Diversified Trend Trading Approach

Discretionary Systems - Retracement Entry System Performance (DTTR)



Trade Statistics


Equity Curve


System Health


Current Open Positions


What's Trending with this Technique








C :-)

Discretionary Systems - Breakout System Performance (EDTT and Variants)



Trade Statistics




Equity Curve




System Health



Current Open Positions



What's Trending with this Technique





Have a great Sunday guys and all the best next week.

C :-)

Trading Ideas: Squeezing the Lemon by Ring-Fencing Trend Trades



There are many different paths (systematic or discretionary) to trading the trend, and each trader's definition of trend is shaped by their particular approach at tackling them.....The definition of trend itself (aside from the Dow purists) is quite subjective wavering somewhere between what some would call momentum and others would call trend. The mere fact however is that there are many ways to skin a cat....oooooopps..... 'trend'. There really is no right or wrong provided that your applied approach has a statistically valid edge and that your very personal 'trend following' technique is consistently applied with monotonous application.

However common to any trend following methodology and what we probably all can agree on is that when a definitive trend of substance reveals itself, you want to be riding them as opposed to watching them.

Despite their lucrative appeal, real trends of substance on a single instrument (market) are pretty rare conditions. Most of us trend followers are 'punch drunk' traders who learn to take their hits with monotonous regularity but when the aggressor suddenly gives up puffing and panting....that's when we deliver a king hit.



We have already discussed in prior posts what we refer to as a 'fake trend' versus a 'real trend'. Namely a fake trend simply being attrubuted to a particular sequence of random price movements that has the annoying ability, on the shorter term timeframes, to generate what appears to be a nice trending price action series....... however as soon as you jump on them.....*poof*.....they disappear back into a mean reverting series.

Of a large number of 'fake trends'...only a few reveal themselves to have any enduring momentum over the long term. It is these beauties that are initially forged in Mount Doom on the short term timeframes that progressively reveal themselves over the longer timeframes and end up contributing to that great trending action seen on the monthly charts......"One trend to rule them all".

Of course it is these trends of enduring substance that are backed by the big money moves that position themselves in the context of economic outlook.

Anyway......some of you trend followers might be a bit like me, in that it is those 'rare' trends of substance that have got away from me that make me turn to booze or let down a neighbours car tyre /tic..........ok....you know what I mean....call it post-trend dissonance if you like.

All of us can look back at particular market conditions and say....imagine if I was riding that? Well for me.....the lost opportunity is my greatest dread.



So what can we do about it?

This is what I refer to as ring-fencing trend trading opportunities and is applied to a number of my discretionary and systematic trend trading methods.
The idea around ring-fencing is that you apply pending order entries on any timeframe well outside normal volatility, that are triggered when momentum progressively picks up and a trend is forged from the lower timeframes and ultimately expressed in the higher timeframe.

The idea around ring fencing is that each timeframe has it's own distinctive fractal characteristics........ "OMG....C is a 'woo science' tea-leaf reader?"......

Damn......Let's rephrase. Start by throwing them off the scent with a few charts.

Let's start with the 30 minuite timeframe. Below is a trend on the FTSE between 2 Dec 2016 to 16 Jan 2017 according to the definition of trend in this particular methodology.



Now in the context of the higher timeframe of the daily chart, what was a trend on M30 now turns into a swing move of a longer term trend between 11 Feb 2016 to current day below.



To get a long term trend on a monthly chart, you need to progressively summate what occurs on the lower timeframes to achieve that outcome.



The swings and trends on the lower timeframes are ultimately manifested as a trend on the highest timeframes...or what appears as a trend on a lower timeframe may ultimately be manifested as a swing move of a trend on a higher timeframe.. .."That was close, you almost put your foot in it with fractals....Ok C, continue"

Ok, so now onto ring-fencing again.

By configuring a single trade entry to the statistics that are applicable to a particular timeframe, you are effectively trading a single instrument configured for each timeframe as opposed to the often cited pyramiding method where additional trades are placed on a single timeframe' as you progressively move deeper and deeper into profit.

