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Trend Follower David Druz

From The Little Book of Trading trend follower David Druz has a plan:

Once a system’s algorithms and parameters are established, the system must be followed exactly and religiously. A system cannot be second-guessed or used intermittently. Values of variables cannot be altered. Parameters cannot be arbitrarily changed. A robust system works over many types of market conditions and over many timeframes. It works in German Bund futures and it works in wheat. It works when tested over 1950•1960 or over 1990•2000. Robust systems tend to be designed around successful trading tactics not designed around specific types of markets or market action. And here is the amazing thing about robust systems: The more robust a system, the more volatile it tends to be! Druz gives this advice: “There are whole families of trend trading ideas that seem to work forever on any market. The down side is they are very volatile because they are never curve-fit. They’re never exactly fit to any particular market or market condition. But over the long run, they do extract money from the market. You want to be focused on how you divvied up the risk in your portfolio, how much risk you take in each market, how many contracts you trade in each market, that’s the stuff that really counts…if you have money management wired, you can let volatility go because you know it doesn’t have any correlation with the risk of ruin. You can use volatility to your advantage.”

Wise.

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Posted in Risk Management, Systems Trading, Trend Following
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