Systematic Trading research and development, with a flavour of Trend Following
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State of Trend Following: December, a sprint towards +50% for 2010

January 5th, 2011 · 14 Comments · the State of Trend Following, Trend Following

State of TF
Firstly, I would like to wish a Happy New Year to all readers. May 2011 bring you desired success on the trading front – as well as in life in general.
I would also like to take this opportunity to thank you all: silent readers, subscribers, commenters, or readers that I have had the chance to meet in person.

2010 was my first full year of blogging and it has been a very rewarding and interesting one. Blogging is a 2-way street and it would not happen without you. Thanks – and I hope you enjoy the ride in 2011!

The Report Results

The results for December have been quite astonishing and ensured that Trend Following ended 2010 with a bang. The return of the composite Trend Following index tracked by this report was 25.78% for December, which allowed to mark a new high and finish the year at +54.08%.

Detailed Results

Please find below the detailed results for the strategies included in the report (strategy details can be found at the end of the post):

And in tabular format, showing the normalized returns for each strategy and the composite index:

System December Return
BBO-20 17.89%
Donchian-20 21.02%
MA-10-20 11.06%
TMA-10-20-50 21.47%
BBO-50 23.68%
Donchian-50 36.00%
MA-20-50 35.12%
TMA-20-50-200 38.87%
BBO-200 27.36%
Donchian-200 23.79%
MA-50-200 35.49%
TMA-50-200-800 17.58%

Another fairly “correlated” month between all systems, but still showing results ranging from 11% to 36%.

2010, through the Composite Index

Below is the composite index’s performance for the whole of 2010:
The sharp drop seen in November has quickly been reversed. December only had one direction and it was up, with the composite index managing to overshoot the previous +50% high reached in November.

Appendix: System Details

System Rules and Parameters

All the systems were tested with the same simple position sizing rules of 1% per new trade. No other Money/Risk Management rules were used. No trade friction (slippage or commission) was applied. No return on margin is added to the system performance

The system rules are detailed on the Trading Blox online documentation.
The MA Crossover system was used with moving average pairs of 10-20, 20-50 and 50-200 days. The stops/position sizes are set at 2x, 3x and 5x ATR respectively.
The Bollinger Band system is the classic use of the Bollinger Bands with entries taking place at Breakouts. The parameters used were 20, 50 and 200 days with 2 standard deviations.
The Triple moving Average system was used with moving average triplets of 10-20-50, 20-50-200 and 50-200-800 days. The stops/position sizes are set at 2x, 3x and 5x ATR respectively.
The Donchian System is a simple version (with no Trade Direction filter) with channel lengths of 20, 50 and 200 days for entries (and 10, 25, 100 for exit). The stops/position sizes are set at 2x, 3x and 5x ATR respectively.

Portfolio Instruments

Covering over 50 instruments across Equities, Interest Rates, Currencies, Agriculturals, Metals and Energies, from around the world, the portfolio contains the following futures (CSI Symbols): AD, BP, C, CC, CD, CFC, CL2, CT, CU, EBL, EBM, EBS, ED, EOX, ESM, FC, FEI, FFI, GC, HG, ICL, IND, JK2, JP2, JP6, JR2, JRB, JTI, JY, KC, KPO, KTB, LC, LGO, LH, MFX, MP, NG2, RA, RS, S, SB, SF, SI, STW, SXE, TRY, US, W, YM, YTC .
Click here for a tabular view with description and exchange information.

Result Normalization

The system performances are adjusted for volatility to normalize the results. See why and how here.

Related Posts with Thumbnails


14 Comments so far ↓

  • George

    Dear Jez,
    Let’s consider the ‘MA-50-200’ system that achieved 35.49% in December.
    If ‘1% per new trade’ and we apply it to 50 instruments that means we are only 50% invested at most.
    (in reality, we are invested even less, because some of the 50 istruments maybe in cash.
    OK, cash is not on option for MA-50-200, but for other systems like the BB versions).
    So, is it true that these systems (and this performance numbers) are only 50% invested?
    Do I miss something?

  • Jez Liberty

    The 1% per new trade is the amount of equity “risked” on each new trade (as opposed to the trade size being 1% of the account size). This is different from the equity world (which I believe you are drawing a parallel to), where you could calculate your trade size as a percentage of your account size: for example 1/n % for every of your n positions (in case of a full 100% investment)

    A 1% per new trade in the futures world would allow to calculate trade size (based on stop level, volatility, etc.). 1% could represent X number of contracts for a Notional trade size of Y, requiring a margin of Z.