Just as a bit of background on pyramiding, to pyramid trades along a trend, you wait until your prior trade has achieved a desired margin above break-even and then you enter again with a new trade on the same trend to hopefully compound your profit result. Now be aware that the compounding only occurs if the trend continues on it's merry way. More often than not, the trend bends and you exit your entire compounded position when you hit your trailing stop. That last trade you took is likely to be in a loss and will detract from the total profit obtained by prior trades pyramided along the same trend.

The latter 'pyramiding' technique is not a favourite of mine as I find that you are trying to squeeze the lemon too hard which frequently leads to a bitter after-taste. As a trend trader, the majority of your life you are in drawdown and it is only the very few rare superb trades of total trade frequency that make up for all those losses incurred along the way. By 'pyramiding' I find that the method unnecessarily contributes to overall portfolio risk by detrimentally eating into the profits delivered by many of the average trends which are simply necessary to keep me afloat and away from excessive drawdowns. There are only the occassional rare beauties that deliver the great profits that trend followers reap....but you simply cannot predict when you are on one. The name of the usual game is a grueling grind keeping youself afloat with the occassional windfall to make it all worthwhile. Pyramiding compromises that ability for me.

.....anyway, ring-fencing is different to pyramiding as you are not compounding positions on a single timeframe but rather placing a single position on each timeframe that is specifically configured for that timeframe. If all the timeframes coincide when trends hit full steam ahead, you compound your account on the same instrument (market) but not on the same trend which is different for each timeframe.

Below is a graphical example of 'ring fencing' the timeframes for the Dow Jones Index to demonstrate what I mean. There is no way to escape my greedy clutches when I have ring-fenced an instrument. No trend of significance can escape me with this technique.....you can run but you can't hide Mr trend. :-)



RING-FENCING THE DOW


The multi-timeframe approach allows you to discern the context of trending price action for each timeframe. The trend trading approach applied in this scenario is a simple breakout technique designed to capture momentum moves outside of normal market noise.

Without going into the details of the system strategy itself, as every trend follower has their own preferred method, ...the broad principles of ring-fencing trends are as follows and can be applied to any methodology.

1. Commence with the lowest timeframe and wait until a trend develops on that timeframe that screams out at you for action....or is determined by statistical validity, if you are that way inclined.
2. Adopt pending order entries that are positioned well away from noise which requires a trending price series to work hard for the money to interest you. You may elect to use volatility measures to place your pending order entries with this method.
3. Because this technique has so many opportunities to bite at the 'trend cherry', only act on trends of significance to avoid over-trading.......one of the biggest killers to your PL. Also ensure that you only committ a fraction of trade risk% to each trade taken. In essence you are scaling into a big trend with this method. Across a diversified portfolio of say 40 plus instruments and six timeframes, there are many opportunities to trade and ensure your trade frequency keeps the profits churning....just not necessarily in a single instrument....so be freugel with your risk management and only trade the 'cracking trends'.
4. If you jump on board a trend on the lowest timeframe, do not enter a new timeframe until your lower timeframe trade is deep in profit and your worst case trailing stop is beyond break-even. This will reduce your ability to excessively commit risk to your portfolio.
5. Each trend on every timeframe is configured for that timeframe. This helps in reducing portfolio correlation to a degree and smoothing the equity curve. Ensure the characteristics of the trend such as volatility, momentum, number of price bars for statistical significance etc. are configured for that timeframe and that timeframe alone. Avoid simply trading the same component of trend for all timeframes. Go for the fractals man......I didn't say that by the way......it was my alter ego speaking.
6. If a trend on a particular timeframe hits your trailing stop, then out you get. This does not mean that you are out of the entire momentum move. You are just out on that particular timeframe. This is a big bonus to the traditional pyramiding technique as when the single trend ends with pyramiding, you are out of all trades for that instrument. With ring-fencing, you stay alive for a particular timeframe, if the trend on that timeframe stays alive. What this means is that during a bullish move in the market you quickly become fully loaded across all timeframes and can address periods of congestion during longer term momentum moves. For example, we are long in 4 timeframes for the DOW above and we are out on the 30 minute timeframe (as it is currently consolidating), and have not yet entered the monthly timeframe as we are a bit risk exposed with the other positions and am waiting for the pending order to be hit. We have therefore two further opportunities to capitalise on the trend before we become fully loaded, namely the M30 and the Monthly trade opportunity......or the trend may fall over now and we progressively hit our trailing stops for each timeframe and in an ordered sequential manner reduce our total position on that instrument. Remember......we don't predict, we just follow like a shadow.

