Do markets change? Trend Following.

Quote from GreenPlay:

trend-following is not the best mehod for all market conditions.
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What is? I think part of the problem in your setup is that you imply market conditions can be predictably predicted.

Quote from GreenPlay:

Personally, I like what Van Tharp has to say about developing not just one system to fit all market conditions, which is difficult, but to have at least three well-developed systems for various markets.
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How does this execute in the real world? If it was as easy as this (jumping from system to system based on various market conditions) where are all of the disclosure documents showing performance that is up every month? For I am assuming that if a system allows you to jump from system to system across various market conditions it would make money all the time? No down months ever?

Quote from GreenPlay:

If you have only one trading system, then Trend-Following is certainly a very good choice. However, others do well in different market climates. And it just makes more sense, IMHO, to have more than just one trading system.
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How do you know when it is time to dump one system and jump to another? If this was possible I am assuming the world would be littered with professionals that make 1-2% every month with nary a down month? Madoff and LTCM as far as I can tell.

My response to your post is no grand effort to be "right"...I just didn't think you made a persuasive argument.
 
I find myself in the unusual position of having to agree with Trend Following. Van Tharp's methods will presumably only be able to come to a conclusion after the event - they will not be able to tell you in advance when to switch from one system to another. Wouldn't that make life nice and easy?

Some trend followers have a whole quiver full of trend following systems in their armoury, each of which they trade continuously and at the same time, to try to ensure that at least one or other system profits in one or other market condition. There is no such thing as sideways movement except as measured over a specific period of time- the market always zigs and zags up and down - it has to or there would be no trading. Although a market may show a net zero up or down movement over a period of a month for instance, there will have been up and down trends within that time period.

There are always up and down trends of different lengths, strengths and duration. Some traders therefore trade multiple trend following systems aiming to try to capture short, medium and long term trends.

Trend = movement. And there is always movement. You do not see the Dow trading at 10,000 for an entire month. Whether you can profit from that movement depends amongst other factors on the length of trend your system is designed to follow. And if you are aiming to capture very short term trends, then you had better ensure that your commissions and slippage are kept to an absolute minimum.
 
Quote from AFJ Garner:

I find myself in the unusual position of having to agree with Trend Following. Van Tharp's methods will presumably only be able to come to a conclusion after the event - they will not be able to tell you in advance when to switch from one system to another. Wouldn't that make life nice and easy?

Some trend followers have a whole quiver full of trend following systems in their armoury, each of which they trade continuously and at the same time, to try to ensure that at least one or other system profits in one or other market condition. There is no such thing as sideways movement except as measured over a specific period of time- the market always zigs and zags up and down - it has to or there would be no trading. Although a market may show a net zero up or down movement over a period of a month for instance, there will have been up and down trends within that time period.

There are always up and down trends of different lengths, strengths and duration. Some traders therefore trade multiple trend following systems aiming to try to capture short, medium and long term trends.

Trend = movement. And there is always movement. You do not see the Dow trading at 10,000 for an entire month. Whether you can profit from that movement depends amongst other factors on the length of trend your system is designed to follow. And if you are aiming to capture very short term trends, then you had better ensure that your commissions and slippage are kept to an absolute minimum.
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Good point. I am no apologist for anyone, including Tharp - I just wonder if you have read his book? As I indicated, he does provide objective measures for market conditions - you can test and challenge these, if you're into backtesting.

I like way you point out the swings in so-called sideways markets - which may be a key weakness in Tharp's measures. Like the ocean, the Market is seldom flat. Waves always happen. In this sense, one could argue that every system is trend-following - you catch the wave and surf it for as long as the ride lasts. Whatever works. Swing-trading is just another name for trend-following - just on a shorter time-frame (for choppy or toppy markets) using intraday signals instead of day charts.

