Long term trading journal

globalarbtrader said:
Hi LT
Thanks for the mention.
The obvious question I have is why you have no financial contracts? (Bonds, equities, STIR, vol).

GAT
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Hi GAT,
it is not that I don't have financial contracts, but I try to avoid high correlated contracts as much as I can, since I am not trading the largest portfolio.

So, for bonds I only put 30y TBond in my shopping list, but the thing is in these two years I never got any single signal on it. And even if I lowered my entry criteria I would have probably found myself on the wrong side of the market. Probably I am just not in tune with how this flows, although in backtest I got pretty decent results. In the future I am planning to add T-notes, Bund and Eurodollars, but it will not be soon.

As for equities, I trade the ES-mini, but I found this to be one of the most difficult for my system (also in backtest), probably because of the much larger pullbacks compared with other futures. And I don't like adapting my system to single futures.

And both Tbond and ES are pretty large in terms of volatility and my portfolio allocation rules, based on multiples of ATR, don't always allow for that much.

I am just now approaching VIX, but at a first glance it looks like that this requires a totally different approach, more based on mean reversion than trend following, but still I need to study it.

LTT
 
globalarbtrader said:
This is the only place I've been where, with an expected average holding period of a few weeks, I'm considered 'long 'term'...

GAT
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I suppose that being long term is more of a mindset. I too put together very long term trend following with short term mean reversion, but the idea is always to try and benefit from the medium to long term trend.
And as far as I understood what you're doing, looks to me that you are doing the same (only in a much better way).
 
Longtermtrader said:
Hi GAT,
it is not that I don't have financial contracts, but I try to avoid high correlated contracts as much as I can, since I am not trading the largest portfolio.

So, for bonds I only put 30y TBond in my shopping list, but the thing is in these two years I never got any single signal on it. And even if I lowered my entry criteria I would have probably found myself on the wrong side of the market. Probably I am just not in tune with how this flows, although in backtest I got pretty decent results. In the future I am planning to add T-notes, Bund and Eurodollars, but it will not be soon.

As for equities, I trade the ES-mini, but I found this to be one of the most difficult for my system (also in backtest), probably because of the much larger pullbacks compared with other futures. And I don't like adapting my system to single futures.

And both Tbond and ES are pretty large in terms of volatility and my portfolio allocation rules, based on multiples of ATR, don't always allow for that much.
More...

I know that account size limits the futures you can trade. Personally, my starting point would be a smaller number of futures, at least one from each asset class (bonds, rates ,equities, vol, ags, metals, fx). It looks like you could easily have 2 or 3 from each asset class. The diversification benefits of that would far exceed having a large number of agricultural products. Some of your ag products have quite high risk so are consuming risk capital that could be deployed elsehwere.

This is on my list of blog posts to do, but for now let me ask if you're limited to US futures? V2X has small cash risk, as do Korean bonds.

US 2 year and 5 year bonds have low vol; though if I was to choose one the risk properties of 5 year are better.

Eurodollar is also low risk, even if you trade 3 years out as I do.

Eurostoxx has lower risk than Eminis, again if you're happy to go non US. Obviously if you stick to US futures your diversification benefits are going to be capped ( a form of home bias I guess).

GAT

Longtermtrader said:
I am just now approaching VIX, but at a first glance it looks like that this requires a totally different approach, more based on mean reversion than trend following, but still I need to study it.

LTT
More...

Careful - that sounds like overfitting. Can you say that there is a statistically different performance in VIX vs ES? When I checked I couldn't. Lots of money has been made trend following VIX out of sample.

GAT
 
I took some time offline to work on my trading plan, do some more backtesting, developing new ideas and so on.

While I didn't overturn my trading approach, I felt the need to know better my trading systems and to really feel confident about what I was doing.

After two years studying, analyzing, developing, I suddenly felt a bit overwhelmed by how little I knew my systems. Probably, this was one first good result of starting this journal, where having the chance to have exchanges with some of you made me think, revise, update and create.

Trading is really a strange endeavour in any respect. You basically trade alone, but confronting with others add a lot to your creativity, or maybe it can be sometimes confusing.

Anyway, aside from my very naive mistakes, I feel now much more in control, and I suppose this is everything in giving you the right psychological approach to trading.

I can now safely assert that I am running a trend following system, which integrates two different mean reverting signals (one short term and another much more long term), that are aimed at spotting trend reversals. In addition, to smoother my equity line, I added a component that leverages on momentum to try and spot short term pullbacks, and another that takes me out of the market in around 20% of time, where an oversold/overbought condition materializes.

Hope this is the very last variation of my system, at least for a few months, since I realized that backtesting is for me the way to fiddle with my systems. Others may just ignore signals from their systems, instead what I sometimes did what slightly more subtle and yet still self sabotaging: going back to the historical data and retest to find flaws in my backtesting and paper trading.

Shall I find myself working again on my systems in a short span, I would probably have to admit that I don't have the right mindset for trading, and give up before I cause damage to my bank account.

However, currently my positions are:

LONG
Canadian Dollar
Japanese Yen
Mexican Peso
South African Rand
Corn
Sugar
Orange Juice

SHORT
Australian Dollar
British Pound
Swiss Franc
New Zealand Dollar
Wheat
Soybeans
Rough Rice
Crude Oil
Natural Gas
Cotton
Coffee
Lumber
Cocoa
Copper
Silver
Lean Hogs
 
globalarbtrader said:
This is on my list of blog posts to do, but for now let me ask if you're limited to US futures? V2X has small cash risk, as do Korean bonds.