....I could go on waxing lyrical about this method for days.....but probably best to call it quits now. and get back to the music, the beach and the surf. Speaking of the sun and surf...........*queues the music*

Wow, it must be cold in the water :-)

aveagreattradingweek

C

1. Commence with the lowest timeframe and wait until a trend develops on that timeframe that screams out at you for action....or is determined by statistical validity, if you are that way inclined.

Perfume came naturally from Paris
For cars she couldn't care less
Fastidious and Precise

Sorry Nick, it was the "if you are that way inclined".

Its obvious and official you r bored on a sunday afternoon but still a nerd, nice essay , you should work at Goldman or at least with Ray Dalio at Bridgewater Associates .

Bravo, nice job .

You know me too well Bass. The options were completing my long overdue tax return or avoiding it in its entirety. I chose the latter :-)

The night started well.......




But this is how it ended. The finger says it all. Four hours of gruelling testing....and then you realise you c**ck*d up. *grrrrrrrr*.....for another day! :-(

Uuuugh. Now that was a testing work-week. I smell the Friday night vibes ahead. :-)

Re-Scaled Range Analysis

An interesting article for us non-quant dummies that gives an understanding of how to assess whether market data is random, mean reverting or trending. Included below is a simple (but large) excel spreadsheet that a system developer can get their teeth into as a market regime tool.

Cheers

C

Nice in-depth research looking at the performance of trend following CTA's after periods of crisis alpha.

Enjoy

C

The Noise Annoys A Noisy Trend Follower Most



Here is a great executive toy for the trend follower out there (thanks to Christiaan Huygen) that you should keep on your desk as a continuous reminder (during those depressing random or mean reverting days) that you should hold your ground.

The market state, simply by virtue of some deeply buried inter-dependency will occassionally emerge into that beat of steady rhythm we trend followers know and love......that of co-ordinated and persistent participant behaviour.



aveagreattradingweek :-)

C

A beach holiday....now you're talking :-)

To the Trend Follower Out There (with a bit of artistic licence applied)



If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don't deal in lies,
Or being hated, don't give way to hating,
And yet don't look too good, nor talk too wise:
If you can dream - and not make dreams your master;
If you can think - and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to broken,
And stoop and build 'em up with wornout tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: 'Hold on!'
If you can talk with crowds and keep your virtue,
Or walk with kings - nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds' worth of distance run -
Yours is the Earth and everything that's in it,
And - which is more - you'll be a Trend Follower my son!


But the real reason for this post.....refer to the research below.......a strong reason for keeping on keeping on. Don't be suckered by the appeal of negative skew :-)



Enjoy

C

The PDF looks interesting, C. I'll give it a read when time allows. ..

A very worthwhile podcast for anyone seeking higher returns through sound portfolio management tactics....plus some free excellent resources.

https://mebfaber.com/2017/03/22/epis...-invest-house/

Of particular interest is the latest podcast by Meb on how to use mandatory SE filings to mimic the great value investors.

Enjoy

C

Ahead of his time.......





That got the week out of my system........

aveagreatweekend :-)

C

Discretionary Systems - Breakout System Performance (EDTT and Variants)




Trade Statistics



Equity Curve



System Health



Current Open Positions



What's Trending with this Technique

DJI


DAX




C :-)

Discretionary Systems - Retracement Entry System Performance (DTTR)



Trade Statistics



Equity Curve



System Health


Current Open Positions



What's Trending with this Technique











Aveagreatweekend

C :-)

Mr C, excellent PDF thanks, since you have the great ability to explain complex concepts so didactically, I ask you about the article and to put it in simple terms, how could the volatiliy, described by the author, be applied to daily trading ? is applicable? Moreover, how can a trader interpret volatility from the author's view in more flat terms?
thanks