In my case: I only use the basic LMT order type but use some software code around it, hoping to get a little bit of benefit out of it. What I do is the following (in case of a buy order): if the bid/ask spread is only one tick I simply take the ask price (LMT order at ask). If the spread is more than one tick I submit a LMT order halfway between bid and ask. Then I wait for maximum one minute. If the order did not get filled during this period I decide to cross the spread and adjust the LMT price to the ask price. Most of the contracts I trade are very liquid and their bid/ask spread is only one tick. For the ones where the spread is more than one tick I get in most cases filled at the midpoint price.
GAT, Moritz and Jerry (and others) have in the past made remarks along the following lines: - systematic trend followers tend to enter trends at approximately the same time; - trend following may become less profitable if the strategy is more heavily adopted because of the negative market impact of many participants taking profits/exiting at approximately the same time. Notwithstanding your many warnings about day trading, do you consider it plausible that the predictable activities of large trend following funds would present actionable day trades for retailers? Or... are those funds simply too good at minimising their market impact to be exploited? (ed: perhaps more viable in peculiar instruments like "milk"?)
I'm not sure if trend followers are big enough in any futures market to leave footprints that are easily exploited. There might be examples of certain trend followers sometimes being a bit dumb - trading too often or at very specific times or always in the same size. But you're right, most of the large funds try and cover their tracks (or get execution brokers to do it for them). There might be some mileage in trying to anticipate what a big TF would do in certain conditions, which to a degree is also what a vol scaling risk parity fund would do. This is the spirit that Andreas' "Clenow Plunger" is written in, although I don't like that particular trading rule (I feel it's arbitrary/ overfitted). Something that "after a big trend in one direction, if there is a sharp sell move in the other direction, then go against the trend for N days" where N is the number of days it would take for a fund to close it's position (it's possible to recover this programatically if you assume you know the vol and trend lookback so no further fitting is required). I might include this in my new book if I have time/space. GAT
Many thanks GAT, There's not much new under the sun is there? Not sure if ET allows links to external sites but here's the link to Clenow's Plunger idea for anyone else who may be interested: A Counter Trend Indicator: Profit from Trend Followers’ Weakness – Following the Trend
What are your toughts on combining trend following strategies (and/or vol scaling risk parity strategies) with volatility trading funds? Vol trading can mean anything but I'm referring to strategies which most of the time have a long vega exposure, which is reduced when implied volatility gets really high. For European investors, I'm talking about something like Amundi Volatility World or Seeyond volatility strategy. This is the excess return (vs cash) of the two funds (since they have different inception dates, I had to patch different time series). On a stand-alone basis, they look horrible: in the long run you can assume zero to slightly negative excess returns. What I like is that they are negatively correlated with anything else. In particular, they should in theory complement nicely with trend following / volatility targeting risk parity strategies: these funds are going to shine when we have a burst of volatility after a long period of quiet (and probably trending) markets, which is just the kind of environment where trend and vol scaling suffer. This chart represents the rolling 20-day ER of CTA (x asis) vs Amundi/Seeyond blend (y axis). Althogh we have few observations (very few, considering observations overlap) the data seem to confirm my hypothesis Clearly there are other considerations to be made: - cash efficiency: in order to have a meaningful impact, vol trading should have a 5-10% allocation of the overall risk budget. Since vol trading funds usually target a volatility around 8%, if you run trend/RP strategies at reasonable volatility targets and you use mainly futures, you should have plenty of cash available to fund the new exposure. Otherwise, that could be an issue. - fees: with IB those funds are available at 0.8%-1% fee. What do you guys think?