Diversified Trend Trading Approach

Happy New Year

A happy New Year to you all and all the best for 2017. Despite what 2016 has thrown your way....be it good or bad..(for us trend followers it has been a rotten year but on the bright side... a great set of market conditions to test system robustness)..but enough of the whining....it's now time to dust yourself off, set down those plans for a great 2017 and most importantly put those tapping shoes on and prepare yourselves for the night of nights. Who knows what is right around the corner......let's hope it is that elusive pot of gold.



Cheers

C

The Daily Grind

I have just been reviewing the 2016 wrap up for the Breakout discretionary systems - The subject of most of this thread.....and thought the following results were interesting in demonstrating the daily grind we must endure to extract our edge from this market.

Below is a trade summary for 2015/2016.





A total of 1685 trades have been taken over the course of the 2 year period to extract a Compound Annual Growth rate of 17.21%.

Crumbs you may say, that's a paltry return......well it is all relative dear critic.......that return has been achieved in very tough trend following conditions yet only experienced a max drawdown of 6.7% in 2015. If I had larger cohonas I would have doubled my risk appetite and derived a CAGR of 34.42% with a commensurate drawdown of 13.4%.....not high enough for the risk junkies out there?......how about 68.84% with a drawdown of 26.8%? What this is demonstrating is that return of a strategy means nothing. It can all be adjusted through position sizing. What is important to the prudent investor and trader is the risk weighted return.

For what it is worth, I am very happy with this result as this return was achieved well within my risk tolerance expectations. Trading well within one's risk expectations allows you to treat this game as a long term investment and keeps your psychology from overriding a potentially great system.

Anyway, I digress......of these 1685 trades, 2.26% of them (38 trades) were responsible for all the profit!!!!!.....What this is saying is that 1,647 of the 1685 trades were required to simply achieve breakeven. What a grind....... Where is the deft skill of the discretionary traders craft I might hear you say? It's time to smell the thorns of reality guys. There is not much available alpha to exploit in modern efficient markets......those who think otherwise are destined to be the car wrecks of the trading fraternity.



It is this necessary grind that mere mortals like me have to face that makes trend following a tough game. Your success in this trend following game is determined by how many knock downs you can take but still get up and win the fight at the end of the day. As opposed to skillful martial Artists, trend followers are simply punch drunk experienced survivors. Stuff the Bruce Lee quotes on 'practicising a kick a thousand times to perfection while levitating'......Trend Followers have lost their arms and legs but are still able to bite Bruce Lee to death.



Have a look at the histogram of trade results below. I have highlighted the region in which those 38 trades were located. Look how the the histogram is skewed and where the dominant frequency of trade results plot.



In this game of trend following, it is the rare exceptions that make us our bread and butter. All the remaining trades undertaken are simply treading water and hopefully surviving. Trend following is a tough game where most of the time you are simply trying to survive. It is your ability to survive (your risk management) that will dictate whether you are around to be able to participate in these rare alpha opportunities.

This should drum home the point that predicting when these very few winning trades will emerge is a useless exercise. You simply need to be there at the right time to be able to be lucky to exploit these opportunities. What is necessary is that your systems are turned on 24/7 to be able to be there at the right time and place......but to be in a position to achieve this, your system must be able to ride the storms of uncertainty thrown at you by the market while you are waiting, and then....and only then... you just may be lucky enough to be there at the right time to exploit alpha when it infrequently and sporadically rears its head.

Throw away the crystal balls and start to learn how to build an unsinkable ship, then you may have a chance of being able to ride those rare tsunamis of opportunity.

Full trade details for the EDTT, DTT and EDTT1 are attached below.

Cheers

C

The sweat is beading, the congas are moving, the rythms are exploding........It's New Years Eve and the natives are restless. Have a great night guys.

Signing off for a few chilled starters before pandemonium erupts.

Cheers

C

Same to you .

.. By the way.. nice trading ...

Stay tuned
Guido

Have a Healthy, Wealthy and Happy New Year C.

You too mate. Enjoy the snow :-)

Yeah, everybody on the social media are declaring the death of trend following, some have also burried it (one more time), only Jerry Parker is tweeting otherwise, a treasure of wisdom, thats what differentiate the true Trend Followers from the Fake ones .
"As a zero-sum measure, alpha is passed from investors who fold during times of volatility to those who have the fortitude to hold."

