Diversified Trend Trading Approach

The Impact of Style Factors on Performance Among Trend Followers

Below is an interesting report identifying the factors (volatility targets, speed and sector exposure) playing a role in the growing trend towards dispersion of returns amongst the CTA's.

Enjoy

C

You're an amazing guy, Copernicus. I have a hard time keeping up with you sometimes, but its always fun trying. Cheers! PC

Cheers Pip. I, like you find it fascinating to decipher how other minds tick. While trying to understand how this complex market works is fun......understanding the mind is my greatest passion and the prime reason why I infest forums such as these. I have a strong feeling that we probably share very similar thought bubbles :-)

C

Mesmerising :-)

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 Easter break guys. Put your feet up, relax and stay safe.

C :-)

good job C!

nice weekend ahead enjoy

Hello fellow Aussie,

First of all, this is one of the best threads at FF. Finished reading it a few days ago and been drawing ever since.

Care to comment on my drawing in EURJPY? How does it stack against yours?

Would it be possible to contact you privately? I got some additional private data I would like to get your thoughts on.

Hi gfx. Thanks for connecting. I am away for a remote 10 day holiday with limited connectivity so don't have access to my charts to cross compare but they sure look good to me When i get back i will pm you with my email addy. Great to have another Aussie in the thread. :-) Have a great Easter break. C

Thanks for a swift reply, really look forward to getting in touch.
Have a wonderful holiday.

Hi mate,

Feel free to answer this one whenever, I know you're away but I felt the timing was important hence why I'm posting this now.

In ref to mine and your EURJPY channels:
We broke out of the channel on all 3 lower timefames along with rejection on mid resistance at W1. All six channels are still in downwards movement. How do you see see this move? Retracement opportunity to pyramid further into short entries or are we slowly seeing a trend getting reversed? Personally I would argue for the latter due to the other data I would like to show you privately. But I would love to hear your analysis from a pure PA perspective.

I have always found it hard to rely on technicals alone, especially because they are subjective.

Hi G

I am at a screen with remote connection to my PC now and have just been cross-checking your charts against mine. We are close in our definitions but there are subtle differences in the drawings of the charts as it appears that you have different SDC commencement points to me. My SDC draws always commence from a major swing high or major swing low.

Given the differences in approach, we will therefore draw different conclusions in our analysis. There is no right or wrong in the different methodologies as the key thing is that we are consistent in our application of our different approaches......so all good. What we will find however in our slightly different approaches is that we will have different interpretations on when the trend commences and ends and also have different trailing stops etc. By choosing a fixed starting reference point however such as a swing high or swing low, you will find that your trailing stop conditions with the SDC always ensure you are risking less as the trend matures. In other words you are ensuring that momentum continues in your favour as the trend matures and progressively raising the bar towards a profitable outcome.

Here is how my charts on EURJPY are currently setup.



Starting from the MN, W1 and D1 charts, here is how I interpret things. The primary trend has been short since Dec 2014. Despite a short lived rally from June to December 2016 to the outer extent of the SDC price has now mean reverted back into the direction of the long term primary trend with a strong swing move from 13 March 2017. So....trust the primary trend......we are still short in our outlook at the moment.

Now onto the H4, H1 and M30 charts. We are currently short on the M30 and H1 charts. We have scaled into this mean reverting swing component of the primary trend commencing 13 March 2017 with a short entry on M30 at 119.097 and have been riding it ever since. On 14 April 2017 we were deep in profit and touched our 2.5 x R target. At this point we then adjusted our SDC to 0.5 to tighten up our profit target and ensure not too much profit was left on the table once the short term swing move with good momentum ran out of puff.



As you can see, it appears that the swing move may be ending following an overshoot of the mean with good momentum and we may find a reversion back to the mean (defined on D1, W1 and MN).

When the M30 trade was deep in profit with a worst case scanario allowing for a small profit we took another short trade on the H1 timeframe commencing 11 April 2017. You can see that if this swing move ends by touching the trailing stop line we will be at an approximate breakeven position on this trade with good profit on the M30 trade.

Given that now we are experiencing a short term retracement on the swing trade move, we would not be considering entering any further trades for the moment and will see what plays out on M30 and H1.

We would only consider re-entering with new positions if our existing pending orders were hit.



I hope this makes sense G.

I will PM you my details if you want to discuss anything off-line.....but might not be around a PC much till next wednesday.

Cheers C

Beautiful analysis, appreciate it a lot.

We do indeed draw the SDC slightly different, mainly because mine is automated against time and not swings, albeit I should modify it to do it on swings, but automating that presents another issue, when is a swing a swing and not a fake-out, love this game!

Will reach out privately.

I know what you are experiencing G. I and a good mate on this forum tried to automate this beast and the best we could do was to define an SDC from the current bar and then iterate back a sufficient number of bars for each timeframe to hopefully find a swing high or low to commence from. It was the best we could achieve....however no cigar.

I am amazed at how quickly we can define a swing high and swing low from visual examination yet how difficult this is to achieve through automation. At best my approach is semi-automated. Once we have defined the SDC we can then fully automate conditions....however the discretion at the moment lies in the initial definition of the extent of the SDC.

Some interesting articles and podcasts to sink the fangs into.

1. Fat Tails and Expecting the Unexpected
2. Diversification, Adaptation, and Stock Market Valuation
3. DALIO: 'I'm worried about what the next downturn might look like
4. A crash course in long-term investingfor short-term traders w/ Mebane Faber
5. The retail apocalypse is crushing a corner of Wall Street and triggering a downward spiral
6. What is Crisis Alpha?
7. Rob Carver's Investment Strategy - Recent Performance Metrics
8. Protect and Grow Capital during Market Corrections with Ivanhoff

and for light relief some modern day ghost towns......amazing :-)

Enjoy C

The following is thanks to Laurent Bernut. Enjoy the pearls of wisdom.

