Trend Following 2009: What Went Wrong?

S

shortie

Disclaimer: I am making assumptions about the performance of trend following systems in 2009 and I could be totally wrong. Feel free to put me in my place. :D

from reading ET i get two impressions: 1) many (the majority?) specialize in trend following approaches and 2) 2009 was not a great year.

so i put two and two together and what follows is that trend following approaches sucked n 2009. this is very surprising to me because the market just kept going higher since march, so it should be easy to make money following this easily identifiable trend, right?

i personally focus on mean reversion and i know what were the problems for me: low volatility (=less opportunity) and large counter-trend short bets that i placed in 2009. what could have gone wrong for the trend folks i have no idea, please enlighten me. :cool:
 
Those trading long term trend following systems aren't or shouldn't expect year on year outperformance anyway, so the whole question of what went wrong in a particular year is without premise.
 
One word- interventionism

Without interventions.. prices will behave "naturally" - in a way that trend followers (I mean the big guys like MAN, Bluecrest, GLG, Dunn, JWH, and others etc) can profit from.

When you print massive amounts of money in a synchronized way, globally, you make traditional trend following impossible, because everything becomes highly correlated- all asset classes. This is the primarily reason trend followers have had a hard time making money in the 2000's... although they outperformed equities, their were smaller scale interventions through 2005-2006-2007 etc. Only in 2008 did this unwind in a global way, and the trend followers had 100% years in some cases.

In 2009, credit spreads tightened, currencies were much more difficult to profit from than in 2008, and commodities rallied as bonds did in early 09... all the product and consequence of monetary stimulus and manipulation.

When you run sophisticated trading systems like these guys do, you'll see that starting in 2009, volatility collapsed. So long volatility guys start losing money, and trend following in its returns aspects is a kind of long volatility strategy, though directional. Although equities had huge rallies, alot of the quant guys and long short guys made much less than you would think. Because real models don't perform as well as an intervention in the short term. Obviously, things will unwind again and trendfollowers will go back to making good money.

there are other reasons trend followers have issues with making money too.. like carry trades and distortions in a variety of asset classes because of the easy money this distortion creates in various Markets. But for 2009, its the monetary stimulus interventions that inhibit trend followers performance
 
How about that lots of people were sceptical of the 2009 run-up? I think most of the 'action' were institutions/funds trying to recoup 2008 losses rather than individual investors (tho there were many, I'm sure.)

TV pundits called 2009 the 'most hated market rally' they could remember; I'm not sure I disagree with them. There were no meaningful pulbacks that we trend traders could work with --- and those dips that did occur, if we blinked, we missed them.

Equity-wise I didn't buy much of anything after July 2009. I have shopping list, but not looking long anytime soon. If I miss another 80 SPX points, so be it ... I am not forcing anything.
 
Quote from rickf:

How about that lots of people were sceptical of the 2009 run-up? I think most of the 'action' were institutions/funds trying to recoup 2008 losses rather than individual investors (tho there were many, I'm sure.)

TV pundits called 2009 the 'most hated market rally' they could remember; I'm not sure I disagree with them. There were no meaningful pulbacks that we trend traders could work with --- and those dips that did occur, if we blinked, we missed them.

Equity-wise I didn't buy much of anything after July 2009. I have shopping list, but not looking long anytime soon. If I miss another 80 SPX points, so be it ... I am not forcing anything.
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Well put. 2009...a year with net mutual fund outflows and a lack of retail participation, but a large rally in a historical context. Alot of cash is still parked in bonds/MM funds. The rally was mainly a product of the bank holding co. carry trade that sought to get out from under bailout $$ ASAP in order to avoid compensaton restrictions, and that was driven by money that cost absolutely nothing to borrow. Borrow at <1%, gain 30%...not a bad deal. The fed's automatic stabilization policy was aimed exclusively at the financial system, and it sure does show. Main street continues to bleed just out of view of the public eye. So much attention is diverted from the real problems.
 
...many (the majority?) specialize in trend following approaches and 2) 2009 was not a great year.
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2009 was a GREAT year for trend-following. On US equities, for example, there was a buy signal in late-march, and the thing went nearly straight up for the nearly the whole year. In fact, by one of the standard trend-following methodologies, that go-long from March is still active, and currently sitting on a 30%+gain.

Doesn't get much simpler than that....
 
I'm referring to the real big boys - zero correlation to equities people. They would have <b>very little</b> equity related performance to report because equities represent a small portion of AUM for these guys.
 
Quote from shortie:

Disclaimer: I am making assumptions about the performance of trend following systems in 2009 and I could be totally wrong. Feel free to put me in my place. :D

from reading ET i get two impressions: 1) many (the majority?) specialize in trend following approaches and 2) 2009 was not a great year.

so i put two and two together and what follows is that trend following approaches sucked n 2009. this is very surprising to me because the market just kept going higher since march, so it should be easy to make money following this easily identifiable trend, right?

i personally focus on mean reversion and i know what were the problems for me: low volatility (=less opportunity) and large counter-trend short bets that i placed in 2009. what could have gone wrong for the trend folks i have no idea, please enlighten me. :cool:
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I guess it depends on the portfolio you trade... a lot of markets were very chopping. I use Trend Following and had a great year
 
I was thinking the same thing. When the trend is up, you ignore the wall of worry and buy the dips.



Quote from Random.Capital:

2009 was a GREAT year for trend-following. On US equities, for example, there was a buy signal in late-march, and the thing went nearly straight up for the nearly the whole year. In fact, by one of the standard trend-following methodologies, that go-long from March is still active, and currently sitting on a 30%+gain.

Doesn't get much simpler than that....
More...
 
Many pro trend followers trade wide portfolios of far more than stocks. What went wrong? Nothing. Trend following at its best doesn't chase benchmarks or "competitive" quarterly measures. It also doesn't make money every month nor every year. Look through some pro trend following disclosure documents -- their track records are educational.
 
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