US 2 year and 5 year bonds have low vol; though if I was to choose one the risk properties of 5 year are better.

Eurodollar is also low risk, even if you trade 3 years out as I do.

Eurostoxx has lower risk than Eminis, again if you're happy to go non US. Obviously if you stick to US futures your diversification benefits are going to be capped ( a form of home bias I guess).

GAT


GAT
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Hi GAT,
thanks for your advice.

Actually I have no issues going non US, since I am european. The thing is, when I started analyzing and backtesting, I found much easier to have reliable free historical data on US markets, and then I suppose I remained biased in this sense.

But I will sure give it more than a thought.

LTT
 
Today I closed my long position in JPY and my short in NG.

Although I aim at having a mainly trend following system, I recently came to realize that there are moments where, while the trend is still there, staying in the market is not that efficient.

I'd say that these can be loosely identified as oversold/overbought conditions, although these terms are not entirely appropriate here, where after a good run the trend is more likely to take a break.

Not saying that in these moments staying in the market might have a negative expectancy for a trend following system, but that it's just less likely for the trend to go at full steam in the following 10 to 20 days, so better to devote resources elsewhere.

To detect these areas I am using a very simple indicator that works on 20 days momentum.

Of course, but going out of the market within an established trend you take the risk to miss a good chunk of it, as for instance would have happened with the crude oil run, but on average I found that these portions that you miss are more than compensated by a much better risk/reward profile of the strategy.

On the opposite side, using the same indicator in the opposite way, I try and detect the pullbacks within the trend, where I usually increase my position. So I use in pullbacks the resources that I have spared by exiting in overstretched trends.

Just wondering whether anyone else is using short term momentum in similar ways.

LTT
 
Am surprised you getting out of Long Japan Yen- much more upside than down, recently broke below 9 year lows. I don't use momentum, generally all my entries majority of traders think it is in a trend going the other way. I tested long ago that bouncing around different markets I lost out of trending moves, added to commissions and gone into markets that might not have an established trend. If you think whatever market is stalling out or going sideways, do some option plays of doing credit spreads or covered calls.
 
Handle123 said:
Am surprised you getting out of Long Japan Yen- much more upside than down, recently broke below 9 year lows. I don't use momentum, generally all my entries majority of traders think it is in a trend going the other way. I tested long ago that bouncing around different markets I lost out of trending moves, added to commissions and gone into markets that might not have an established trend. If you think whatever market is stalling out or going sideways, do some option plays of doing credit spreads or covered calls.
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Hi Handle,
I see your point, and I accept that going out of long JPY can be counterintuitive at this moment.

The thing is, in my backtests, that I ran over 30 instruments and 10 years, my main system return a Sharpe ratio after costs of 0.92 (I derived it from monthly returns, so I reduced it by 20% just to be on the safe side).

The system requires to be in the market at all times, and as such I have allocated my equity on the portfolio I want to trade based on the ATR of each instrument.

Afterwards, I realized that there was quite a nice way to spot pullbacks, where the best risk/reward profile is usually available. Riding these pullbacks gave a nice 1.16 SR, which is to me quite an improvement from the main system.

So I decided that during pullbacks I would have doubled my position, but this required about 1/3 more equity, or to reduce my portfolio, both of which were not an option to me.

Alternatively to increase equity, I then decided to look for areas where I could go out of the market, so that to compensate for the moments where I double, and these areas looked to be exactly where JPY is now, where after a long and strong ride, you can expect it to catch some breath.

I am not implying that I expect JPY to reverse or necessarily pullback, and in fact I may miss a good move within the trend, but I backtested that a trading system only entering in these kind of overstretched situations would only deliver a meagre 0.31 SR.

So, to wrap up, I have a trend following system (albeit with some mean reverting and carry components), which doubles when pullbacks have materialized, and stays out when trends look overstretched and may be more prone for pullbacks. This has a overall 1.24 SR on paper.

I concede that JPY looks quite a healthy trend right now, and while this morning I closed my long ZAR trade for the same reasoning, the two are pretty different (JPY is in a long term run, ZAR has just reverse and no one knows whether this is a reversal or just a deep pullback in a downtrend), but after some testing I came to the conclusion that trying and separating these two situation would run dangerously close to overfitting.

LTT
 
Trades:
Yesterday I opened a short trade on live cattle (June at 123,675). Not a good result so far, but I still have a down view on it.
Today, at market open I will reduce my long position in sugar from 3 to 2. Yesterday it's been quite a ride from a pullback, so time to deleverage in my view.

Apart from that, two annotations.

First, I set aside SP500, EurUSD and T-Bond for a while, and magically things are going much better. Probably it's just a coincidence, but I noticed that I can trade much better instruments where I can look at figures without having the faintest idea of the fundamentals behind. With the three above it is all too easy to read news about Fed, ECB and so on, and either to double guess your system or to start revising your trades again and again. In contrast, I have no idea what the live cattles or the coffee, the sugar but even the NZDUSD pair are driven by, and I have much less pain in accepting when these trades go south. Love the feeling of the rhythm in figures, without necessarily looking for a reason behind them.

Second, for the first time in two years I am savouring the feeling of things going right. Not sure it will last, and it's anyway on a ridiculously small scale, but that's the whole reason why I am in trading for.

LTT
 
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