What are the basic ingredients of a trend following system

[pisco]

Hello,

I have read a lot about trend following and some strategies. As we all know trend followers, for me the key to a good trend following system is to find a strong trend in historical data and hope for it to come again.

However, I was wondering if there is a generic structure in trend following systems? How does such, in your opinion, look like? What would you put into such a system, if you would create one?

Any good systems to recommend about trend following?

I really appreciate your answer!

 

[jack hershey]

nice handle

pisco sour is neat drink


this is a sincere answer.

Trends do not come and go away and return again.

Most people believe, correctly, that following is too late and, as a consequence ,following has little value.


Leaving trendfollowing aside as a tool for making money, it is well known that trendfollowing is done as a hindsight endeavor. Using hindsight has few virtues.

So what is left to consider to help you reach an undefined goal?

Well there is THE system of the market's operation. If a potential trader has an open mind, he can do reasearch to come to understand the system of operation of the market.

The most difficult intelllectual consideration is working within the mathematics at your disposal.

The single overeaching mathematical tennant is the function of the independent variable in mathematics.

As you explain, you are working with the incorrect variable.

So to move forward and avoid this pitfall, you must consider any incoming substantive content and determine if the provider is making the same mistake you commit

 

[pisco]

nice handle

pisco sour is neat drink


this is a sincere answer.

Trends do not come and go away and return again.

Most people believe, correctly, that following is too late and, as a consequence ,following has little value.


Leaving trendfollowing aside as a tool for making money, it is well known that trendfollowing is done as a hindsight endeavor. Using hindsight has few virtues.

So what is left to consider to help you reach an undefined goal?

Well there is THE system of the market's operation. If a potential trader has an open mind, he can do reasearch to come to understand the system of operation of the market.

The most difficult intelllectual consideration is working within the mathematics at your disposal.

The single overeaching mathematical tennant is the function of the independent variable in mathematics.

As you explain, you are working with the incorrect variable.

So to move forward and avoid this pitfall, you must consider any incoming substantive content and determine if the provider is making the same mistake you commit

Thx a lot for your answer! Pretty deep stuff!!!

If I am considering market operation as the underlying mechanics to lay out a trend follower, doesn`t this also raise the question which assets are traded. For example, I think it would be pretty hard to trade forex, cause the narrower a market is the "easier" it should be cause not so many variables have to be considered...(in my humble opinion ;P )

Can you recommend some study material? Any research papers?

Would really appreciate your answer!

PS.: My goal is to generate a program which can generate/find over a given time series a trend follower and outputs a potential trading model(btw under the assumption this is possible)

 

[kut2k2]

"What are the basic ingredients of a trend following system?"

1) Trade with the trend.

2) Let winnings run.

3) Cut losses short.

4) Manage risk.

5) Ignore anything written by Jack Hershey because listening to him will only lead to nowhere or, worse, lead to madness.

Assuming you apply step #5 immediately to avoid getting sucked into a vortex of confusion and despair, your biggest challenge is step #1: how to trade with the trend. There are many methods, including several in the public domain, and they all have their strengths and weaknesses. Good luck.

Edit: check out the Ghost thread in the Journals forum. You might like the Straight Line Approach.

 

[Slope Trader]

Hi Pisco,

I don't trade trend-following systems because they tend to have winning percentages of 40% or less while I prefer to have > 50%, but this approach has sure worked for some well-known traders (and not worked recently for at least one famous trader, John Henry, though I don't know what happened there).

Your post stimulated me to do some Google-searching. I found detailed descriptions of a couple of past trendfollowing systems, including the original system used by the Turtles. Are these the sort of examples you're looking for?

http://www.robbooker.com/woodchuck/training/turtles/turtlerules.pdf

http://www.robbooker.com/books/5_13_62.pdf

Hello,

I have read a lot about trend following and some strategies. As we all know trend followers, for me the key to a good trend following system is to find a strong trend in historical data and hope for it to come again.

However, I was wondering if there is a generic structure in trend following systems? How does such, in your opinion, look like? What would you put into such a system, if you would create one?

Any good systems to recommend about trend following?

I really appreciate your answer!

 

[pisco]

Thx a lot guys for your answers!

Besides trend following, which other basis of systems would your recommend? Mean reversion?

 

[dbphoenix]

Thx a lot guys for your answers!

Besides trend following, which other basis of systems would your recommend? Mean reversion?

Trend following and mean reversion are related. See the pdfs I posted to the Ghost thread.

As for creating a program that can do all this for you, save yourself the time and trouble. If it could be done, someone would already have done it long ago.

 

[dbphoenix]

1) Trade with the trend.

2) Let winnings run.

3) Cut losses short.

4) Manage risk.

5) Ignore anything written by Jack Hershey because listening to him will only lead to nowhere or, worse, lead to madness.

Assuming you apply step #5 immediately to avoid getting sucked into a vortex of confusion and despair, your biggest challenge is step #1: how to trade with the trend. There are many methods, including several in the public domain, and they all have their strengths and weaknesses. Good luck.

Edit: check out the Ghost thread in the Journals forum. You might like the Straight Line Approach.

Why thank you. That amounts to a celebrity endorsement.

 

[R. Raskolnikov]

What makes you so sure there aren't systems out there designed to both capture a trend continuation and that also can adjust to capture a mean reversion if certain criteria are triggered?

Trend following and mean reversion are related. See the pdfs I posted to the Ghost thread.

As for creating a program that can do all this for you, save yourself the time and trouble. If it could be done, someone would already have done it long ago.

 

[kut2k2]

What makes you so sure there aren't systems out there designed to both capture a trend continuation and that also can adjust to capture a mean reversion if certain criteria are triggered?

There is one commercial system that claims to do this.

http://www.mindfire-systems.com/Catscan.html

I do not recommend it because I cannot vouch for its efficacy, but fwiw such a system does exist. Based on my own research, no single indicator can differentiate trend from chop very well, but I certainly concede that I don't know everything.