    Increasing the trade size also increases the risk. For example 2% on 50 positions would result in a 100% equity loss (complete ruin) in case all positions end up as losers.

  • cordura21

    Hi Jez. Speaking of the equity world, the systems I use calculates next notional trade size based on available cash, and not total equity. Do you think that’s reasonable or it’s better to use the available equity at the time? I do it this way cause I consider I have no leverage and all the buying power I have is my cash.

  • RiskCog

    Thanks for blogging, here’s to the new year!

  • Paul B

    I have really enjoyed following your blog. I would be interested in any work you have done on trading a similar approach using weekly data.

    One of the vendors on futures truth ( – i have no affiliation) suggests that a similar return/drawdown profile can be obtained using weekly data (he does seem to use fixed point stops rather than volatiltiy based ones, though).

    The advantage I would see is that all the analysis could be done and orders entered at one sitting, once a week. I suspect that given the varying opening/closing times of the markets traded, operating this system with end of day data would involve dipping in and out a number of times each day. If a similar return/mar/length of drawdown profile could be obtained for a lot less time commitment then that would be an advantage, especially for an individual trader who has other commitments during the day.

    You might perhaps do a blog post on what kind of results the system would give using end of week data and whether similar return and mar can be obtained – perhaps by tweaking stops and position sizing (as always aware of the dangers of the potential for optimizing the thing out of future profitability)

  • Jez Liberty

    Paul, you are raising a good point on the practicality of a Trend Following system on futures for the retail trader. I have highlighted mainly two aspects before: the monitoring/trading activity required on a daily basis as well as the starting capital required to trade a diversified portfolio.

    The work of Mebane Faber (and recently Michael Stokes) on Technical Asset Allocation using ETFs with systems trading on a monthly basis is attractive as it alleviates these 2 issues. I havent done a detailed analysis on performance comparisons between daily futures system and their TAA systems, but this would be a good starting point.

    This is one of the reasons I have started looking at a hybrid solution (as another option between these TAA systems and fully-fledged Futures Trend Following system) using a diversified portfolio of ETFs and monthly (or weekly) data, with more flexible Money Management.

    Stay tuned – I shall post about it on the blog.

  • RiskCog

    Good suggestion Paul. I trade my systems either weekly or monthly when the markets are closed. I would definitely be interested in this topic

  • BigMango

    It is interesting how similar the performances are for trend following systems. I’m subscribed with John Palatine (, not affiliated) with whom I realized those returns, too. His system made 44% to be exact. However, I’m not sure what his techniques are in detail.

  • humblemouse

    Jez, great work and outstanding results for 2010. I was wondering if you could summarize 2010 One Year or Since Inception performance besides your monthly performance updates so that we can visually see how different systems work for longer period of time. It will be good if the summary can be plotted and against reference (i.e. average of trend following wizards or S&P composite).

  • Jez Liberty

    Thanks humblemouse. I’m planning to take a look back at 2010 both from a State of TF and TF Wizards point of view so hopefully some of your wishes below will be included in that analysis.

  • Mike


    i was wondering if all these systems are running live since they are spectacular results.

    Also you use Trading Blox as your backtesting software. I was wondering if you heard of Trading Recipe. What do you think about that software?

  • Jez Liberty

    These strategies are not running live on a real account. I use these generic systems in this report to gauge how Trend Following is performing month after month, as a sort of index.

    I dont know much about trading Recipe / Mechanica. I havent used it myself but I know of fellow TB users having said on teh forum that they use Mechanica as well. As I understand, it is in a similar league in terms of “real” portfolio back-testing, with multiple market/systems being tested simultanuously.

  • Mike

    I personally do not know how to program yet but I am looking in to it as it is neccessary when building your own trading system. I was wondering how do you implement your rules into the computer? There are so many different programming languages out there and I am confused as to which one to learn.

    From your experience do you write your own trading systems into programming code on trading blox? What language do you use?

    Just out of curiosity, what do you think about Michael Covel’s Trading course? (I really couldn’t find any reviews outside of the website)

  • Jez Liberty

    Mike – I use Trading Blox, which is probably a good starter for non-programmers as it is more user-friendly than some other platforms (there will still be a learning curve if you are not a programmer). It is also very important to understand the ins and outs of realistic back-testing and TB is good for this (as well as their forum). In the end, the choice of trading software technology depends on many factors (functionality, language preference, cost, complexity, etc.) and there is no one-size-fits-all solution. I definitely spent quite some time on reasearching this and I would encourage you to do the same, it’s a good way to start learning about the subject.

    Never seen any reviews of Mike Covel’s courses or taken any myself so I cannot really comment there…

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