Why has the turtle trend-following system stop working?

Maybe this "story" can enlighten everyone on ET:
A trader wants to build a system for trading. After extensive research he has one. Returns are good but he has a few big drawdowns. So he tries to get ride of these drawdowns by improving his system. But the problem is that if he does do that the overall return drops significantly too. So the problem is: how to reduce the drawdowns without reducing the performance?
After trying numerous alternative solutions the conclusion is: if he touches the drawdowns he loses performance. Or in other words: he can only trade the system as it is. So with the drawdowns.
This explains why "drawdowns can be good". He does not know which drawdown not to take so he has to follow his system, which means also take the drawdowns. If he would intervene based on his intuition he might miss the biggest profit of the year and ruin his whole performance. He should avoid that risk.
That's the dilemma of a trading system: you should trade exactly as the system tells you or real results can be way off from testing results.
 
Mtrader said:
Maybe this "story" can enlighten everyone on ET:
A trader wants to build a system for trading. After extensive research he has one. Returns are good but he has a few big drawdowns. So he tries to get ride of these drawdowns by improving his system. But the problem is that if he does do that the overall return drops significantly too. So the problem is: how to reduce the drawdowns without reducing the performance?
After trying numerous alternative solutions the conclusion is: if he touches the drawdowns he loses performance. Or in other words: he can only trade the system as it is. So with the drawdowns.
This explains why "drawdowns can be good". He does not know which drawdown not to take so he has to follow his system, which means also take the drawdowns. If he would intervene based on his intuition he might miss the biggest profit of the year and ruin his whole performance. He should avoid that risk.
That's the dilemma of a trading system: you should trade exactly as the system tells you or real results can be way off from testing results.
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I don't think you are a trend follower unless you are using jargon new to the scene. Drawdowns come from taking many small losses that are added up in trendless periods to a drawdown. You don't take or not take a DD. You take losses, i.e. stops hit. DDs happen--that was the point. They can't be stopped inside a trend following strategy. This is especially seen in track records spanning decades.
 
Visaria said:
MrBrowser, he says that losing half your money is "useful". Presumably losing all your money is very "useful". What can you say to some one who says that?
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Do you understand the logic here about large DDs? You are welcome to disagree with what Clarke puts on the table, but you have not demonstrated that you understand what he is saying and why.
 
Trend Following said:
I don't think you are a trend follower unless you are using jargon new to the scene. Drawdowns come from taking many small losses that are added up in trendless periods to a drawdown. You don't take or not take a DD. You take losses, i.e. stops hit. DDs happen--that was the point. They can't be stopped inside a trend following strategy. This is especially seen in track records spanning decades.
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I have a personal friend who sold JH's funds to clients. So I had all the trades John Henry did in the 1980's. I saw what I saw. Nothing about small losses. He tried to follow the trend. Even if the market went 10 or more % in the wrong way he kept his positions. 2 trades on 3 were losses. But when he was right profits were really big.

If a fund losses 50%, it is not important if it was because of many small losses or 1 big one. 50% loss is still 50% loss.
 
Mtrader said:
I have a personal friend who sold JH's funds to clients. So I had all the trades John Henry did in the 1980's. I saw what I saw. Nothing about small losses. He tried to follow the trend. Even if the market went 10 or more % in the wrong way he kept his positions. 2 trades on 3 were losses. But when he was right profits were really big.

If a fund losses 50%, it is not important if it was because of many small losses or 1 big one. 50% loss is still 50% loss.
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That is not a complete analysis, but you are welcome to believe whatever you want to believe.
 
Trend Following said:
That is not a complete analysis, but you are welcome to believe whatever you want to believe.
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Hi Trend Following,

May I ask if you are Mr Michael Covel himself? If yes, it's an honor to have you on this thread which I started. I have read some of your books. They are simple to understand. Thanks!
 
helpme_please said:
Hi Trend Following,

May I ask if you are Mr Michael Covel himself? If yes, it's an honor to have you on this thread which I started. I have read some of your books. They are simple to understand. Thanks!
More...

Thanks.
 
How can trend following "not work" when markets do in fact trend? The guys who call themselves trend followers may not be the ones making impressive returns, but someone somewhere is doing just that. Just because we don't know who they are doesn't mean they don't exist.
 
Markets trend in all time frames. In fact, if you make money on a directional trade, by definition, you were in the correct trend for the time you were in the trade. If you lose, you were trading counter trend for the time you were in the trade.

Therefore, the best and most risk free way to make money is to enter a trend early as possible which is just as it is changing, then ride it and then exit when the trend changes again i.e. pick the top and bottom. This is of course impossible to do all the time.

So the trend followers say, well we can't pick the tops and bottoms consistently, so we'll do the next best thing and identify a trend once it has started and then climb aboard, ride it and either exit before the trend ends or just after it ends. So they develop methods of identifying a trend.

The problem is with these methods. If the method chosen fits with the current market reality, then great, that trend follower will make a lot of money. If however it does not match then, the trend follower will struggle.

Unfortunately market realities change. If the trend follower does not adapt his method to the current market reality quickly enough, he is toast. That is why the turtle trend following system doesn't 'work' anymore. It just hasn't adapted to current market reality.
 
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