March 2017 - Trend Following Performance: Messy breaks and lot's of chop!



The Rise and Rise of Noise and Mean Reversion

March 2017 hails as just another in a series of difficult trading months for the diversified trend followers. For the last year or two any trend follower who breathes will have witnessed only a few brief moments in the sun. I can even hear the distant sadistic cry of Efficient Market Theory stating with confidence....."See......I told you so".

The name of the game post Feb 2015 has been more correlation, more noise and the increased rythmic drumming of mean reversion magnified by the ever building dominance in the shorter timeframes by HFT and the rise and rise of the algorithms.

Accompanying this more competetive yet surreal manipulated market environment, we have seen a further parting of the ways in the trend following camp with style drift. The trend following FM's have needed to become more creative in finding alpha as this is a different game to the easy pickings that were available last century. We have seen some programs turn to longer timeframes to avoid the building noise of a more competetive and efficient marketplace, others stray into new more exotic diversified income streams such as cryptocurrencies or emerging indices and some who have been losing the faith by compromising their traditional positive skew and low correlation to equities by introducing machine learning, pattern recognition and more traditional convergent strategies into their portfolios.

The strain is starting to show in the trend following camp. March once again was a big downer in general and the groans from building drawdowns are really starting to get on the nerves and testing the faith. "But never fear lads......we just dig our trenches a bit deeper, spare our ammunition and only pull the trigger only when we see the white's of their eyes"......hold on they're green....*my bad*



But let's look on the bright side of life......Brian......this is what sorts the chaff out from the wheat right! It is exactly conditions such as these that makes the trend following space less competetive and the prime reason for why alpha in trend following is so enduring. Without the pain, there would be no gain.

So let's repeat the Mantra....."we are prepared to take the numerous hits as we just know that crisis alpha is lurking out there and we will win the war".

Now is the time to stay the course....to mercilessly apply the rythm of letting profits run and cutting losses short while protecting your capital like the devil.

March 2017 Results

Ok let's start by looking at the performance metrics of the Trend Following Index (TF Index). This index comprises an equal weighted allocation of 54 established trend following programs that have been in operation since 2000 to current day.



Below are the performance metrics for the TF Index for the period 1 Jan 2000 to 31 March 2017 including the equity curve, drawdown profile and equity curve of the S&P500TR Index.



Salient points are as follows:

1. While times may have been tough recently, we can still thumb our noses at the S&P500TR Index ("Poor little Pinkus"). Despite the current unfavourable conditions, the TF Index has significantly outperformed the S&P500TR both in terms of raw CAGR (9.25% versus 5.06%) but more importantly in terms of risk adjusted returns. In fact using CAGR/Drawdown as a relative measure, the TF Index has outperformed the S&P500TR Index by a factor of 6.7 times.....bwahahahahaha.

1. The TF Index experienced a decline of 2.78% for the month of March 2017 which exacerbates the general poor performance of trend following since Feb 2015 (refer to the equity curve). Drawdowns have been steadily rising to current levels of 13.7% which (for the glass half full kind of guy) is still shy of the highest drawdown of 14.15% experienced in August 2004....so the fat lady is yet to start singing.

1. Periods of extended poor performance are not unexpected. For example the period between April 2011 to June 2014 was a similar poor performance period associated with building drawdowns, as was the period January 2009 to July 2010. What this means is "Just suck it in trend followers". To be in drawdown most of the time is just a fact of life. You betta get used to it.

1. It appears that central bank intervention post GFC has artificially suppressed market behaviour leading to periods of exceptional low volatility with convergent behaviour. Smells like a Martingale averaging down technique on a global scale to me. The massive injection of worthless global currency into the markets has kicked the risk can down the road and obfuscated where the market risk now lies. Thanks to market intervention and the predictable 'too big to fail' global market policy applied by the Central banks, we now observe rising correlations between asset classes and the repetetive participant behaviour of selling every spike and buying every dip. No matter where you look, the value of every asset appears to have no connection to their underlying fundamentals.

1. Despite the gargantuan increase in monetary supply (14 Trillion since the GFC), there has been little associated growth in global productivity, no growth in income equality and the debt bubble remains. In fact it appears that risk borne through the financial markets has simply been transferred and further magnified by government policy and participant behaviour. The problem with this artificial market suppression is that like all complex systems with feedback loops, the risk in the market is being re-distributed and amplified in a non-linear manner. As a result, the markets of the future are destined for more pronounced and frequent fat tailed events. Take a big sniff........."You smell that son........that's the smell of Crisis Alpha.....someday this market is going to hell and back........ I love the smell of crisis alpha in the morning".

Result for March 2017

Despite the doom and gloom for the Index as a whole, it was not all a sea of red. Let's just call it a sea of pink. Six of the total 54 funds were able to deliver a marginal positive return and don't ask who produced the (16.31%) return for March.....my eyes are still bleeding on that lonely outlier.



Using data supplied from IASG, the top 6 performers were as follows.



Result for past 12 Months to March 2017

So if one month means little in the scheme of things...how about the past 12 months performance?



The bulk of the returns generated by the 54 members comprising the Index demonstrate the poor trending conditions for the last 12 months. This is just a fact of life in having low correlation to the equity markets. While the equities rally, you are left explaining your miserable performance to your investors and your nearest and dearest ad nauseum. But every cloud has a silver lining. Here are the Top 10 positive performers for the period.



Enough of the Doom and Gloom.....now onto the more telling long-term performance results.

....continued on next post.