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

August 1st, 2011 · 5 Comments · the State of Trend Following, Trend Following

State of TF
After the rather dramatic May-June move to the downside, the State of TF index is registering a small uptick for July. A Summer respite amongst the chaos in the financial markets that the US debt latest development seems to have created. One thing for sure is that this all strongly reinforces the point of systematic trading (and trend following) and its advantages. How can you trade markets like this another way? Psychologically speaking it must be nerve-wrecking…

Back to the report and its numbers, the July performance was positive at 8.44% with the index still registering a loss (of nearly 17%) in 2011, now standing at 83.04 – from 100 at the beginning of the year.

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) for July:

The chart shows that the positive performance mostly comes from the last few days of the month
And in tabular format, showing the normalized returns for each strategy and the composite index, as well as the YTD figures:

System July Return YTD Return
BBO-20 -18.12% -45.51%
Donchian-20 -8.75% -39.29%
MA-10-20 -3.81% -20.02%
TMA-10-20-50 5.96% -23.02%
BBO-50 17.41% -20.74%
Donchian-50 16.65% -28.49%
MA-20-50 20.78% -21.31%
TMA-20-50-200 24.44% -9.45%
BBO-200 9.14% 3.39%
Donchian-200 4.76% -7.4%
MA-50-200 25.07% -1.56%
TMA-50-200-800 7.81% 9.92%
COMPOSITE 8.44% -16.96%

Composite Index for 2011

Below is the performance of the average of all system/timeframe combinations used in the report for the year 2011:

After registering a new bottom for the year, the index seems to be making its way back up. Only time will tell whether the worst is behind us for the year.

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


5 Comments so far ↓

  • larry tentarelli

    Jez, excellent work as always. breakout based systems having a very difficult year.

  • Jez Liberty

    Thanks Larry!
    Not the best year indeed… But better times will come back for sure.

  • Andrew

    Again awsome analysis… one of the best blogs i’ve seen. Do you do this full time for a living ? Do you believe trend following can make you a salary? If so what sort of starting capital would be required and approx what percentage return per trade can you expect if you get a good trend?

  • Jez Liberty

    Thanks Andrew!
    Unfortunately, I do not live from my trading (yet) as my capital is “not large enough” and I do not trade other people’s money…
    The starting capital question is not a easy one and does not have a universal answer… It all depends on the income you want to take out, your tax rate, your average return percentage, how much extra capital you need to put aside to live through the “bad years”, what proportion you want to be able to reinvest (to grow your wealth) vs. withdraw from your account (to sustain your lifestyle). Most people would still keep another job so that they can compound their trading capital (not possible if you spend all your profits) in a meaningful way.
    Additionally, it also depends on the strategy you want to trade. Long-Term Trend Following on a diversified portfolio of futures is not really possible on a small account.

    This does not answer your question, but hopefully, this gives you ideas of what to look at when you make that decision.

  • Andrew

    Thanks… interesting advice.

    I was watchng a video talk from larry williams who was stating different management techniques would make very different sums of money (in first few minutes here: He believed this was the most important part of trading and why his daughter was doing well in the trading cup.

    I love the way you’ve shown the entry point performance above… have you done anything similar on money management techniques? Are there any good references for getting an overview of the different techniques?


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