Systematic Trading research and development, with a flavour of Trend Following
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Four-year Cycle and the Wisdom State of TF

September 5th, 2013 · 11 Comments · Blog, the State of Trend Following, Trend Following

Four years… The end of a 4-year cycle is next week.

No Olympics, US elections, World Cup or leap day (interesting how many things run in 4-year cycles… even stock markets, if you believe wikipedia that is).

No. Four years ago, on the 10th of September, a very minor event: I started this humble blog.

Excuse the cliché, but I cannot quite believe how time flies. I have to admit, in the last two years, the blog was left like an idling engine, running at minimum speed, with two recurring reports every month and not much else in the way of trading research.

It’s not that life got in the way, but sort of.
Leaving London and hitting the road traveling, consulting work and various other things meant I did not put as much effort in the blog as in the beginning.

But the end can feel like a new start; and this is exactly how it feels right now. A new cycle starts. I’m settling back to London and I’ll be rebooting the blog, along with my efforts to research, design and trade a trend following / mechanical system.

So expect more to come soon. Some updates on my trading plans and some new blog ideas and articles, even maybe a bit of a blog re-design.

Rest assured, I’ll keep writing the Trend Following Wizards and the State of Trend Following report updates as well.

Wisdom State of Trend Following Report

Talking about the State of Trend Following, I wanted to introduce another version of the report I have developed in collaboration with Wisdom Trading: the Wisdom State of Trend Following report.

It is based on the same concept of trying to establish a mechanical trend following benchmark, using classic trend following systems over different timeframes and a global, diversified futures portfolio.

In a way it is a “State of Trend Following v2.0”, a bit different and in some areas better (and prettier too). Why better, you ask? Well, several reasons:

  • The portfolio for the initial State of Trend Following was picked fairly liberally and randomly. This was intended to prevent any potential bias in portfolio selection but it could have been better balanced. That updated portfolio is better balanced.
  • We did pay attention to making sure that the historical results (available when you subscribe) were in line with trend following’s performance. Nothing too scientific, as we did not want to fall into curve-fitting, but it’s a decent match and this should continue going forward.
  • The way the report is run is more similar to a practical tradeable strategy: it is simply a suite of systems run in Trading Blox (no post-processing/aggregation like for this blog’s report index). Another big difference is the inclusion of trade friction parameters (slippage, commissions, etc.) to render the results more realistic.
  • The formatting looks nicer too (I think) and there is more details to the report:

Wisdom State of Trend Following report sample

Differences with the AuTraSy State of Trend Following report

The aim of the initial State of Trend Following report was to set up a system made up of publicly available mechanical systems and see how well it would track trend following funds and CTAs (benchmarked with the Trend Following Wizards) in a live, forward-testing process.

I feel that’s worked out fairly well – at least empirically – over the last 3-4 years. There have been some tracking errors (it was never going to be a perfect correlation), but more so this year.

The AuTrasy “State of TF” is up (+2.54%), whereas the Wisdom report index is down (like the TF Wizards, but more so) at -11.84%. I have not looked in detail into the reasons for these differences but this is “in the plan” (portfolio selection is the largest changing variable between both systems/indices).

A few readers have asked me if I had longer historical results for the State of TF and if I could compare it with the TF Wizards performance. That’s a very interesting idea and I’ll be adding the Wisdom State of TF into the mix to run a 3-way comparison. Stay tuned.

In the meantime go and check out the new report, with all details of systems, portfolio/markets used and other assumptions (slippage, money management, etc.) and subscribe if you’d like to receive the monthly updates (going forward it will be published at the beginning of each month).

The report is brand new and could still be considered in “beta mode”. Improving it based on reader feedback is very much a possibility, so let me know what you think in the comments (here below or over there).

Picture credits: jamesjustin via flickr (CC)
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11 Comments so far ↓

  • Guest

    Great stuff! Wow, so trend following has been dead money since the end of 2008, and is in the midst of the worst drawdown in the whole sample period.

  • WmA.

    Great to see you getting this going.

  • Joe Moeller

    I appreciate your work, even the two reports on the Wizards and the systems each month.

  • Bigdig

    This is great news. looking forward to seeing the website if ull swing again. I have been a fan for the last few years and its great to hear you are going to be posting more again.

    btw, after the TB forum went offline has anyone found a replacement that is as high a quality and related to TF?

  • NVitale

    Happy to see you back in London too!
    Despite the years, I did not forget I still owe you a drink! ;-)

  • Jez Liberty

    @Guest: your summary is pretty much on the money overall…

    Thanks @Joe and @WmA.!

    @Bigdig: Thanks.
    Traders’ Place is very promising as a TB forum replacement. Here’s the post where I mentioned it a few months ago: I’ll definitely be joining it shortly..
    Also, the TB forum has reopened to the public recently..

    @Nicolas, yes I’ll have to claim that drink soon (once I’m a bit more settled)!

  • RB

    Welcome back ! It is good to take a break

  • Llewelyn James

    Hi again Jez,

    Have you read following the trend by Andreas Clenow? It’s a very similar account of what you are trying to do here with regards to reverse engineering trend following CTA performance using simple rules. He does many tweaks regarding portfolio selection, stop-losses etc…it is really very good.

  • Jez Liberty

    Hi James,
    Yes I have, thanks. Good book. I’m planning to post a review here soon…

  • cordura21

    Hi Jezz. Why is the difference between the two so big YTD?

  • Fede

    Hi Jez,

    I noticed in the parameters section for the Wisdom index ( that although the Stop parameter varies for the MA models the “Use ATR Stops” is set to False.

    Is this correct?

    Thank you!

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