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

April 3rd, 2012 · 6 Comments · the State of Trend Following, Trend Following

State of TF
As you can see more in details below, March was relatively flat for the State of Trend Following index, never going over +/- 2%, to finish the month slightly in the red and contribute some more to the current YTD loss.

Please check below for more details.

Detailed Results

The figures for the month are:
March return: -1.47%
YTD return: -3.79%

Below is the chart displaying individual system results throughout March:
StateTF March
And in tabular format:

System March Return YTD Return
BBO-20 -2.06% -1.63%
Donchian-20 -5.49% -3.69%
MA-10-20 -3.5% 0.83%
TMA-10-20-50 -1.78% 1.57%
BBO-50 -1.15% 0.28%
Donchian-50 -1.17% 0.97%
MA-20-50 -0.07% 0.9%
TMA-20-50-200 -0.44% -5.71%
BBO-200 1.16% -9.36%
Donchian-200 -0.5% -10.49%
MA-50-200 -1.83% -18.24%
TMA-50-200-800 -0.83% -0.95%
COMPOSITE -1.47% -3.79%


Composite Index for 2012

Below is the performance of the average of all system/timeframe combinations used in the report for the year 2012:

A quarter has past and the index has not ventured into positive territory for a single day.

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 ↓

  • Juston

    To my understanding, the composite result is an average of each system trading its own separate capital. What would happen to the composite if all the systems shared a global equity and based its positions off of a fraction of that equity? Would you be able to post a composite of the systems sharing a single global equity? Also, what happens if one of the faster trading systems fail or account goes to low to trade? Are the systems equities ever reset?

  • Praetorian

    Juston, I believe that if they all share equity using the current rules, 1% positions size, the composite would be wipe out in no time, because that would imply risking like something like 12% per instrument if we encounter a really big and clear trend (all the systems would be jumping in).

    Having said that it would be interesting to know what happens if we reduce positions size by 1/12, to account for this fact. I guess that it would have a similar effect to a monthly rebalancing, since losing systems would get additional money thanks to winning ones.

    By the way Jez, how often do you rebalance your systems?

  • Juston

    Praetorian, I was thinking more along the line of 1% position size of 1/12 or the current global equity. I believe it would give roughly the same results. The reason why I wanted to look at this is the reason you mentioned. I want to see how the system reacted when losing systems are getting more money to potentially lose from winning systems. Will the loss of the losers in the end out way the winnings of the winning systems when sharing a global equity?

  • Jez Liberty

    Hey guys,
    The report’s goal is mainly to build an “index” representative of Trend Following, not really an “exactly reproducible” strategy. This approach has its pros and cons but comparing to the results obtained here and those of the Trend Following Wizards, I feel it does a good job at it (I need to run a more formal correlation analysis).

    To answer the more specific questions, here are some points of consideration for calculating the index:
    – Each system/timeframe combination is tested in isolation (no shared equity)
    – For the monthly returns, each test result is rebased to 100 at the beginning of the month (and adjusted for risk/volatility by comparing historical MaxDD to a target of 25% – as mentioned in the appendix).
    – Same thing for the YTD returns, which are only rebased to 100 at the beginning of the year. No rebalancing occurs during the year between systems.
    – The index is simply calculated by taking the average of each system (as if they were traded independently alongside each other) for the month or for the YTD.

    If rebalancing was done monthly, I believe there would be a small gain at the YTD performance level.

  • Ed K

    Jez – just a general comment of appreciation for your blog and the info you provide. I really appreciate the state of trend following report and all the work involved.



  • Jez Liberty

    Thanks Ed – very nice and motivating to hear this!

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