Category: Trend Following

How do you view your trading downside?

“Most traders, being trend followers, get hurt whenever a [market] reverses course. But downside is managed using several techniques: quick stop loses, maintenance of the bulk of assets in treasury bills, and adjusting leverage in opposition to prevalent market volatility. Jeremy O’Friel…emphasises the importance of constantly manipulating “gearing” (another term for leverage) as a means of maintaining a consistent level of risk as the economic environment changes.”

Sunrise Capital gives trend following an explanation:

“The objective is not to attempt to buy lows and sell highs, but rather to buy market strength and sell market weakness. The underlying theory is that markets periodically exhibit nonrandom price movements or trends that are persistent and can be exploited by an approach that does not forecast, but simply follows price trends. Trend-following models apply quantitative analysis and/or pattern recognition algorithms to the daily price data of the market being traded, which serves as the sole data input to the model. This approach, commonly referred to as technical analysis, is based on the concept that all fundamental or external data that might impact a specific market is already reflected in the current price.”
Sunrise Capital

The Wall Street Journal ran a story the other day titled “List of Challenges for Short Sellers Keeps Growing Longer.” The piece questioned whether short trading was still viable, but also made the case as to why short selling is a needed part of our market system.

One guy in the article opined, “For me, shorting has changed from being an inherent strategy to a more tactical strategy.”

Trend following trading on the other hand has always been tactical or said another way opportunistic. Trend followers don’t wake up and aim to be all “long” or all “short”. Trend followers can be either long or short depending on which way the trend is going.

The Wall Street Journal article unfortunately continues the idea that you are either long only all the time or short only all the time. Why write this when the best traders don’t think or trade with such belief sets?

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A debate on Trend Following Drawdowns

Aspect Capital: London based trend following trader (PDF). With roots to some of the great trend following trading firms, Aspect Capital has become a major player in the managed money arena.

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How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Long Volatility (trend following) white paper (PDF) by Anders Kulp, Daniel Djupsjöbacka, Martin Estlander.

Excerpt: The buyer of an option straddle pays the implied volatility to get exposure to realized volatility during the lifetime of the option straddle. Fung and Hsieh (1997b) found that the return of trend following strategies show option like characteristics, because the returns tend to be large and positive during the best and worst performing months of the world equity markets.

More.

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How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Transtrend, a Dutch-based trend follower, spells out their views on “robustness” and “systematic” trading:

“TRANSTREND considers a high degree of robustness to be essential. With regard to the design process of trading systems, this has led to three fundamental principles:

1. The same systems are used across all markets.
2. The same parameter settings are used across all markets.
3. A small variation in any parameter should not have a large impact on the results of a system.

These principles limit the risk of curve fitting and over optimization; in other words, maximize the chance that historical results can be repeated.

TRANSTREND’s trading systems are not models. They do not attempt to forecast fair values or equilibrium price levels, and they are not based on an economic theory that risks becoming out-dated. Systems are dynamic and reactive by nature, they respond to changes in a consistent way.”

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How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

The following excerpt is from an interview with David Harding, Managing Director, Winton Capital Management. David’s firm is primarily trend following based.

HedgeWeek: Are institutional investors prepared to take more risk for higher returns?

David Harding: Sadly, the institutional investors and the consultants who service them are doomed forever to make the same mistakes, they all want results with zero risk. Futures fund management, and hedge fund management in general, is not a traditional asset management business

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How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.