Trend Following Research
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Trend Following
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Most smart things written about trend following never are really dated. This piece (PDF) offers some nuggets of wisdom:
That point is also made here starting at 6:44 (see Shaun Jordan):
http://www.cmegroup.com/education/managed-futures-resource-center.html
That point is also made here starting at 6:44 (see Shaun Jordan):
http://www.cmegroup.com/education/managed-futures-resource-center.html
Dealing with the documented history of trend following, one finds a broad spectrum of possibilities.
Your focus, as noted in your post, is narrow.
It is in the vein of long term investing only and not trading.
Most marketing of trend following is in the long term niche.
In this thread long term trend following is the general topic and all the papers presented do confirm this particular orientation.
Reading the Wiki level stuff is about the same.
The audience for such materials is mostly, as pointed out by the OP, those who do not know anything about markets.
The trend followers spoken about in this thread have missed the opportunity that markets present.
My viewppoint on the opportunity has been judged by the OP, as well. It is "gibberish" in his opinion.
Simply stated, the opportunity of markets is best measured by the individual observer in the context of his potential participation.
Monitoring and analysis of trends is where the rubber meets the road. NOW is where the opportunity is focussed.
A person makes a simple choice.
Following is not a good choice. It leads to the results, so far, posted here.
The alternative, monitoring and analysis of trends, leads to an entirely different picture.
As shown so far in this thread. monitoring and analysis of trends is off limits where the chosen topic is trend following instead.
With regard to your long term trend question, there is no difference.
The market dictates about 7 fractals for consideration. There is always trending in all seven fractals. For making money, the ones chosen for papers and discussion are not the ones where monitoring and analysis of trends is done to be rewarded by a high money velocity. The annual returns spoken of here are jusat an hour or so of trading on the high yield fractals. The proof is self evident to any potential trader.
It is a choice to take the opportunity or not. There are some very good reasons why most people do not make the better choice. Read the papers presented and find out how these people excused themselves from learning how to trade optimally.
What about the alternative papers? Is a discussion of trading a possibility or is the limitation of discussion just long term trending?
Mr. Covel,
How many of these trend following fund managers are long term trend followers only?? ( average position held 6months or more-this is long term in my view, for others I am sure it will vary)
How many are long only trend followers??
How many have multiple time frame trend following strategies??reason I ask this question is because according to some publications ,I believe most recent Active Trader issue , there was an article on using trend following strategies in different time frames to smooth out the equity curve and decrease large draw downs often associated with trend following .
How many of them are strictly technical ( am pretty sure Dunn is strictly technical) how many are hybrid of both technical and fundamental approach??
I know most of them are CTA's, is this because commodity markets are better for trend following than stocks??If so why is this so??
As was shown earlier in this thread, there was a posting of an equity curve of the famous turtle trading system, with an amazing run through the 1970s and 1980s and than a it became flat for over a decade, is the cause of this volatility?? I tested the longer term entries and kept everything else the same and the results remained profitable, due to larger stops and longer term orientation.
Thanks for taking time to answer these questions.
How many of these trend following fund managers are long term trend followers only?? ( average position held 6months or more-this is long term in my view, for others I am sure it will vary)
How many are long only trend followers??
How many have multiple time frame trend following strategies??reason I ask this question is because according to some publications ,I believe most recent Active Trader issue , there was an article on using trend following strategies in different time frames to smooth out the equity curve and decrease large draw downs often associated with trend following .
How many of them are strictly technical ( am pretty sure Dunn is strictly technical) how many are hybrid of both technical and fundamental approach??
I know most of them are CTA's, is this because commodity markets are better for trend following than stocks??If so why is this so??
As was shown earlier in this thread, there was a posting of an equity curve of the famous turtle trading system, with an amazing run through the 1970s and 1980s and than a it became flat for over a decade, is the cause of this volatility?? I tested the longer term entries and kept everything else the same and the results remained profitable, due to larger stops and longer term orientation.
Thanks for taking time to answer these questions.
Trend Following
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Thanks for asking. Not trying to be short, but to the point ...some answers:
1. Systematic trend following is driven by price, not fundamentals. That means all technical. Not sure how/why fundamentals are added to trading systems that revolve around price action.
2. Not sure I am seeing this 10 year window of bad performance. Where is that?
3. Most trend followers of the variety in my works are long/short, not long only.
4. Smoothing, or attempting to smooth equity curves, is a choice to try. Some see it as useful, some don't.
5. Some of the big names might try to slice the big moves into different time frames, but big moves are big moves no matter how you slice that (and you don't want to miss them). Key is to stay robust.
6. There is no right or wrong answer as to what market(s) will be the winners for trend followers during any given year. You can't know in advance, but you can be ready with a diverse portfolio.
