Trend Following + Range Trading

Wide Tailz

Wide Tailz

I had a crazy idea when looking at a trend following equity curve. It looked a lot like a trending stock.

The various channeling and horizontal resistance triggers looked like they may be useful.

Then it occurred to me that these thresholds could be used to switch the capital in the trend system on or off.

However, the inverse of a trend following system is a range system (I.e. market maker). Stewart Thompson calls it the Pgen.

So why not switch the trend system off and run a Pgen while the market is thrashing, then switch back when the trend system's equity curve starts outrunning the Pgen's?

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my 0.02 USD, you (in general) should stick to trend following OR rtm (reversion to mean). not that you couldn't do both it's just that it's difficult to constantly switch strategies. each has it's advantages (tf - low win rate - high win size vs loss size) and (rtm - the opposite).
 
So you can pick the end of a trend as it is happening?
So you can tell in real time when the end of a trend will lead to a sideways move as opposed to a trend reversal? Do whatever you want. You are clearly god and you will be the richest man on earth in 2 years.
 
Does it test well? Equity curve timing has the same issues as market timing. Whipsaws, catch trends late, what worked in the past may not work in the future, etc. That doesn't invalidate the approach. Comparing the equity curve of various strategies and trading the top performers is a valid approach and I've heard it is used at some hedge funds. I have tested this on a collection of some of my strategies and found it's not much better than simply diversifying ... but my testing was too limited to be definitive.
 
Quote from FrankSlaughtery:

my 0.02 USD, you (in general) should stick to trend following OR rtm (reversion to mean). not that you couldn't do both it's just that it's difficult to constantly switch strategies. each has it's advantages (tf - low win rate - high win size vs loss size) and (rtm - the opposite).
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He doesn't have to "switch," just run them both at the same time.

Quote from J.Joseph:

So you can pick the end of a trend as it is happening?
So you can tell in real time when the end of a trend will lead to a sideways move as opposed to a trend reversal? Do whatever you want. You are clearly god and you will be the richest man on earth in 2 years.
More...

This troll post contributes nothing except prooves your own ignorance. Everyone defines the trend/non-trend activity differently, and yes, I have rules for myself that tell me when a trend is intact, and when one is not.

Quote from dwpeters:

Does it test well? Equity curve timing has the same issues as market timing. Whipsaws, catch trends late, what worked in the past may not work in the future, etc. That doesn't invalidate the approach. Comparing the equity curve of various strategies and trading the top performers is a valid approach and I've heard it is used at some hedge funds. I have tested this on a collection of some of my strategies and found it's not much better than simply diversifying ... but my testing was too limited to be definitive.
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Even though Warren Buffet said diversification is protection against ignorance, that's not true if you're not ignorant.

Exactly, but nothing will work well all of the time. You might try to fight this by adjusting your system's settings to better fit past data, but that makes little sense imo.

I assume you're learning how to program. Simple if/then statments would enable you to say if the markets 'trending', do this, if not, then do this etc.
 
You could choose other allocations besides (Sys1=100%, Sys2=0%) and (Sys1=0%, Sys2=100%).

Perhaps when the indicators are in Condition X, you might allocate (Sys1=70%, Sys2=30%). However when the indicators are in Condition Y, you could allocate (Sys1=30%, Sys2=70%) instead.
 
I thank you for your thoughtful replies. This is just an idea at this point, but it seems similar to setting shift points in a race car. You take a dyno graph of rear wheel hp for each gear and note where they intersect, there are your shift points.

The same situation appears to be possible when plotting equity curves for the two trading systems. Switch when one is levitating faster than the other.........
 
some trend followers have incorporated rtm strategies into their funds to smooth out the vol and be more palatable to investors. maybe covel can chime in if he's around.
 
Quote from Wide Tailz:

I had a crazy idea when looking at a trend following equity curve. It looked a lot like a trending stock.

The various channeling and horizontal resistance triggers looked like they may be useful.

Then it occurred to me that these thresholds could be used to switch the capital in the trend system on or off.

However, the inverse of a trend following system is a range system (I.e. market maker). Stewart Thompson calls it the Pgen.

So why not switch the trend system off and run a Pgen while the market is thrashing, then switch back when the trend system's equity curve starts outrunning the Pgen's?

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Your depiction shows that your approach is not extracting the offer of the market and you are not compounding capital.

Trends can be used to extract the offer by coupling the trend analysis is done using the order of events rather than time.

Ranges disappear at some point of sophistication.

As another pointed out, those in the business of gaining the trust of passive investors have to deal primarily with their basic lack of knowledge and understanding of how markets work.

Examine the market's offer as a standard. There is a continuous train of profit taking segments. You will have to switch to log/log graphics at somepoint to deal with the equity results you will then encounter.
 
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