Systematic Trading research and development, with a flavour of Trend Following
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State of Trend Following: Strong April Rebound

May 2nd, 2011 · 8 Comments · the State of Trend Following, Trend Following

State of TF
Another strong move follows that of last month, albeit in the opposite direction. Whereas March saw a drop of around 10% for the Trend Following index used in the report, April saw an equally sharp rebound of just under +10%, taking the index back in positive territory for the year at around +7%.

Detailed Results

Please find below the detailed results for the strategies included in the report (strategy details can be found at the end of the post).

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

System April Return YTD Return
BBO-20 -0.21% -26.18%
Donchian-20 12.51% -21.5%
MA-10-20 7.75% 4.86%
TMA-10-20-50 13.2% 11.95%
BBO-50 10.99% -4.01%
Donchian-50 15.22% -1.38%
MA-20-50 5.57% -2.17%
TMA-20-50-200 11.4% 17.78%
BBO-200 10.74% 33.66%
Donchian-200 11% 24.78%
MA-50-200 10.54% 26.76%
TMA-50-200-800 10.85% 22.01%
COMPOSITE 9.96% 7.21%


Composite Index for 2011

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

Creeping back up after two strong months and a sharp reversal… Volatility seems to be here in this first half of 2011.

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


8 Comments so far ↓

  • Monday links: April showers | Abnormal Returns

    […] April was a good month for trend followers.  (Au.Tra.Sy Blog) […]

  • Andrew

    What was your process for choosing those 50 instruments? Some of them don’t look very liquid when I look them up in the “Avg Total Volume 1 Yr” column using CSI UA. Have you run similar tests for a more liquid portfolio of instruments? I’d be curious to see how that affects the results. My guess would be slightly inferior performance as I recall a post that did something similar to this in the TBlox forum.

    Oh, another thought: maybe you could implement a CTA AUM/performance fee overlay on these results. I believe there’s a “Block” for that as well.

    Anyway, I’ve been a longtime reader of your blog. You produce quality stuff here.


  • Jez Liberty

    Thanks for the comment
    I actually did not have a formal process to select the portfolio. I simply wanted a “diversified” covering several “asset classes”and several exchanges in a fairly balanced way, so I picked from a list that I had built in CSI… Some readers have also helped refine the portfolio in the early stages (particularly thinking of Pumpernickel for example). The main objective was not to build a practical index from a trading point of view (hence some non-very liquid instruments) but rather have an index which gives a good indication of Trend Following in general (and it seems to do the job fairly well when comparing performances with those of the CTAs tracked in the TF Wizards report).

  • William F.

    Have you ever considered using a diversified approach to trading just one instrument…. one with good liquidity like the EUR/USD, FX pair for example?

  • Jez Liberty

    No – I havent tested this approach, but my guess is that it would still be better than trading one instrument with one strategy… But since various trend following strategies appear fairly correlated, I am not sure the benefit would be comparable to trading a diversified portfolio (you’d probably want to go down other strategy routes, such as mean reversion, etc. to achieve low correlation between the strategies)

  • William F.

    I have notice in your testing that all of your MA based tests use two or more MAs…….. have you done any testing using only a single MA vs price?
    I personally have been back and forward testing this with very encouraging results on the EUR/USD which is my primary focus in trading.
    It is an always in the market system and enters and reverses when price closes across the MA.

  • Jez Liberty

    Intuitively, I would think that a double MA cross-over strategy might result in less whipsawing than a “price/MA” cross-over but I have not compared the two explicitely. The latter might actually “get in the trend” faster than an MA cross-over, so it is probably worth a test..

  • William F.

    That is a possibility……. I have emailed you my test results from 2010 to present.

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