Systematic Trading research and development, with a flavour of Trend Following
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State of Trend Following: sharply down

July 4th, 2011 · No Comments · the State of Trend Following, Trend Following

State of TF
As there was no report last month, this month’s edition is a combined version for May and June.

The Trend Following Wizards had a strong down month in May, and so did the index used for this State of Trend Following report. However the up-and-down “yo-yo” pattern seen every month from the beginning of the year has been interrupted: June continued in the same (down) direction as May.

With a cumulative return of -28% over the last two months, the index is now standing at 76.44 – from 100 at the beginning of the year. Most of the damage occurred in the first few days of May – when several markets reversed sharply giving up earlier gains – with the index dropping by more than 15% in 5 days (note that this version of the index is more levered than Trend Following Wizards, so numbers are not directly comparable).


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 both months of May and June:


And in tabular format, showing the normalized returns for each strategy and the composite index, as well as the YTD figures:

System May Return June Return YTD Return
BBO-20 -11.67% -1.13% -34.89%
Donchian-20 -13.76% -2.06% -33.6%
MA-10-20 -19.55% -1.42% -17.16%
TMA-10-20-50 -27.74% -8.78% -26.74%
BBO-50 -23.88% -7.64% -32.55%
Donchian-50 -28.6% -12.93% -38.64%
MA-20-50 -30.64% -3.73% -34.6%
TMA-20-50-200 -31.13% -10.59% -27.38%
BBO-200 -20.01% -12.89% -5.36%
Donchian-200 -18.78% -12.99% -11.63%
MA-50-200 -28.56% -15.02% -22.09%
TMA-50-200-800 -11.12% -6.1% 1.97%
COMPOSITE -22.12% -7.94% -23.56%



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

Volatility and substantial negative performance seem to have been on the menu for most of the first half of this 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.

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