trend following delusion shattered

[mind]

cutten

form your perspective is this worth looking at:

1. calc ln(C(t20)/C(t1)) which is the return over the next twenty days. do that for all days. derive a standard deviation of that return.

2. define rangeRange as
ln(max(Ht(0):H(t-20))/min(Lt(0):L(t-20)))

3. calc a rolling EMA on that range = EMA rangeRange

4. set condition
rangeRange < EMA rangerange
and calc 1. under this condition

in other words calc the standard deviation of future returns and try to find filters to increase that standard deviation and thus the likely hood of extreme events = trends over the next period.

?

 

[NickelScalper]

Quote from Cutten:

Also, I disagree with mind's comment on the hit ratio of following a trend. This only applies if your sole signal for trend entry is the prior existence of a trend, broadly defined....

That's trend following, the topic of this thread.

 

[ptunic]

I think what Cutten is saying is that there are a million different ways to "follow the trend".

It isn't like to be a trend-following strategy, the only way to do it is to take every trend in some sort of turtle-trader method, which necessitates a low hit ratio. There are alternative trend following strategies, and some of these have high win ratios.


-Taric

 

[NickelScalper]

Quote from Cutten:

By exiting a position at a more favourable price than he entered at. Examples - a market maker working the bid-offer spread in an illiquid security; an arbitrageur purchasing fungible securities at different prices.

Arbitrage has been brought up and set aside as a separate case, because the concept of "trend" doesn't apply.

 

[NickelScalper]

Quote from ptunic:

...There are alternative trend following strategies, and some of these have high win ratios.

Which trend following strategy has the highest win ratio?

 

[PetaDollar]

I've been thinking about this for some time now and I'm really going to have to reconsider my position on trend trading and the Efficient Market Hypothesis (EFM). I'm just glad I came to this realization before losing all my money. Or should I say, before the large trading firms take all my money. I mean, if at any time you can identify the current market status as "uptrend" OR "downtrend", then how can it possibly make any sense to trade "with the trend"? Especially since people cannot agree upon exactly what a trend is in the first place.

Like Nickel Scalper says, according to the EMH if a trading method is publically available it makes absolutely no sense that it should even have a chance of working. So I want to be the first of the former "trend traders" to apologize to NS and thank him for his contributions to this thread which really made me see the light. I think the rest of you "trend traders" need to really ask yourself some hard questions about where your profits are really coming from (if in fact, you have any profits at all).

So at present I am trashing all my past work which was just basically hopelessly uncomplicated. From here on out I am going to try to come up with some more advanced predictive models. Ehlers and fourier transforms, wavelets, and neural nets sound like promising areas to me. Since I have an advanced technical background I don't think it should be much of a problem for me. And so while the "big boys" will always be able to get the big moves, and not me (by the EMH), I think what is left over is still reasonable. Comments?

 

[Lefty62151]

Yeah, Heres my comment. Today the trend is down. I anticipated that it might be down and prepared to take profits when it broke down. I do this every day. Some days I make more money. Some days less. Good luck with your search.

Lefty.

 

[ptunic]

Quote from nickelscalper:

Which trend following strategy has the highest win ratio?

Um, system #57.

But seriously, I can't list any here since the ones I know in full are proprietary systems from friends. Also, with the exception of 1, they all have discretionary elements so they don't qualify for your test anyway, I believe.

Here's a bit of background on a few of them:

One system waits for intraday trends, and scalps 2-3 ticks at certain key places in the middle, with a 2 tick stop loss and about 70% win rate. It has been traded live with substantial volume for 5 or more years.

Another group here trades intraday trend-following as well, and I am more familiar with their methods but it is proprietary so I can't post the details. It is somewhat discretionary as far as context and filters, though the execution + trade management and part of entry are systematic. Anyhow, the group only takes about 10% of the possible daily pullbacks it sees, and it has a hit ratio of about 45-65% for the people in the group who have been trading it for several years. But this is exactly what I mean.. it filters out the vast majority of "trends", and misses tons of big moves. But the experienced traders still make good money most weeks.

As far as automated systems, another friend of mine is trading a trend-following system and doing quite well with it, though it is a bit more of a swing trading system that is always in. He has a win ratio of about 50%.

Then there is another friend here who trades the Pound, sometimes trend-following, sometimes counter-trend. His win ratio is decent as well.

I guess my point is that while many of the commonly mentioned public domain trend-following systems have about 30% win ratios with high reward/risk, as far as the traders I personally know who have been doing this for decades in some cases, their trend-following systems have very different characteristics and performance statistics. I know this doesn't constitute proof in your contest, nor is it meant to, but hope that helps.

Btw, I am not a trend-zealot, my thoughts are some of my friends can certainly found success (if not the "holy grail" lol) with their trend-following trading, but I also enjoy researching counter-trend and non-trend related systems.

-Taric

 

[PitchBlack]

Peter,

ever considered that i might be possible that you will never be able to be successful in trading? But it's always easier to blame it on someone or something else.
I don't mind that you don't believe in trendfollowing, because every day traders that wiped out their account have to be replaced by newbies. Trendfollowing is the only way to survive.

If a stock goes from 25 to 10 it's better to go short, but apparently everyone, except the trendfollowers, go long. Why take the easy way if you can take a much more difficult one?



You act like the golf player that can't get the ball in the hole. He concludes that sending the ball in the direction of the hole doesn't work. So instead of sending him in the direction of the hole he sends the ball 180° in the opposite direction. The real solution was to take lessons. The player was the problem, not the ball nor the hole.
Perhaps you should do the same. But on the other hand it's better you don't do that, because it makes it more difficult to me to take your money.

 

[Lefty62151]

Hello:
I am done for the day. Reached my target of 10 S&P points just now. Attached is a chart taken from my backup data feed (for one more month). Although I have made money with this setup, I use one that varies a little from what you will see. Notice the trend that is clearly down. Notice the two EMA's (21 period and 5 period) As long as they look like this I am in the market. I sold 1187.75 and I got out at 1177.75 on the button. I am going to get some sleep. I hope this "delusion" lasts long enough for me to see the trade clear. As Tony Oz says in his books, "Friday is payday".

Good Luck "Anti-Trendists"
Lefty

Edit:

By the way, I don't want to give the impression that I do this everyday. I don't. I don't want to give the impression that this is easy. In fact, it is pretty hard for my to keep my fingers off the damn mouse especially on the pullbacks. From my point of view the secret (if there is one) is to control your emotions while continuing to exercise good judgement. That part requires a combination of market feel and experience that is (apparently) very hard to acquire. There were two good "trend days" this week. I screwed up the first one, and caught this one. Again to answer the comments of the naysayers, I don't know exactly when these events will occur, but I do know when the percentages are in my favor. I place my bets like the rest of you, and as far as I can tell the only difference between us is the way that I manage the risk. What else can I say?