAGR with profits reinvested would be 11.21%.



Overall I am quite impressed with this trading solution given it's simple nature and broad appeal to a range of liquid instruments.

NT...I will move on now to some of Reschke's other ideas. Looks like his book is going to be a valuable addition to the arsenal.

Cheers

C

Performance Summary - Discretionary Systems - Breakout Techniques (DTT, EDTT, EDTT1)

Unfortunately we are back in the doldrums following Brexit volatility in June and mean reversion in a sideways congesting market is starting to take it's toll....so this is where we raise our defenses and take our hits. Of course we expect we are going to be more wrong than right in our trade decisions but that is the name of the game in trend following. Sit back and relax and wait for our next 'blitzkrieg event' where we will once again clean up. In the meantime, simply apply the process...again and again....wax on....wax off......with a bit of melody to keep you occupied....let's pick up the pieces :-)




Overview
Following the Brexit glory in June for trend followers, the markets have become far more subdued with mean reversion once again becoming the flavour of the month. July was a flat performance month and August is now seeing a building drawdown. During these more difficult periods overtrading becomes your enemy. To be safe as opposed to sorry, I will be now taking steps given the discretionary nature of this strategy to protect capital by extending the range of pending orders to keep clear of current volatility. What we therefore want to see statistically this month is a noticeable reduction in trade frequency that demonstrates the efficacy of our trade management decision.


Trade Statistics - Closed Trades
August is experiencing a low Pwin rate of 27.7% when compared to the long term average of 39.4% which indicates the current mean reverting nature of this market and relative lack of trend trading opportunities. Furthermore while most trades taken in August (63.8%) were in the direction of the long term primary trend, the vast majority were losers signalling that overall, the markets are currently mean reverting within general sideways congestion during August. We therefore need to place our entries well outside the current normal range of volatility and wait until the market comes to us if volatility and momentum pick up.




Equity Performance & System Health
The equity curve is now starting to retrace as the drawdown is building. Now is the time to get defensive to keep the powder dry and closely monitor trade frequency to ensure that you are not tempted to overtrade. It is preferable to reduce trade frequency by stretching entry conditions beyond normal market volatility. This way you can avoid the 'noise' of the market when mean reversion becomes the name of the day. While this may result in some 'give-back' of potential profit on entry, a risk management mechanism such as this is more likely to assist in preserving capital.

The Win% and Average Win $ chart highlights the under-performance of August with respect to the historical cumulative average. Obviously when both these metrics sit above the cumulative average, things are rosy........ so at the moment you can see that market conditions are currently less than optimal for trend trading in general.




The trade frequency chart shows that currently as at 20 Aug 2016 our trade frequency is approximately 60% of the average long term monthly trade frequency. This week, unless volatility picks up, we will be seeking to significantly reduce trade frequency during this difficult patch.

The Trade Profit Frequency chart highlights the positive skew of the current strategy which is what we are after with this technique, namely lot's of small losses that are more than compensated by a few large wins which is symptomatic of trend following strategies in general.




Trade Highlights
For the month of August, the only trade so far worth highlighting was USDCHF. Very slim pickings this month…yet beggars can't be choosers.




Current Open Positions
The unrealised profits sitting in the portfolio of approximately $6K or 7.63R provide a handy buffer to defend against future drawdowns and mitigate portfolio heat.




What's Trending According to this Technique
Not much on the radar at the moment.

EURJPY






USDJPY




Below is the analytic spreadsheet for those that want to get into the detail.


Cheers

C