Trend Following Research

[kut2k2]

Quote from marketsurfer:

Van Tharp claims to have shown that random entries with good money management can be profitable. "I would rather be lucky than good "

You like to make partial claims and give distorted impressions. What you failed to mention was Van Tharp's exit strategy, which was anything but random.

More importantly you fail to mention (and perhaps even to realize) that while one may be able to still be "profitable" after compromising one of the three legs of trading (entry strategy, money management and exit strategy), it is extremely doubtful that one will still beat the buy-and-hold. It isn't enough to just be profitable ... if you can't beat the buy-and-hold, then there's no point in trading at all. Best to just be an investor.

Funny how that part always gets left out .

 

[The Big D]

Quote from kut2k2:


Funny how that part always gets left out.

Yeah, it's a little baffling to me to talk about trading systems without optimized entries. You might be able to prove that your management/exit system was better than random that way, but I have a hard time imagining you'd make much money from knowing it.

At the end of the day, systems which are only slightly better than random are a bitch to trade what with drawdowns etc. If that's all you've got, trade it I guess. But even if big markets there are much better opportunities.

 

[Samsara]

Quote from Neenisti:

You are a very good writer sir but as I stated earlier, Hawking, Gates & Buffett didn't become an experts in their perspective fields by interviewing people. It takes long hours of work in the field itself and personal research and these are both things you have previously stated you have never done.

I think Covel's career has demonstrated that all one needs to do to get by is to take the success of others and sell it.

 

[marketsurfer]

Quote from fjpenney:

Please define "market as a whole". Is it the S&P 500? Is it all US equities? Is it North American equities? Is it all equities? What about bonds? What about forex? What about commodities?

Trend trading usually involves many asset classes so which market would you compare a trend trading system to?

Most investors use the SP 500 as a benchmark in evaluating strategies. How do the trend fund returns since 1983 compare to the benchmark during the same time frame?

 

[fjpenney]

Quote from marketsurfer:

Most investors use the SP 500 as a benchmark in evaluating strategies. How do the trend fund returns since 1983 compare to the benchmark during the same time frame?

The Trend Following Strategy Index beat the S&P 500 by about 14.8%/yr.

Buying and holding the S&P 500 is the most commonly used benchmark but there is no perfect benchmark given that trend trading funds will likely trade multiple asset classes. For me personally, I look at my MAR (or CALMAR) ratio (CAGR/Max DD). At the end of the day, I want a profitable trading system that generates the highest return for the largest draw down I am willing to endure. Hedge funds control the potential draw down based on their clients. Bill Dunn will interview potential clients to determine if they are able to handle the equity curve swings that his trading style generate. Other hedge fund managers who seek to attract institutional funds have to design their TF strategy for small draw downs.

 

[marketsurfer]

Quote from fjpenney:

The Trend Following Strategy Index beat the S&P 500 by about 14.8%/yr.

Buying and holding the S&P 500 is the most commonly used benchmark but there is no perfect benchmark given that trend trading funds will likely trade multiple asset classes. For me personally, I look at my MAR (or CALMAR) ratio (CAGR/Max DD). At the end of the day, I want a profitable trading system that generates the highest return for the largest draw down I am willing to endure. Hedge funds control the potential draw down based on their clients. Bill Dunn will interview potential clients to determine if they are able to handle the equity curve swings that his trading style generate. Other hedge fund managers who seek to attract institutional funds have to design their TF strategy for small draw downs.

I don't disagree. Thanks for the info.

 

[Rodney King]

Quote from fjpenney:

The Trend Following Strategy Index

Check carefully whether that index was <i>investible</i>, and do read the literature on biases associated with <i>non-investible</i> indices, involving survivorship and self-reported data, among others. Also examine how the index has done in the most recent years, as contrasted to the earliest.

 

[fjpenney]

If you are aware of any other trend following fund indices please feel free to share them. The Hennessee Group has many hedge fund indices but neither is for TF funds.

 

[marketsurfer]

The large CTA operations run multiple programs simultaneously-- the successful ones are hyped to the press while the non performers are closed. This is one reason it's very difficult to get a proper read on true performance outside of being an actual investor or hearing from one.

There is a tremendous amount of capital in these trend programs-- making them sluggish and not nimble which may be one reason for the breath taking drawdowns.

 

[fjpenney]

Large draw downs are a result, in part, of leverage and correlation amongst assets held. As such, large draw downs can happen to funds of any size. That said, large funds are, by definition, not as nimble as small funds. As Seth Godin would say, large funds can't achieve economies of small!