7. The notion that trend following is not for stocks is an older notion.
8. Finishing two new books now...and many of these issues have been addressed during research/interview process. You could say my answers to you are reflecting not just my views, but more importantly views from trend pros with very long term track records of success.
1. Systematic trend following is driven by price, not fundamentals. That means all technical. Not sure how/why fundamentals are added to trading systems that revolve around price action.
2. Not sure I am seeing this 10 year window of bad performance. Where is that?
3. Most trend followers of the variety in my works are long/short, not long only.
4. Smoothing, or attempting to smooth equity curves, is a choice to try. Some see it as useful, some don't.
5. Some of the big names might try to slice the big moves into different time frames, but big moves are big moves no matter how you slice that (and you don't want to miss them). Key is to stay robust.
6. There is no right or wrong answer as to what market(s) will be the winners for trend followers during any given year. You can't know in advance, but you can be ready with a diverse portfolio.
7. The notion that trend following is not for stocks is an older notion.
8. Finishing two new books now...and many of these issues have been addressed during research/interview process. You could say my answers to you are reflecting not just my views, but more importantly views from trend pros with very long term track records of success.
Trend Following
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Beam me up Scotty.
From my understanding long term trends are driven fundamentally. Look at commodities for the past decade, and the emerging markets like China and India. The growing global demand and the growing middle class has had an obvious impact on the demand for natural resources. I am in Canada, this recent global recession, in British Columbia wasn't felt at all. Also the increasing demand from the east is very evident if you look at the real estate markets and growth we in BC have experienced in the last decade mostly due to our geographical location and importance as a gate to pacific rim and the east. Although this is evidently expressed in the price of underlying commodities, one can have a higher degree of confidence and perhaps position himself accordingly by using fundamentals as an additional filter. Mr Covel you have been in Brazil giving lectures( I got this off your site), seeing the growth and potential Brazil still has would you trust more a short or long signal if you were trading say Bovespa ETF or something along those lines with your system?
Would you just as reluctantly sell short a company that has been raising its dividends and has outperformed analysts expectations consecutively for the last 4 quarters ?? I mean, I am a strong believer in technical trend following systems, but I am also a believer in fundamentals ( company/sector evaluation and macro analysis). Obviously many technicians have done very well for themselves w/o using fundamentals in their analysis(donchian,seykota, and these guys http://autrasy.wpengine.netdna-cdn.com/wp-content/uploads/2010/07/BigHistoryChart.png ) but if you look at the top fund managers its just as obvious that most of them are either hybrids or pure fundamentalists. Once again this is my opinion, and that's what made me ask the question about fundamentals being used.
If the rules are as what you posted on your site, than this would be the equity curve for the turtles short term system. (20 day break out/10day exit , with fixed percentage position sizing and 2ATR stop)
http://www.tradingblox.com/forum/viewtopic.php?p=35018#35018
It shows how the system was flat and slightly down from 1994 onwards up until huge declines and trends 1997 and 1998.
The combined systems 55day BO and 20 day BO has had an explosive growth in recent volatile markets.
not surprised, trends form in both directions
Couldn't agree more, robustness is key in creating solid trading systems, either mean reverting or trend following alike.
Do you by diversified mean a basket of uncorrelated instruments?? If so how do you determine that correlation?purely based on historical prices in relation to each other??Or do you mean by trading a little bit of everything from index futures, commodities to currency pairs and maybe even mutual funds and etfs??
Are you saying more fund managers are using trend following systems for stocks and not just futures??
I look forward to reading them!
Thanks a lot for answering these.
slavduja:
By the numbers.
Your view on Q1 is correct. Trend following is not the issue but trend monitoring and analysis is where to look. It is an FA and TA combo. To sharpen your views on TA, consider learning that volume drives price.
For Q2, consider where Covel operates. You are oriented to trading and he is oriented to publishing what he gleans from people willing to talk to him. Covell does not understand you orientation as a trader. covell deals in "reaction"; you are dealing with monitoring and analysis.
In Q3 the issue is retail or non retail. Performance of covell's interviewees is based on applied capital all the time on "investing" strategies. You are working from a trader orientation and not the 20% per annum orientation covell has.
Q's 4 and 5 deal with effectivenss and efficiency. Refer to the recent "Beam me up Scotty" quip on covell's misunderstanding of how app of cap is optimized.
Using faster fractals is de rigeur and which fractals are determined by market capacity and the cost of premium. Covell's interviewees have very high premiums and they do not know how to deal at a multiple of market capacity. As you see in all markets covell's interviewees are playing as "heavy wieghts" meaning their market activitiy (taking actions in markets are always "woking" against making money rather than being "pushed by markets as traders do)
Example: examine a month and obsrve the 4 trade a month fractal and the 15 trade a month fractal. The slower fractal is way off optimum and the faster fractal operates @ rate of 10K per contract (ES) monthly return.