"For an active strategy to potentially outperform in the long run, it must be difficult to hold in the short-run.
https://t.co/tSvLqEChlX

All clients can quit at the wrong time. They don't know any better. They don't know how to trade.
Jerry Parker
@rjparkerjr09

Everyone is abandoning Trend Following, what they dont know is that they should do ecxactly the opposite for after the winter there always Spring and this have been proved a 1000 times through history .

Thank u, and you the surfing, 8:00 pm 28 degres in Brisbane, enjoy your night .

Yep. Trend following is definately dead. Time to pack the bags and head off home. Nothing to see here ladies and gents.........just a dry wasteland of missed opportunities.......*sniggers*. I mean market crisis are a very rare event after all.




....currently sitting on verandah swatting mozzies with jazz floating through the neighbourhood. Glug, glug, glug....enjoying a robust Aussie red. Bloody hot though!!!!

[quote=....currently sitting on verandah swatting mozzies with jazz floating through the neighbourhood. Glug, glug, glug....enjoying a robust Aussie red. Bloody hot though!!!![/quote]

Yeah, although its still early but for me its Wine And Cheese near the cheminee .

I can feel a house swap coming on. It comes with a great wife and 4 kids as well who are all house trained /tic. Have a great one Bass.

Happy new year, C!

You too Pip. You beat me to it. I left you with some Fatback on your New Year's thread. Cheers mate :-)

Dear C

Happy new year!
All the best and keep up the good work!

Have a great 2017 T. All the best.

C

Great job, Copernicus and always very interesting posts.

Thank you,
Hudi

Cheers Hud :-)

I hope you have a great 2017. C

Start the weekend off with a bang. Six days gone only 359 to go. :-)

Podcast Heaven

Some worthwhile podcasts of late for those with a passion for trading diversified systems.

Enjoy

C

Covel
https://www.trendfollowing.com/2016/...michael-covel/
http://trendfollowingradio.com/ep-51...ollowing-radio

Chat with Traders (with Quantopian)
https://chatwithtraders.com/quantopi...ney-mackenzie/
https://chatwithtraders.com/quantopi...2-jess-stauth/
https://chatwithtraders.com/quantopi...nathan-larkin/
https://chatwithtraders.com/quantopi...ott-sanderson/
https://chatwithtraders.com/quantopi...-max-margenot/

52 Traders
http://52traders.com/andreas-clenow/
http://52traders.com/daniel-fernandez/

Better Systems Trader
http://bettersystemtrader.com/060-st...-robert-pardo/
http://bettersystemtrader.com/061-fo...-howard-bandy/
http://bettersystemtrader.com/062-me...pj-sutherland/
http://bettersystemtrader.com/063-ma...-alan-clement/

Top Traders Unplugged

 

1. TTU EP 096 Campbell, DUNN & ISAM Group Conversation Part 2
2. TTU EP 095 Campbell, DUNN & ISAM Group Conversation Part 1
3. TTU EP 094 Bill Dreiss Dreiss Research Corporation Part 2
4. TTU EP 093 Bill Dreiss Dreiss Research Corporation Part 1
5. TTU EP 092 Andreas Clenow ACIES Asset Management Part 2
6. TTU EP 091 Andreas Clenow ACIES Asset Management Part 1
7. TTU EP 090 Robert Carver Part 2
8. TTU EP 089 Robert Carver Part 1
9. TTU EP 088 Andrew Baxter Cambridge Capital Management Part 2
10. TTU EP 087 Andrew Baxter Cambridge Capital Management Part 1
11. TTU EP 086 David Gurwitz Charles Nenner Research Center Part 2
12. TTU EP 085 David Gurwitz Charles Nenner Research Center Part 1
13. TTU EP 065 Jerry Parker Chesapeake Capital 2014 Review

Top 5 Podcast Episodes

1. Making a Simple System and Sticking To It | Robert Carver, Author & Trader | #89
2. He sees Facebook stock collapse to $1 | Mahendra Sharma, Financial Astrology | #73
3. The Simplicity of Trend Following | Katy Kaminski, Alex Greyserman & Roberto Osorio | #96
4. How To Overcome Cognitive Bias in Investing and Trading | Roy Niederhoffer, R. G. Niederhoffer Capital Management | #45
5. Redefining Trend Following | Katy Kaminski, Alex Greyserman & Roberto Osorio | #95

Etc ... http://www.toptradersunplugged.com/