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

October 2nd, 2012 · 8 Comments · the State of Trend Following, Trend Following

State of TF
The more extreme and diverging readings from the middle of last month (from the different strategies/timeframes tracked) have “reverted to the mean” and converged to close September more uniformly and went on to post small losses for the month, while still keeping the YTD performance of this State of trend following report positive.

Please check below for more details.

Detailed Results

The figures for the month are:
September return: -1.92%
YTD return: +6.62%

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

System September Return YTD Return
BBO-20 -2.43% 11.83%
Donchian-20 3.82% 44.29%
MA-10-20 -2.57% 11.07%
TMA-10-20-50 -2.08% 23.17%
BBO-50 -1.23% 5.62%
Donchian-50 -1.44% 12.3%
MA-20-50 0.02% 11.05%
TMA-20-50-200 -3.43% -5.59%
BBO-200 -3.6% -6.25%
Donchian-200 -1.93% -5.81%
MA-50-200 -5.45% -20.71%
TMA-50-200-800 -2.66% -1.5%
COMPOSITE -1.92% 6.62%


Composite Index for 2012

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

After spiking up shortly to 15%, the YTD index has come back down to a more modest gain area at (YTD stands at +6.62%) in which it has been bouncing around since mid-May.

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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8 Comments so far ↓

  • Lee MacFarlane

    Keep up the good work, we are watching!
    Jez, do you have research on your site that combines the results for all time (or since you started tracking) for all the systems?

  • Jez Liberty

    Lee, this is not something that’s available on the site.. but in the plans. Hopefully I’ll get to it at some point soon.

  • Lee MacFarlane

    Ya I figured. I’m sure you have lots on your plate. Just thinking it would be really interesting to see a 3-5 year graph or the such.

  • Jez Liberty

    yes – planning to do something like that as well as run correlations/comparisons with the Trend Following Wizards perf numbers too..

  • Jeff Diercks

    Tough month for trend followers! With equity markets up, you would have to assume their troubles were with commodities and currencies. It that a fair assumption? Or was it Central Bank driven?

  • Jez Liberty

    Not necessarily, most managers do not simply take on systematic beta exposure to an asset class so the performance from trend followers is not correlated to specific set of markets (remember 2008 and the killing that most trend followers made in truly awful equity markets).

  • Eddie LeBec

    Jez, fairly new to your site, very thankful for the info you provide. One question; is it “normal” for one methodology to outperform by such a wide margin when all systems being measured are TF systems. I am referring to the Donchian 20. Can the outperformance be traced to one specific trade??


  • Jez Liberty

    Hi Eddie,
    I am more interested in the “composite” figure with this report so I do not usually delve into details of each strategy. It is very likely that the Donchian-20 has gotten more “lucky” by catching one or more positive trades (or dropping losing trades) based on slightly different entry/exit conditions.
    Correlation of all strategies are fairly high though (especially between the ones in the similar timeframes), so I do not think these differences are very significant in the long run.

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