In Q7, the issue turns to the drawdown aspect of trend following. Not knowing the ends of trends is what sets up the draw down periods. At some point trend following has to be examined to consider its shortcomings. Then it may be possible to begin to oreint to the order of events in trends. Once this set of milestones is monitored and analyzed, then the opportunity to deal with optimization and effectiveness and eddiciency is put on the table.
As you can read in Behavioral Finance, events are the basis of making money. Events have charaxter that afford the opportunity ro examine pre and post event happenings and their respective chriteria. Fund managers manage funds, primarily. Google "settlement" to see the difference between using capital to make money and how managing is done to satisfy and keep clients (also give rgard to the "pitching" part of the fund manangement industry and how "bonuses" come about)
Q8 is a bonus for you; here you see covell's modus and his narrow view.
Good luck in your future advances in trading.
By the numbers.
Your view on Q1 is correct. Trend following is not the issue but trend monitoring and analysis is where to look. It is an FA and TA combo. To sharpen your views on TA, consider learning that volume drives price.
For Q2, consider where Covel operates. You are oriented to trading and he is oriented to publishing what he gleans from people willing to talk to him. Covell does not understand you orientation as a trader. covell deals in "reaction"; you are dealing with monitoring and analysis.
In Q3 the issue is retail or non retail. Performance of covell's interviewees is based on applied capital all the time on "investing" strategies. You are working from a trader orientation and not the 20% per annum orientation covell has.
Q's 4 and 5 deal with effectivenss and efficiency. Refer to the recent "Beam me up Scotty" quip on covell's misunderstanding of how app of cap is optimized.
Using faster fractals is de rigeur and which fractals are determined by market capacity and the cost of premium. Covell's interviewees have very high premiums and they do not know how to deal at a multiple of market capacity. As you see in all markets covell's interviewees are playing as "heavy wieghts" meaning their market activitiy (taking actions in markets are always "woking" against making money rather than being "pushed by markets as traders do)
Example: examine a month and obsrve the 4 trade a month fractal and the 15 trade a month fractal. The slower fractal is way off optimum and the faster fractal operates @ rate of 10K per contract (ES) monthly return.
In Q7, the issue turns to the drawdown aspect of trend following. Not knowing the ends of trends is what sets up the draw down periods. At some point trend following has to be examined to consider its shortcomings. Then it may be possible to begin to oreint to the order of events in trends. Once this set of milestones is monitored and analyzed, then the opportunity to deal with optimization and effectiveness and eddiciency is put on the table.
As you can read in Behavioral Finance, events are the basis of making money. Events have charaxter that afford the opportunity ro examine pre and post event happenings and their respective chriteria. Fund managers manage funds, primarily. Google "settlement" to see the difference between using capital to make money and how managing is done to satisfy and keep clients (also give rgard to the "pitching" part of the fund manangement industry and how "bonuses" come about)
Q8 is a bonus for you; here you see covell's modus and his narrow view.
Good luck in your future advances in trading.
It certainly drives it but does it lead it??I can see that trends cannot be sustained without sustained buying and selling coming in. So yes volume is a vital component of TA, I agree.One thing is deciphering volume isn't an easy task. when price is fair participants exchange ownership of shares/contracts in high numbers (high volume in small range), markets are nothing but an auction market searching fair value. Larger participants tend to have better information available to them before the rest of us( I believe the term in econ is asymmetric information) and are therefore more often correct on the "TRUE" value of the underlying instrument. For example, producers in commodity markets have a much better grasp of how things are than we retail speculators do. These guys use us for liquidity.I have noticed how high volume nodes often are signs of market reversals and trend exhaustion. On the other hand break outs out of consolidations with high volume cause sustainable trends. One of the filters turtles used was not to enter the market if their position made up a N% of the total daily volume. I can see why that is a great filter, although not something a small timer like me buying 1-3 contracts of NQ needs to worry about anytime soon. LOL
By using constant volume bars like prof, one can filter huge amounts of noise you can encounter with time based bars.
How did you come up with a specific number 7??
Yes, trending may exist in all seven fractals(time frames). In one you could be in consolidation but in another you could be in a trend. This is why I asked Covel about multiple time frame trend following as means of diversifying and decreasing draw downs. I have also heard of testing your strategy with exact parameters on smaller time frames for robustness. Say a MA cross of 5 period and 15 period. You optimize and test on daily bars, than test for robustness by using the same 5 and 15 period on 30min bars and 5min bars.
I agree about the shorter time frames, I think its due to net profit being a product of # of trades and average profit/trade. Lower time frame can more than make up for lower %wins by having higher number of trades overall.Am I right??