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

December 5th, 2011 · 7 Comments · the State of Trend Following, Trend Following

State of TF
A wide disparity in the individual system returns in this month’s edition of the State of Trend Following report, but globally a slightly positive month for the report index. This does not change the YTD situation very much, still deep in the red. Unless a dramatic Christmas reversal occurs, 2011 will most likely be negative for Trend Following

Please check below for more details:

Detailed Results

The figures for the month are:
November return: +3.25%
YTD return: -16.66%


System November Return YTD Return
BBO-20 -11.04% -46.57%
Donchian-20 -18.19% -33.03%
MA-10-20 -11.82% -20.69%
TMA-10-20-50 -1.04% -24.48%
BBO-50 -0.01% -17.55%
Donchian-50 -5.53% -28.74%
MA-20-50 14.03% -22.48%
TMA-20-50-200 20.7% -15.42%
BBO-200 15.66% 7.1%
Donchian-200 11.28% -9.73%
MA-50-200 22.66% 4.52%
TMA-50-200-800 2.27% 7.22%
COMPOSITE 3.25% -16.66%


Composite Index for 2011

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

Not a great picture…

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.

Related Posts with Thumbnails


7 Comments so far ↓

  • Fred

    It has been a tough year and very few of us trend traders are pleased with our results on an absolute basis. FWIW, I sometimes compare my performance with the so called value gurus. One such value guru fund manager is Bruce Berkowitz who was named fund manager of the decade by Morningstar. Guess what Fairholme’s YTD performance is. It is down 29%.
    Many asset classes did not provide trend trading opportunity this year and we can’t get what is not available in the markets we trade. It hasn’t been fun but one great month could change the performance for the year.

  • Ross

    Looking at the results for November YTD, it looks like the longer term (BBB-200, Dnchian-200, MA-50-200, and MA-50-200-800) strategies are doing fairly well. Have the longer term strategies always outperformed the short and medium term strategies in the past 10+ years or is this just a recent out-performance due to the choppiness of 2011?

    It would be very interesting to see a Short Term Composite Index vs. Medium Term Composite Index vs. Long Term Composite Index comparison of your systems over the last 20+ years.


  • Andreas Clenow

    @Ross, my two cents on the subject: Generally speaking, longer term strategies tend to outperform in years with choppy trends such as 2011, for the reason that while the shorter term strategies get stopped out and whipsawed time after time, the longer term stays in the trade. This may sound good in paper and in simulations but it’s very scary to trade in real life since you need to ride positions quite deep into the red and when the trends really do change, you take a much bigger hit.
    While the longer term strategies are often very profitable over time, they tend to have a much worse and skew than medium or short term strategies and when the markets experience big shifts and turmoil, that can end up hurting big time.
    This doesn’t mean that long term trend strategies are bad, but you need to be very aware of the additional tail risk you need to take on for that extra performance and you need to be able to deal with the rather scary trades that can go heavily against you without giving a stop signal.

  • Benoit

    Hi all, I like this blog. My two cents too on this subject. I am running a short term trend-following system (average holding period = 3 days) and I am up around 15% net of fees YTD. But lately, the constant high gaps while changing directions (as 11/28/11) are killing me as I keep some position overnight. I don’think this environment is good for any trend followers from very short term to middle term. The very long term may go through without loosing too much but at an inacceptable price (for me) when the trends goes against you (look at Bill Dunn). If this environment persist into next year, a lot of TS will be wiped out except if their money and risk management “recognise” this environment and protect them by reducing their exposition to TF strategies.

  • Investment Warrior


    How would you “recognize” it? Trend following requires to submit one’s self to non subjective reasoning about the future.

    Trend following could very well start working very well starting today, or it may be several months more. Trend following is backwards looking, and NO ONE knows what the future holds. We must passively wait for the trends to emerge. When this will happen is anyone’s guess, BUT – There will always be trends.

    Be patient and wait for them.

  • Benoit

    Hi Investment warrior,

    Yes there will always be trends but in the mean time I don’t want to lose too much money when my TF systems are not working anymore, so I cut my exposition progressively and then reincrease them when things improve. Of course I know nothing about the future but I know what is happening now and in the recent past and I use this information to adapt my systems. That is not perfect but I can not stand to lose while waiting for the next trend. Especially if the next trend is far away from now.

  • Jeff

    I’ve got a funny feeling the wealthiest traders average down and up constantly, trading the range. Think about it – how else could you move trillions in and out of the market on a daily basis without being killed by slippage? Every trend has a range (within its channel).

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