Diversified Trend Trading Approach

DTTR Active Trades cont'd.....





That's it for the active trades...now onto the undecided/pending trades in my next post.

C

DTTR - Pending/Undecided






















A couple more to come and then we are done :-)

C

DTTR - Pending/Undecided cont'd......






That's it for this week.

aveagreatweekend. Kick back and relax :-)

C

I see you are fully engaged into this weekend! enjoy!

Fully engaged J. .............Glug....glug....glug :-)

Hope all is well on your side of the world mate.

Nothing like a bit of melancholia. Good for the soul.

Signing off C :-)

A Reality Check (or some may call the rant.....)

Crumbs....the egos on this forum...... I have just seen the eleventy billionth comment on this forum stating that you are a poor trader if you can't at least obtain a 30% return per annum from trading forex........it's time for a much needed dose of reality.....even for us more sane folk who practice the shady art of trend following.

For those seeking to follow the trend following path it is a worthwhile exercise to have an appreciation of what can be expected in terms of return and drawdown expectations and in particular to appreciate how the best trend following fund managers in the world are faring.....as this is the only place that you will be able to obtain audited verified performance results.

To be clear.....trend following, particularly in the medium term to long term is not about trading for a living unless you have substantial capital backing......in fact much more than we anticipate. So for those that still are attracted to the noble art of trend following.....you need to consider this practice as a wealth creation exercise which over a long period of time....if applied correctly, may build your trading capital to a point where ultimately you can live off it......recognizing of course that frequently there is a long period between drinks.

So without further ado, let's have a look at some charts of how the best of the best are doing. Please note that the performance returns are net of all fees and expenses. They represent what the investor gets that decide to back these big bad boys. If you want to convert these performance metrics to Gross returns (effectively what the fund delivers before fund management expenses such as audit fees, administration and compliance fees, investment management fees and performance fees).....then you need to add a further 3-5% to the CAGR returns and slice off some of that drawdown.

Trend Following Index
Below is a performance chart of the Trend Following Index (TF Index). The Index comprises 54 trend following fund management programs in the world. Here is the reality........between Jan 2000 to April 2017 the Compound Annual Growth Rate (CAGR) of the best of the best was 9.39% per annum (perhaps 13%-14% gross returns per annum). Compare this result to retail forum participant expectations. Can you seriously expect a long term return of >10%. You be the judge....and remember the capital backing and dedicated research teams of accomplished mathematicians and physicists in their ranks.

In achieving this 9.39% return, 80% of the time these guys were in drawdown. Have a look at the chart. Furthermore while there was a steady increase in the equity curve from 2000 to 2009....since then strong performance has been significantly restricted to 2010/2011 and 2014/2015. Post 2008, markets conditions have been far more difficult for trend followers in general. In fact, since 2015 to current day....these have been tough times where the index itself is reaching a max drawdown of 14.15%. The lesson from this....as another much needed does of reality..... is that trend following is a tough game that needs steely resolve and being in a drawdown is just the name of the game.



Top 10 Performers by CAGR
Let's have a look at the top performers in terms of return...and then drill down into the top 3 of this category to look at their performance metrics.















So what are the lessons we can learn from the above? Your maximum expectations must be realistic. The top 3 best performing trend following funds of the world produce a CAGR of only 15% or so and for this joy, you would have to expect drawdowns of upwards of 40% to achieve this return over market conditions of the last 17 years. How many traders here would have endured these drawdowns? How many would have thrown their system in the bin when reaching drawdowns of this level? You be the judge.

To be continued........

A Reality Check continued.....

Now as depressed as you may be regarding the best performers in the world in the trend following space.....and I would prefer to trust these verified sources as opposed to a bold statement or dodgy Trade Explorer presented on this forum.....it just gets worse. You have to ask yourself....would you be prepared to ride a drawdown of 40% to achieve these returns......c'mon guys.....now let's be real for a moment. Imagine you have your net worth invested in a trend following program. Would you really be prepared to ride that level of drawdown for a 15% CAGR?

If you are sane, have a family, mortgage and kids....hopefully you will say no.

So what now in regards to realistic expectations in the trend following space? Is there any way out of this pickle? What you need to drum into yourself is the term risk-weighted return. A narrow focus on CAGR alone is going to get yourself in trouble.

So let's have a look at the best of the best in the trend following space in regards to risk weighted return....and then see how that dilutes your CAGR expectations.

Ok...here we go.















