Systematic Trading research and development, with a flavour of Trend Following
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State of Trend Following in February

March 5th, 2012 · 6 Comments · the State of Trend Following, Trend Following

State of TF
A moderate February bounce reduces the YTD losses on the index. Not enough to bring the index back in the black.

The results also show a fairly clear divide in the results per system timeframe.

Please check below for more details.

Detailed Results

The figures for the month are:
February return: +2.46%
YTD return: -2.53%

Below is the chart displaying individual system results throughout February:
StateTF February
As can be seen on the chart, for each system, the longest timeframe version returned negative results in February, whereas all other – shorter timeframe – versions returned positive results. A good illustration of the effect of diversifying in multiple timeframes.

Below, the results in tabular format:

System February Return YTD Return
BBO-20 4.42% -0.47%
Donchian-20 3.17% 1.07%
MA-10-20 5.92% 4.86%
TMA-10-20-50 9.56% 4.03%
BBO-50 7.33% 1.34%
Donchian-50 8.02% 2.58%
MA-20-50 9.2% 1.55%
TMA-20-50-200 2.01% -5.46%
BBO-200 -4.91% -10.89%
Donchian-200 -4.45% -10.47%
MA-50-200 -9.18% -17.46%
TMA-50-200-800 -1.53% -1.01%
COMPOSITE 2.46% -2.53%


Composite Index for 2011

And the performance of the index for 2012:

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. The normalization applied “baselines” the Max drawdown of the systems to a common value, and derive the resulting performance for each system.

A table showing each system performance numbers from 1990 to 2009 can be found on this page. Two extra columns have been added to show the “normalized return” and the multiplier coefficient to obtain this return (the multiplier coefficient is itself calculated by dividing an arbitrary Max Drawdown figure of 25% by the actual system Max DD).

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6 Comments so far ↓

  • Joe

    Thanks for the report, hope thks year will be better for TF.

  • Thierry

    Thanks for the report too

  • Mrkt_Rwnd

    Excellent comment regarding diversifying on time frames Jez. A very key consideration that new developers often overlook.

  • WmA

    Could you elaborate on the time frames diversification a bit more?

  • Jez Liberty

    Well, with regards to the timeframe diversification, I think it all comes down to the benefits of adding non-correlated “assets” into a “portfolio”.

    If you think of “systems” as the “assets” in your “portfolio” of trading systems, the same principle would apply.

    There are multiple ways to diversify, and having systems trading in multiple timeframes (ie 20/50 or 50/200 for a MA cross-over system, or 20-day, 50-day, 200-day breakout system) is one such way (which works because performance from different timeframes seem to be somewhat cyclical, ie the shorter timeframe systems “zig” while the longer timeframe systems “zag – as in this month’s report).
    Over the long-term volatility should be reduced and the equity curve smoothened and improved.

    Note that there are three types of diversification at play in this index: instruments (portfolio is a diversified set of futures), systems and timeframes.

    For more info and illustrations on blending non-correlated equity curves, I’d recommend to check that great forum entry in the TB forum:

  • Thierry

    I do trade Fx OTC only… ( mainly G10) and I do diversify by using different time frames (daily, 4 hours, hourly) mainly. I do add different sorts of models.. from trend following to breakout and revert to the mean.

    I also use different parameters for the same model making them more or less reactive. I am quiet please with the result so far.

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