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Trend Following Research
- Thread starter Trend Following
- Start date
Quote from 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!
Seth is great. As a proponent of small, niche type funds I should use that qoute in the literature. Thanks!
By the way, what are your thoughts on Rodney's comment advising of the potential folly of using a non investable index?
Quote from marketsurfer:
By the way, what are your thoughts on Rodney's comment advising of the potential folly of using a non investable index?
I believe investors should benchmark the performance of their investments against a relevant index. Much of my effort relating to investing has centered around developing a trading strategy that is the absolute best that I can design and execute for me given the time I have available each trading day, my risk tolerance, etc. My money is on the line and I therefore want my trading strategy to perform as well as possible. For that reason, when I post my monthly returns I also post the return of the IASG Trend Following Strategy Index and the Hennessee Group Hedge Fund Index (see attached chart).
Regarding Rodney's comment, if there is a more appropriate TF index I would like to hear about it. The IASG index is based on funds listed at http://www.iasg.com/managed-futures/cta-indexes/view/programs/index/trend-following-index
Some of the funds have very small AUM and are therefore not investable. As not every fund in the index is investable we are left wondering what the impact of removing the non-investable funds would be on the index. We don't know the answer. What I do know is the IASG index is the best I have found for my purposes.
Fred
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Why don't you go back to your posts on this message board from 2005 and 2006? You claimed the big trendfollowers were bound to deliver sub-standard performance and are "about to go away as they have no edge".Quote from marketsurfer:
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.
Go back to 2005 and find a list of the top 10 trend CTAs at that point in time. That way you account for survivorship bias. Back in 2005 it should have been guys like Winton, AHL, Transtrend, JWH etc.
Next make a list of the performance of their flagship funds from 2005 - 2011. That way you get a very clear idea of how well or badly trend funds have done in the last 5-6 years.
Why are you too lazy (or incompetent) to do a simple bit of legwork that would prove or falsify your entire thesis?
Quote from fjpenney:
Regarding Rodney's comment, if there is a more appropriate TF index I would like to hear about it. The IASG index is based on funds listed at http://www.iasg.com/managed-futures/cta-indexes/view/programs/index/trend-following-index
Some of the funds have very small AUM and are therefore not investable. As not every fund in the index is investable we are left wondering what the impact of removing the non-investable funds would be on the index. We don't know the answer. What I do know is the IASG index is the best I have found for my purposes.
Have a look at Newedge's indices.
I think you misunderstand the 'investible' issue. It doesn't matter whether each <i>current</i> index component is investible. The question is whether there existed a product an investor could buy that produced exactly the historical return stream of the index. If the answer is, "no, because component funds were added and dropped over time, and the returns of added funds backfilled, and those of dropped funds removed," then there's an enormous bias in the data. Bear in mind, constructors of indices are always cheerleaders for the industry -- it's how they make their living -- and want the indices to look as rosy as possible.
A simple example of retrospection bias: read thru threads on this site started by authors / enthusiasts of trendfollowing. You'll notice they praised JWH back when he was riding high, then quietly forgot about him and switched to praising others, such as Winton, when his performance fell off. And of course, in the early days even Rich Dennis was held up as a guiding light.
Thanks for the Newedge reference Rodney. I wasn't aware of their index. I have attached a chart showing the performance of my trading system compared to the IASG and the Newedge indices.
I am sure you are aware that there is no investable index based on TF no more than there is no investable index based on value investing, high frequency trading, mean reversion, etc. I suspect your point is that we don't know how well TF has performed in the past overall. Do we know how any trading strategy as practiced by all available funds has fared? No. As you state, even if you attempted to construct an index you would have to deal with survivorship bias.
I am a trend trader but I am not going to jump up and down and scream that everybody should be trend traders. The best type of trading strategy is dependent on the individual. There are many people for whom a couch potato strategy based on low cost ETF's is well suited. Most of the contributors on this site, however, are likely active traders and wouldn't be satisfied with such an investing strategy.
If someone posts a point here that I should consider which would improve my trading then I am very open to that. Just don't expect me to tell you that my trading style is the right one for you.
I am sure you are aware that there is no investable index based on TF no more than there is no investable index based on value investing, high frequency trading, mean reversion, etc. I suspect your point is that we don't know how well TF has performed in the past overall. Do we know how any trading strategy as practiced by all available funds has fared? No. As you state, even if you attempted to construct an index you would have to deal with survivorship bias.
I am a trend trader but I am not going to jump up and down and scream that everybody should be trend traders. The best type of trading strategy is dependent on the individual. There are many people for whom a couch potato strategy based on low cost ETF's is well suited. Most of the contributors on this site, however, are likely active traders and wouldn't be satisfied with such an investing strategy.
If someone posts a point here that I should consider which would improve my trading then I am very open to that. Just don't expect me to tell you that my trading style is the right one for you.
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Quote from fjpenney:
I am sure you are aware that there is no investable index based on TF no more than there is no investable index based on value investing, high frequency
For many strategies -- merger-arb is one example -- there are ETF or closed-end fund tickers that are reasonable proxies, and are investible. Obviously MERFX won't track any particular merger-arb fund or basket of funds, but the fact that it's <i>investible</i> makes it much more valuable than any "index."
A better way to think about this is: <i>start with</i> the constraint that you'll consider <i>only</i> investible products, <i>then</i> ask, what's the best tracker I can find within that universe, for the strategy of interest?
Re Newedge vs IASG, ask yourself why there's a <i>10%</i> difference, over the less-than-a-year period you display.
Re your trading - what's the target (or realized) vol?
Quote from fjpenney:
My trading system on Collective2 is based on a starting equity of $100,000. At most, the system will hold 25 positions with each position representing 8% of system equity at time of purchase. The system can therefore use up 100% margin.
Didn't answer my question -- what's your target volatility? In any case, "up to 100% margin" means, as back of the envelope, you're running 2- 3x hotter than the typical trendfollowing fund. So, dividing your 24% return by 2- 3x gives 8- 12%, which puts it solidly between the two index lines.
In your previous post you asked about my target "vol". I thought you meant volume rather than volatility.
I don't have a target volatility. My focus is the CALMAR or MAR ratio. From my experience, most investors are risk (whatever that is - the definition varies from investor to investor) tolerant until they experience a significant draw down. I also like Peter Martin's ulcer index.
I don't have a target volatility. My focus is the CALMAR or MAR ratio. From my experience, most investors are risk (whatever that is - the definition varies from investor to investor) tolerant until they experience a significant draw down. I also like Peter Martin's ulcer index.