Diversified Trend Trading Approach

When I live trade these techniques I use Pro-realtime through IG Markets. These allow alerts on pending orders and also allow for trade entries and exits on horizontal and oblique lines. I am pretty much nowadays fully invested in researching fully automated portfolios but keep these discretionary techniques going to track performance for me and others and also have a fall-back strategy if I need to pull the pin on automation.

I also engaged a good mate on this forum to create a line trader which I apply to MT4 (just as I would trade Prorealtime) if I need to revert to it as a back-up....however he is a bit sensitive on releasing the code for public consumption.

I used to trade the DTTR with 3 others around the clock with 8 hours shift each....back in the old days......and watched heaps of Midsomer murders waiting for alerts to sound off :-))))))

Have a play with MT4 alerts to bring you to the screen using your pending order levels. Trade frequency is not that active but it does unfortunately mean that you need to be available when they go off and you do tend to need to be at the screen during London and US openings.

There are plenty of EA that can trigger on trendlines....thats not a problem.

So, i would need next to just make a nice list of websites with movies and serials ))

thanks!

will get deeper in this SDC thing...

Cheers Fx

There really is not much to this technique....which you have probably gathered by now...but it is a powerful beast in capturing momentum. All the best with your experimenting.

C

Yes, i can see its potential already, but since i got into trading universe - back in 2001- i was only educated to daytrade and/or scalping. I always wanted to swing trade ... and this sound like a good method. Would like to try it for a while. I will participate from time to time here but surely i will follow you on every post

horoo :-)

Have some inspiration while trading .... other style than yours

Now that's what I call Smokin'

I'm inspired.

Cheers Fx

Got stopped on my short, i guess my SL was not very well adjusted..... but watching to see what and how price is developing on this pair.....

Thanks for the update mate. :-)

.....and now we return to our regular viewing.

Progress at 1R...

Hmm....

You win some and you lose more....... Damn that market :-(

Sometimes you win

A blast from the past :-)

Nowadays you are still trading this method?

No mate...but I do keep tracking these discretionary approaches in a forward test capacity as they potentially represent a fall back strategy if things don't work out in my current area of research. It also keeps me invested in a bit of screen time which is an added bonus.

Dear C

You mentioned in another thread that you trade (or follow) 40+ instruments.
I personally trade 24.
The 21 combinations of the 7 major currencies (USD, EUR, GBP, JPY, CAD, AUD, NZD) plus Gold, DOW and FTSE.
I deliberately exclude CHF since it is heavily correlated to EUR and DAX since it is absolutely crazy.

I would like to hear some more ideas about additional instruments as well as your logic upon selecting them.

Thanks in advance

T

Hey T.....it's the weekend....and party time :-)



Mate as you may have read in that other thread, I have yet to apply solid logic to my choice of instruments.....and I have currently taken shortcuts in simply selecting CFD's and FX pairs from as many different asset classes (actually derivatives of asset classes) as I can put my hands on from a convenient source (eg. Avatrade or IG markets).

Despite the sloppy rationale currently employed, simple diversification across asset classes is better than not diversifying at all..... and quite effective...but we can get more serious. The reason for selecting from distinct asset classes is that by their very nature, instruments from within a particular asset class tend to be highly correlated during adverse market regimes.

For example during bull market runs, equities become less correlated ........however during crisis, they all turn the same way....and that is the direction towards hell. The same can be generally said for many instruments in a particular asset class....eg. energies (crude, heating gas, brent), soft commodities, FX (given the current dependencies on currencies on the US dollar) etc. etc etc....however this is a generalization and there are exceptions to the rule......but you get the picture.

It is the correlation of return distributions in accordance with your system rules when in crisis that is critical in our choice of what to pick. So if we want to get more serious, we don't worry about asset classes per se (as they are just a convenient grouping of like assets)...but rather focus on the all important metric of the correlation of return distributions. As trend followers we actually love a degree of correlation during favorable regimes...however with a highly correlated portfolio of instruments....like the two edged sword of leverage........when all instruments are either correlated or anti-correlated and we are on the wrong side of them....that's when we can get a big sting in the tail.

As you know we only risk a small % on any active trade (eg. 0.5% trade risk)....but if I was trading say 100 equities with say 30 active long trades and the market had a major conniption then all 30 instruments are likely to display the same adverse profile and I could be exposed in one hit up to say a max of 15% (not pleasant).

The aim of this game is to attempt to flat-line the equity curve of the portfolio but with positive equity growth to a steady ascending line. To do this each return stream that contributes to our portfolio needs to be uncorrelated with the other return streams and at crisis times anti-correlated (even better).

Now if you don't like using correlation as a statistic you can visually compare return distributions themselves between assets as a proxy measure. What you are specifically looking for is those times when one return distribution is in drawdown the other is in a draw-up.

For example have a close look at the chart below. This is what I mean in identifying perfect candidates for selection into your portfolio.



Imagine these were 2 return profiles of two different instruments traded by the same system. Both have a positive edge over a 14 year period so we can tick this requirement. Now when you look at the shape of the return series, they are fairly non-correlated however you will note that when it counts (eg. 2008, 2011/2014, 2015 and 2015/16) they are anti-correlated. By blending these two return series by equal allocation (50%:50%) to each you are going to achieve all the positive benefits of low correlation during boom times and the benefits of anti-correlation during adverse times. The blended result will have a similar CAGR but far lower drawdown profile. Once we achieve this we can the confidently scale up position sizing across the portfolio to ramp up returns.

I actually find it far more helpful to assess their relatedness (correlation) by visualizing return distributions like we are doing here. A correl statistic by itself doesn't give me as much required info but is better than nothing.

So how far do we diversify. There are urban myths around that say only diversify to a certain degree as the marginal utility decreases at a particular threshold...however don't believe the hype. Keep diversifying your return distributions for as long as you can find a beneficial equity curve to add to your portfolio mix. It should be a never-ending process.......and welcome to the world of portfolio management.

Cheers T...and have a great weekend.

C

PS T....if you haven't already see if you can get your hands on "Following the Trend - Diversified Managed Futures Trading" by Andreas Clenow. He is a master at constructing portfolios and the info is excellent to assist you in your journey.

PPS Just re-reading posts and thought I had better stress the following. When talking in terms of correlation, I am talking about the correlation between a return series arising from the application of a particular system (or portfolio of systems) as opposed to correlation between a price series. While correlation in a price series between instruments is in general directly related to the correlation of a return series (as you applying the same or a similar system to each price series), the critical assessment is in the result of the profits/losses that arise from applying your systems to that price series. So rather than focusing on the instruments themselves, focus on how your system or portfolio of systems perform in relation to that price series. I hope that makes sense.

Discretionary Systems - Breakout System Performance (DTT and EDTT Variants)




Trade Statistics



Equity Curve



System Health



Current Open Positions




What's Trending with this Technique

Attached Image (click to enlarge)

Attached Image (click to enlarge)

C :-)

Discretionary Systems - Retracement Entry System Performance (DTTR)




Trade Statistics



Equity Curve



System Health



Current Open Positions




I will leave the charts associated with this technique to the next few posts as they help in defining the status of a trend for the instruments in my watchlist.

Cheers

C :-)

DTTR Active Trades






















more to come......

C