Another point - especially for leveraged markets like futures., If you don't have the capital to stand the heat of long-term draw-downs, if a 30% loss makes you fear rather than respect the Market, you're likely to get spooked out of a trade and lose money. Again, it's one for the individual trader - psychology, trading capital, etc - and the relative volatility of the market. There is a place for contrarian trading and bottom-fishing for long term trades - but ultimately, price is king. Just my opinion.
 
Quote from GreenPlay:

Good point. I am no apologist for anyone, including Tharp - I just wonder if you have read his book? As I indicated, he does provide objective measures for market conditions - you can test and challenge these, if you're into backtesting.
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Bottom line, why would one be switching among systems (or trying to predict "market conditions") if they did not think they could avoid losing periods or down months? And if this was something that was possible...why do the best in the business (folks like Harding, Eckhardt, Aspect, Abraham, etc.) regularly have losing months? A good learning exercise: read carefully the disclosure documents of trend following traders. Decades of month by month performance. Much more indicative of the future real world over any one man's theory.
 
Quote from Trend Following:

How does this execute in the real world? If it was as easy as this (jumping from system to system based on various market conditions) where are all of the disclosure documents showing performance that is up every month?[/B]
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I'm reminded of a great quote from Ed Seykota in Market Wizards that went something like:

"If you have a working method M for modifying your trading system S, you should consider just trading M instead."

I'm sure I butchered that, but none the less the point is a great one.
 
Quote from Trend Following:

What is? I think part of the problem in your setup is that you imply market conditions can be predictably predicted.



How does this execute in the real world? If it was as easy as this (jumping from system to system based on various market conditions) where are all of the disclosure documents showing performance that is up every month? For I am assuming that if a system allows you to jump from system to system across various market conditions it would make money all the time? No down months ever?



How do you know when it is time to dump one system and jump to another? If this was possible I am assuming the world would be littered with professionals that make 1-2% every month with nary a down month? Madoff and LTCM as far as I can tell.

My response to your post is no grand effort to be "right"...I just didn't think you made a persuasive argument.
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No Michael what I got from the guys quote and from Tharp and I agree is to have multiple systems based on different strategies running in order to smooth out the equity. Maybe having a LTTF system and a sideways market system...

And if you check Abraham Trading Capital and other hedge funds that are Trend Followers for example LTTF only accounts for 34% weight in the overall strategy.

Mean reversion being 31% and very short term momentum taking up the rest along with short term TF.
 
Quote from salvador90:

No Michael what I got from the guys quote and from Tharp and I agree is to have multiple systems based on different strategies running in order to smooth out the equity. Maybe having a LTTF system and a sideways market system...
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What does 'smoothing out the equity' mean exactly to you? Pick the track record of almost any trend follower and tell me where the equity looks 'smooth'.
 
"Smoothing out the equity" is precisely what many traders try to do. No trader in his right mind wants more downside volatility than he has to accept.

That is why most traders are engaged in continual research and are engaged in cautious modification over the years.

A smooth equity curve is what all of us are after. It is precisely the reason many take partial profits, why many engage multiple systems at the same time, why people trade as many different instruments as they can.

Of course if we want a return greater than the risk free rate, we are going to have to accept the consequences in terms of greater drawdown and standard deviation of returns. But smoothness is still the aim - or rather, as much smoothness as is possible.

I have never found elitetrader a particularly helpful forum in terms of serious ideas and discussions. If you are interested in mechanical systems trading and serious research then, if you have not already done so, turn to the Trading Blox forum. Although it has to be said that much of the debate is confined to areas open to TB users only.
 
Quote from AFJ Garner:

But smoothness is still the aim - or rather, as much smoothness as is possible.
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It all depends. There are plenty of trend followers who do not have this aim. The notion of equity smoothing is primarily designed to assuage nervous investors unfamiliar with or illogically unwilling to accept volatility.

BTW, humping people to another forum to hump them something else?
 
No - "humping" is certainly not what it is all about. The expression as a verb refers to "sex" in Europe. As you know, the Trading Blox Forum is a place where people publish a lot of serious research and some very hands on practical advice. Elitetrader is NOT such a place.
 
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