So what we can take from this is the following:
1. Expect a long term realistic return of somewhere less than 5-6% per annum if more recent market conditions continue.
2. Expect a drawdown of somewhere north of 20% to achieve this result.

How's that for a realistic shower of sense.....unless of course you think you can outperform these guys.....but I believe in pink unicorns to.

So is it worth it?.....well it is if you are realistic. It allows you to outperform alternative sensible options such as investing your money in a passive ETF. For example one that mimics the S&P500 Total Return Index (includes dividends) where for the joy of a 5% CAGR you need to experience nail biting drawdowns of up to 50% over the same period. You can only appreciate this statement if you are realistic in your expectations.



Here is the equity curve of another average performer just to sink things in. Nice one Warren. I like your 43% drawdown.....NOT!!!!!!........and that's why we like diversified trend following.





/rant over

C

That, really is the reality C., but that is on the institutional side, on the retail side i know someone who averaged 41.6% audited over 40 Years, guess who .
A Hint : https://www.peterlbrandt.com/

Of course Peter never hang out on Forex Factory, the guys here will think he is a dumb ass Doing only 40% .

Unfortunately the forum is mostly of dreamers and not traders who can walk the walk.. Most here trade systems for a month or two and think they will be able to earn a living trading 10K..says it all..


Janet Kay - Silly Games

Yep Bass. You and I both know there are exceptions to the rule such as Peter.....and of course there may be some retail traders out there that may bite my assumptions in the arse....but I would regard his/her skills and those that defeat the FM's results as extraordinary as opposed to something that can be expected by the average punter.

The rant was directed to participants of other threads as opposed to this one. I would have expected a lot of sage head nodding on this one. It was more a "what can you expect as a proficient trend follower" and excluded the exceptions in say FA (such as Rosetta) and TA (such as Peter). When you cluster performance results by broad style....at least the trend followers tend to cluster suggesting that the standard application of the process has merit. The FA and TA funds are all over the place suggesting that skills over-rides process.

Here is Rosetta's results by the way......all hail the great FA fund.





C

PS I still get Peter's Factor Trading updates....but I need to stay steady on trend following and hence read them with interest only.

I agree mate. Roll up....roll up to FF where ego and insult over-ride content...Get it while it's hot :-)

Simply by having a trailing stop that immediately initiates on entry and forces a result in terms of favorable momentum is perhaps one of the most powerful features of the discretionary systems described in this thread. The short video below discusses the importance of money management.

Inserted Video

Bass, I appreciate your contributions. Thank you. I once already discussed with Copernicus the performance data about Peter Brandt. He seems to be a fan too an listed a summary from Peter Brandt about his CAGR (you find it in the above quote) - just a quick analysis showed that this data had serious flaws and is at least misleading in the way it is presented. I have really strong doubts that it would withstand an independent third party audit in detail.

But I am a very sceptical person...so no surprise. Can you explain me why you are so sure that the performance statement of Peter is true and where my interpretations are wrong? Thanks.

Hi Hud......before Bass responds....... I remember this discussion we had about Peter Brandt earlier. You punched enough holes of doubt through the figures supplied for me to exclude them. Since our discussion I have been involved in Peter's 'Factor program' and have had a chance to see how Peter ticks....with my BS detector standing on full alert...... and I tend to give him the benefit of the doubt given his wisdom shown in mentoring others and offering sage council.......but........I do not include Peter's results in my understanding of what realistic returns you can expect from trading these markets. I don't have any further info to confirm or reject the performance claims.

Bass probably does the same given my understanding of his rigour and attention to detail.......*bows to Bass*.

In instances such as this where there is a degree of uncertainty regarding performance measures....I simply treat them as outliers. These outliers under uncertainty could be attributed to a range of factors such as simple fact, incredible luck or outright fraud...etc etc etc.

Excluding these outliers, I then prefer like you to refer to something tangible......namely the performance returns of the professional fund managers. These are independently audited and verified by regulation. Unless a trader on this forum allows for due diligence to be undertaken on their results...then I like you call BS to all of those posting as some sort of proof of concept via trade explorers of their performance returns. For all I know they may be photo-shopped or represent sample selections of a grid trader or Martingale variant etc. with a no-loss policy.

The more I read your post Hud, the more I agree with your mindset and it is a rare and healthy mindset on this forum filled with hype. Keep on keeping on

Cheers

C

Your tunes and trading principles are much better than mine, although I'm trying on both fronts