Systematic Trading research and development, with a flavour of Trend Following
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Entries Tagged as 'Strategies'

Monthly vs. Daily Trading – updated

March 13th, 2012 · 5 Comments · Backtest, Equities, Futures, Strategies

2011 offered challenging market conditions for trend followers (as illustrated by both the State of Trend Following and the Trend Following Wizards reports). The second half of the year in particular threw a few “curve balls”, in the form of wild volatile moves with inter-market correlations spiking up. With this backdrop, I wanted to revisit […]

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Futures Trading and Small Account

July 12th, 2011 · 17 Comments · Futures, Money Management, Strategies

I recently spent more time doing “reading research” rather than “testing research”. As result, this post resembles a collection of links on ideas seen on the web of how to trade futures with a small account – one of the topics I have been interested in. The Issue: Diversification with Small Account A small account […]

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Some Complications of Monthly Trading

May 18th, 2011 · 4 Comments · Equities, Strategies

I was recently looking at monthly momentum/rotation trading systems with stocks. The concept seems to have become quite popular in the blogosphere in the last few years. See this earlier post for another monthly trading discussion The generic concept for a rotation strategy is usually fairly simple: pick a relatively large set of instruments, calculate […]

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Trend Following, “Monkey Style”

March 8th, 2011 · 43 Comments · Strategies

A while ago, I used a quote from Winton manager and trend Follower David Harding (found in this interview) saying: If you put in stops and run your profits and trade randomly you make money; and if you put in targets and no stops, and you trade randomly you lose money. So the old saw […]

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How to Start Trading a New System?

February 3rd, 2011 · 6 Comments · Strategies

Today is the big day… After months or years of research, your trading system is finally deemed ready for production, and the latest back-test shows open trades as of yesterday (from earlier signals). How do you handle these positions in your new system today? You have two basic options: Skip these positions and only enter […]

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Trading Diversification: A Free Lunch?

November 10th, 2010 · 20 Comments · Backtest, Money Management, Strategies, Trend Following

  The more I think about system design, the more I get convinced that diversification is a key to great performance. As the cliche goes: Diversification is the only free lunch on Wall Street. This is a concept equally shared by Modern Portfolio Theorists and Trend Following Wizards, who usually emphasise the concept – and […]

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Trade with the "Big" Trend

November 8th, 2010 · 4 Comments · Strategies, Trend Following

I was recently asked by a reader how one could go about improving a system by using additional filters to apply to the system signals. Volatility filtering is something that was covered recently; but another “classic” filter is based on an extension of the concept of trading with the trend: by considering the higher timeframe […]

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Two-Phase vs. Three-Phase Systems

October 12th, 2010 · 3 Comments · Strategies

One of the (many) decisions during the design of trading system is whether the system will be two-phased or three-phased. A two-phase system, also called reversal system, simply has two modes: Long Short It is always in the market, most likely in the direction of the trend. This is fairly simple: it closes the previous […]

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Better Trend Following via improved Roll Yield

July 26th, 2010 · 31 Comments · Futures, Strategies, Trend Following

To round off a series on backwardation, contango and roll yield (posts 1, 2 and 3), let’s put all this info together and use it in an innovative trading strategy to show how it can improve the performance of a Trend Following system by optimising its roll yield component (note: this could also be applied […]

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Trend Following returns breakdown

July 1st, 2010 · 4 Comments · Strategies, Trend Following

Following the previous post on backwardation, contango and crude oil, let’s look at how several factors can play a part in the overall trend following trading system performance. I have previously referenced the study by EDHEC Risk, which shows the different sources of return of a Trend Following strategy. The authors build the Mt. Lucas […]

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A trick to reduce Drawdowns

April 28th, 2010 · 16 Comments · Backtest, Strategies, Trend Following

Drawdowns represent the scary part of trading system statistics. The drawdown number emphasises the level of loss you might suffer while trading that system. It is risk to your trading capital. Now, for a quick disclaimer: I do not have a magic trick to simply reduce drawdowns… but with this cheeky title, I wanted to […]

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Trading Regimes as Strategy Filters

April 12th, 2010 · 5 Comments · Strategies

Non-stationarity of the markets… That old chestnut! Everything would be so much easier (boring?) if markets were not changing all the time…   Non-Stationarity, is defined as a quality of a process in which the statistical parameters (probability distributions) of the process change with time. One of the consequences is that it might not make […]

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Intricacies of Market and Trend Following Changes

March 10th, 2010 · 14 Comments · Strategies

In the last post we looked at the Turtle Trading system and saw that its performance went from outstanding for a long period of time to flat for 20 years. This opens a can of worms: Does Trend Following work, is it dead, do markets change, does trend following rules need to adapt to these […]

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Were the Turtles just lucky?…

March 8th, 2010 · 25 Comments · Strategies, Trend Following

  Most people will have heard of the mythical Turle Traders, a group of novice traders set up and mentored by legendary “Prince of the Pit” Richard Dennis. Dennis did so to set up an old argument with fellow trader Bill Eckhardt on whether trading could be taught or not (not unlike the story in […]

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A practical Guide to ETF Trading Systems

March 4th, 2010 · 10 Comments · Books, Strategies, Trend Following

It’s been four months since the last book review. I wanted to make book reviews a more frequent feature of the blog. Problem is I often start few books at once but struggle to finish them. The book for today’s review is A Practical Guide to ETF Trading Systems by Anthony Garner, who is a […]

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Why Trend Following works: Autocorrelation?

February 24th, 2010 · 13 Comments · Data, Strategies, Trend Following

Is it important to understand why Trend Following works (ie what are the sources of its profitability)?   I believe yes. Because markets are non-stationary (changing all the time), their characteristics – including those at the root of Trend Following profits – are changing too.   Understanding these market characteristics is a first step towards […]

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What place for the small fish in the big trading pond?

February 22nd, 2010 · 1 Comment · Strategies

Being a small trader and “taking on” the big funds such as Winton Capital or Renaissance Technologies can seem as arduous as climbing the Everest. You might think: “What chance do I have to even come close to these guys and their army of PhDs? I might just send them a cheque to manage my […]

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New: Free Code section – and improved Vortex

February 17th, 2010 · 2 Comments · Backtest, Blog, Code, Strategies

  I have been sharing code throughout the blog in various posts. Although there is a “Code” category in the blog, a dedicated page is probably the best way to organise this, before it starts getting messy. I have therefore added a main page (free code) in the nav bar.   Hope you find it […]

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MMDI Portfolio Filter in Trading Blox

February 2nd, 2010 · 4 Comments · Backtest, Futures, Software, Strategies

David Varadi, from the very good CSS Analytics blog, pointed me to his interesting findings on a Mean Median Divergence Indicator (MMDI) he devised as a replacement to the standard MACD. I wanted to test the MMDI as a follow-up to Moving Median: a better indicator than Moving Average?. This also provided a good opportunity […]

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Moving Median: a better indicator than Moving Average?

January 14th, 2010 · 15 Comments · Futures, Strategies

While searching for robustness, you might come across the term of robust statistical estimator: the median, for instance, is a robust measure of central tendency, while the mean (average) is not (the latter is much more sensitive to outliers). Robustness in trading is a tough beast to tame and understand. The more “robust” the research […]

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