I honestly enjoyed reading your thread, can I PM You if I have questions?
I have a question, regarding the relative strength, eg USD against all currencies (EUR, GBP, CHF, JPY, AUD, NZD and CAD)
BP
Libenter homines id quod volunt credunt
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Disliked{quote} Thanks Copernicus I honestly enjoyed reading your thread, can I PM you if I have questions? I have a question, regarding the relative strength, eg USD against all currencies (EUR, GBP, CHF, JPY, AUD, NZD and CAD) BPIgnored
Disliked{quote} Sure BP but I am not an expert on Relative Strength as correlations are my major reason for system selection. However if I can help I will. CIgnored
Dislikedhttps://www.youtube.com/watch?v=U9t7cLPgdiM Easy start for the day for ya Sir easy workoutIgnored
Of the 47 different programs, only 2 of them (namely the two worst performing) are discretionary trading strategies. The balance of the programs are systematic demonstrating that the game of trend following under diversification is one that is geared for full automation. It is simply unwise in the diversified portfolio space (eg. across say 60 assets, 4 timeframes and 10 different applied strategies) to even attempt any form of trade management discretion. Those that flout the need for automation typically become our next train wrecks in this alternative investment space.
12 Month Results
Table 1 below lists the Fund Managers and the style of systems employed by each of the 47 different programs.
Table 1: Established Trend Following Programs and Nature of Systems Deployed
Table 3 below highlights the historic performance results of the 47 different programs and their relative rankings.
Table 3: Historical Performance Results for the period 1 Jan 2002 to 31 Dec 2016.
It is during these specific times (market regimes) that a convergent risk taker (those that assume that risk ultimately reverts to a mean) dominates the trading forums. They are the ones that:
.....do I need to go on.
And the reason that the numbers of convergent risk takers swell during periods of market 'quasi steady state' is that during this regime of stability, their beliefs are reinforced until they become 'Lords of the Domain' with a legion of loyal supporters.
It is during these times that a divergent risk taker (also called the trend follower) who recognises that divergence away from a mean offers significant exploitable opportunity in any complex system keeps his powder dry and avoids overly committing their diversified portfolio to trades when alpha is scarce and highly competitive. Frequently those trend followers that find they over-commit during stable market conditions, endure progressively larger and larger drawdowns and if not careful, run the risk of such significant drawdowns that they are unable to recover.
Now this is 'why' the diversified trend follower back-tests over as many different market regimes as they can muster as it is imperative to scale your trades and trade frequency in such a way to 'keep your powder dry' and avoid these excessive drawdowns. Over 800 years of history have told us that market regimes frequently change, and during these disruptive times, trend following makes it's return in spades to recover from these protracted drawdown periods during stable efficient markets.....so typically just when you start second guessing yourself and start to think like a convergent risk taker.............an innocuous 'something' happens to disrupt the apple-cart and bring chaos for the convergent risk taker.
The prevalence of these market regime shifts are much more frequent than you might think yet are impossible to predict. So while stable market conditions might prevail most of the time, market transitions occur 'some' of the time, but enough of the time to allow diversified trend followers to outperform the competition.
This is what gives the fat tails to the distribution of market returns. This frequency of occurrence of market regime shifts is the reason why convergent risk takers rarely can post an audited verified track record of more than a few years and why so many curve fit EA's get sent to the sin bin.
The regime shift itself disturbs the ecology (it's participants and network of relationships that have previously emerged) and the false sense of security that have been lulled into it's participants due to previous market stability. We get panic and system disruption as fight or flight pandemonium set's in. The bulk of convergent risk takers start acting like a herd scurrying for the exits and across asset classes, and on the other side of those trades lies the 'divergent risk taker' who is simply following price action and relying on extended directional price behaviour during these chaotic periods of disruption before the market achieves a new equilibrium where then the convergent risk taker starts to emerge from their bunkers ....to repeat the cycle again and again and again.
This is when the competition for alpha becomes far easier as the bulk of previous competition are heading for the exit gate, and this is when diversified trend followers start pillaging the chaos. The availability of alpha during these periods is extreme due to the 'sudden' dramatic reduction in competition and a time when the lion's share of performance for the trend follower emerge which starts paying for their enduring patience and associated drawdown legacy.
Think of ecologies that have had a major disruption (such as an asteroid strike) where the bulk of the competition is wiped out and the 'meek' robust species who survive rapidly exploit the uncontested environment.....well us trend followers are the meek that will inherit the earth. :-)
Now this disruptive feature is simply symptomatic of the dynamic nature of markets. Once an equilibrium is reached, a new network of relationships emerge that create inertia and 'stick' the market into it's stable enduring state...for a period of time at least....until that small flap of a butterfly wing occurs at a strategic weak spot that sends the market into short term pandemonium.
Now the thing about complexity is that as systems become more complex, they become more prone to critical failure. ..... so the future of trend following is indeed bright particularly given the nature of global markets and their current 'manipulated nature' by government intervention and the onset of a flurry of High Frequency Trading (HFT). The thing however about HFT, just like mean reversion or indeed any negatively skewed strategy is that when the collapse comes, it will be sublime......so keep on keeping on and don't lose the faith as sooner or later we will be 'bringing in the sheaves'. The 2016 year might have been a tough one for trend followers out there but now is the time to keep the faith.
What we are discussing here is simply evolution in action of a complex system....... and to be a survivor and have a track record in this market of more than a few years beyond a single market transition, you need to become a divergent risk taker. This however does not preclude the trend follower from dabbling with convergent systems provided it is a supplement as opposed to the main game of his/her strategy that is uncorrelated and assists in reducing drawdown impacts.
This is the preferred way to deal with uncertainty and the reason for 'how' life has evolved on this planet. Not by design, but simply by being sufficiently robust to survive in a dynamic environment. To all those diversified trend followers out there......take a bow from Charles Darwin.
DislikedHello Copernicus, I wanted to break my silence to say a MASSIVE THANK YOU for the huge amount of time, effort, honesty, openness and detail you've provided throughout this thread. I started on post 1 and carefully read and thought about every post until the EDTT was introduced on post 230 (where I'm at now). You mentioned you trade for a living and were open with your performance and trading history which was plenty enough for me to commit to fully understanding and implementing the DTT and not jumping to the end. I'm really glad I did. I often...Ignored
DislikedAccording to your system, you don't have any predefined take profit target when entering an order. The trade goes until the opposite line of the SDC is hit.Ignored
DislikedI was wondering. Have you made any test on how your results would look like if you exited trades according to a predefined RR ratio? I am asking since you may recall that I exit trades in a similar to yours manner and sometimes I feel that we leave quite a big chunk of profits on the table...Ignored
My intuition tells me to stick to the rules of the strategy as if the results this technique is achieving during poor market conditions are still good, then when trending conditions return, this technique will quickly revert back into a very solid performer.
The difficulty with a discretionary strategy such as this is that the backtest process is painstaking....so I am currently quite happy with how things are progressing.....perhaps I am lazy. If I could run this technique through an EA, then testing these alterations would be a cinch......but as simple as it may look to a programmer....it ain't that easy due to some necessary discretion applied in determining the quality of the trend prior to entry and in the discretion of selecting, based on momentum, which is the optimal swing high and swing low to commence the draw of the SDC from, Semi-automated yes, fully automated no....unfortunately :-)
C