Foreword by Barry L. Ritholtz
Preface
I. Trend Following Principles
1. Trend Following
Speculation
Winning versus Losing
Investor versus Trader
Fundamental versus Technical
Discretionary versus Systematic
Hiding in Plain Sight
Change Is Life
Follow the Trend to the End When It Bends
Surf the Waves
2. Great Trend Followers
David Harding
Bill Dunn
John W Henry
Ed Seykota
Keith Campbell
Jerry Parker
Salem Abraham
Richard Dennis
Richard Donchian
Jesse Livermore and Dickson Watts
3. Performance Proof
Absolute Returns
Volatility versus Risk
Drawdowns
Correlation
Zero Sum
George Soros
Berkshire Hathaway
4. Big Events, Crashes, and Panics
Event 1: Great Recession
Event 2: Dot-com Bubble
Event 3: Long-Term Capital Management
Event 4: Asian Contagion
Event 5: Barings Bank
Event 6: Metallgesellschaft
Event 7: Black Monday
5. Thinking Outside the Box
Baseball
Billy Beane
Bill James
Stats Take Over
6. Human Behavior
Prospect Theory
Emotional Intelligence
Neuro-Linguistic Programming
Trading Tribe
Curiosity, Not PhDs
Commitment
7. Decision Making
Occam’s Razor
Fast and Frugal Decision Making
Innovator’s Dilemma
Process versus Outcome versus Gut
8. The Scientific Method
Critical Thinking
Linear versus Nonlinear
Compounding
9. Holy Grails
Buy and Hope
Warren Buffett
Losers Average Losers
Avoiding Stupidity
10. Trading Systems
Risk, Reward, and Uncertainty
Five Questions
Your Trading System
Frequently Asked Questions
11. The Game
Acceptance
Don’t Blame Me
Decrease Leverage, Decrease Return
Fortune Favors the Bold
II. Trend Following Interviews
12. Ed Seykota
13. Martin Lueck
14. Jean-Philippe Bouchaud
15. Ewan Kirk
16. Alex Greyserman
17. Campbell Harvey
18. Lasse Heje Pedersen
III. Trend Following Research
19. A Multicentennial View of Trend Following
The Tale of Trend Following: A Historical Study
Return Characteristics over the Centuries
Risk Characteristics over the Centuries
Portfolio Benefits over the Centuries
20. Two Centuries of Trend Following
Trend Following on Futures since 1960
Extending the Time Series: A Case-by-Case Approach
Trend over Two Centuries
21. Trend Following
Introduction to Different Trend Following Models
Diversification between Different Trend Following Models
Aspect’s Approach to Trend Following
Aspect’s Model Compared to Other Trend Following Models
22. Evaluating Trading Strategies
Testing in Other Fields of Science
Revaluating the Candidate Strategy
Two Views of Multiple Testing
False Discoveries and Missed Discoveries
Haircutting Sharpe Ratios
An Example with Standard and Poor’s Capital IQ
In Sample and Out of Sample
Trading Strategies and Financial Products
23. Black Box Trend Following—Lifting the Veil
The Strategies
Performance Results and Graphs
Sector Performance
Performance of Long versus Short Trades
Stability of Parameters
Are CTAs a Diversifier or a Hedge to the SP500?
24. Risk Management
Risk
Risk Management
Optimal Betting
Hunches and Systems
Simulations
Pyramiding and Martingale
Optimizing—Using Simulation
Optimizing—Using Calculus
Optimizing—Using the Kelly Formula
Some Graphic Relationships Between Luck,
and Optimal Bet Fraction
Nonbalanced Distributions and High Payoffs
Almost-Certain-Death Strategies
Diversification
The Uncle Point
Measuring Portfolio Volatility: Sharpe, VaR, Lake Ratio, and Stress Testing
Stress Testing
Portfolio Selection
Position Sizing
Psychological Considerations
25. How to GRAB a Bargain Trading Futures…Maybe
How to GRAB a Bargain Trading Futures
Following Trends Is Hard Work
Figuring Out How the Pros Do It
A Computer Model of the Pros
A Terrible Discovery
Solving the Mystery—Why Does the GRAB System Lose?
Often It Is Out of Sync with the Market
Worse Still, It Misses the Best Moves!
Maybe Being Profitable Means Being Uncomfortable?
GRAB Trading System Details
Buys on Break of Support, Sells on Break of Resistance
Testing Reveals Some Behavior I Do Not Expect
Difference between Parameter Values Defines Character of GRAB System
GRAB Trading System Code
26. Why Tactical Macro Investing Still Makes Sense
Managed Futures
Defining Managed Futures and CTAs
Where Institutional Investors Position Managed Futures and CTAs
Skewness and Kurtosis
Data
Basic Statistics
Stocks, Bonds, Plus Hedge Funds or Managed Futures
Hedge Funds Plus Managed Futures
Stocks, Bonds, Hedge Funds, and Managed Futures
27. Carry and Trend in Lots of Places
Carry and Trend: Definitions, Data, and Empirical Study
Carry and Trend in Interest Rate Futures
Trend and Carry across Asset Classes
Carry and Trend across Rate Regimes
28. The Great Hypocrisy
Epilogue
Afterword by Larry Hite
Trend Following Podcast Episodes
Endnotes
Bibliography
Acknowledgments
About the Author
Index
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