Systematic Trading research and development, with a flavour of Trend Following
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State of Trend Following Report – September ’11

October 3rd, 2011 · 2 Comments · the State of Trend Following, Trend Following

State of TF
This month of September has been quite similar to that of August, in terms of the increased nervousness of financial markets in general. In parallel, the state of Trend Following also shows characteristics similar to that of last month: strong but volatile returns. The index is now in the black for the year. Please check below for more details:

Detailed Results

The figures for the month are:
September return: +16.11%
YTD return: +5.86%

System September Return YTD Return
BBO-20 12.52% -26.68%
Donchian-20 31.89% 6.61%
MA-10-20 21.4% 7.11%
TMA-10-20-50 33.75% 6.39%
BBO-50 29.89% 11.09%
Donchian-50 36.32% 6.51%
MA-20-50 27.23% 5.92%
TMA-20-50-200 3.09% 5.38%
BBO-200 10.37% 17.81%
Donchian-200 2.4% -0.54%
MA-50-200 -2.25% 21.17%
TMA-50-200-800 -13.27% 9.84%
COMPOSITE 16.11% 5.88%

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 some wilder deviations, the index seems to oscillate around the 100 mark for the last two months.

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.

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2 Comments so far ↓

  • Michael Harris


    I follow your report of the state of trend following with great interest.

    What are your criteria for classifying a system as a trend follower? It appears to me that the BBO-20 system is more of a short-term system and it is a skew for the rest.

    For example, I would consider a system as a trend following candidate if it has at least one trade in a period of two years lasting more than 2 months. Anything below that I would classify as a short-term/position system.

    What is the max. holding period of the BBO-20 system?

    All the best.

  • Jez Liberty

    Cheers Michael,
    Classifying a system into the “Trend Following” category would be more based on underlying system principles (buy on strength, keep your winners and cut losers short) than on actual specific timeframes (ie I dont think that short-term and trend-following are mutually exclusive the turtles would probably agree, ie they were trading a system based on 20-day breakout – very similar to a 20-day BBO breakout system – and nobody will disagree on that fact that the turtles are trend followers).
    Numbers for the BBO-20 system are max holding period: 187 calendar days, mean: 23 days, std dev: 17 days.

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