Au.Tra.Sy blog – Automated Trading System

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

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Entries Tagged as 'distribution'

Intricacies of Market and Trend Following Changes

March 10th, 2010 · 4 Comments · Strategies

In the last post we looked at the Turtle Trading system and saw that its performance went from outstanding for a long period of time to flat for 20 years. This opens a can of worms:
Does Trend Following work, is it dead, do markets change, does trend following rules need to adapt to these changes?
Let’s [...]

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Why Trend Following works: Autocorrelation?

February 24th, 2010 · 5 Comments · Data, Strategies, Trend Following

s it important to understand why Trend Following works (ie what are the sources of its profitability)?
 
I believe yes. Because markets are non-stationary (changing all the time), their characteristics – including those at the root of Trend Following profits – are changing too.
 
Understanding these market characteristics is a first step towards being able to identify [...]

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Price Distributions and Trend Following

December 8th, 2009 · 7 Comments · Data, Forex, Trend Following

I posited in an earlier post that fat tails are one of the main reasons why trend following works. The underlying concept can be summarized as follows: trend following attempts to capture big price moves (a.k.a. trends). Since price distributions are leptokurtic (i.e. they exhibit fat-tails) long trends occur at abnormal frequency, providing greater sources [...]

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Why Trend Following works: look at the Distribution

October 21st, 2009 · 8 Comments · Strategies, Trend Following

One of the most important underlying concepts that contribute to the success of Trend Following is the fact that the strategy is based on the non-normality of market returns. Let me explain.
Trend followers position themselves to profit from and capture the “fat tails” exhibited in market returns distribution. In a fat-tail distribution (Power law, Levy [...]

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