trend following - quo vadis?

Discussion in 'Strategy Building' started by man, Apr 26, 2005.

  1. man


    ok. there was some activity in this matter on the board recently. i wonder what people think about the possible future in development.
    IMHO trend following profits from fat tails, which are a fact yet impossible to nail down in advance. this is why trend followers must afford to be in the market almost all them time and toss their coins. most of the time they loose, but then ... fat tail.
    since big shops higly correlate i assume there is no big room for improvement. well, until some board member indicated that there is more intelligent trend following out there. so, out of that reason i start this thread.

    i am going to look in more detail on massaging the initial time series. i want to do something about signal/noise ratio. my assumption is that the outlier is the signal and the mean is the noise. thus i want to give more weigth to outliers in both change over time and absolute position in time. using this modified time series as the basis for trading (clearly not for accounting :)).

    experiences? peoples' thoughts?

  2. %%
    Hey Man;
    Not all term trend following is in market at all times;
    and i wish it were so simple as a coin toss.:cool:

    In other words there are different time frames and also ,
    could divide any market into;

    sideways trend,counter trend
  3. man


    sure. i was just speaking very generally. of course a real system is complex. the toss coin was just "metaphorical" speaking. nevertheless it appears to me that no trend follower has hit ratios above 50% ... at least i do not know one. my own is even below 40%.
  4. Hi man,

    You should be lauded for your altruistic feelings in trying to spread trend following know-how among the wretched masses.

    Regrettably, like for many other brave souls, there seems to be a fundamental misconception about markets. Who is going to keep on paying for the fat profits of the few nimble players after you are finished spreading the happy secrets? More, who is going to pay for the (modest) future profits to be taken out of the market by that huge, now enlightened class of habitual losers?

    These are, as per your request, some of nononsense's thoughts on the subject.

    Be good,
  5. FYI,

    the new SFO mag has several excellent articles on trend following.

    enjoy !
  6. man


    you got me. so i disclose it:

    i am the nephew of bruce kovner and the elder cousin of jim simmons' grandson in one person. and now, after suffering long enough from all this material wealth, my psychotherapist (thanks, angela!) together with my spiritual consultant (thanks mara!) have jointly decided together with me that i do something for the masses.

    yes. yes. incents.

    but no, no nonsense.

    peace :)
  7. mind


    hank, one question i have regarding your modelling. you had this oil call that was obviously mean reverting, and you had this black monday call which was obviously range breaking. do you use the same model for these calls? how do you decide when the range will hold and when it will break? just curious ...

  8. i square price and time to determine levels of resistance/support.

  9. DVB


    I trend trade equities and use fundamentals to filter out trades after I get a price break. It works. However I have the same problems as any trend follower: low win/loss ratio, and drawdowns. Despite of this, I was able to generate Sharpe ratio twice of S&P 500 for 2004/2005, and 2004/2005 was NOT very freindly to long-term equity traders, other than the last qarter of '04. Returns are decent, and it takes me on average 1 hr/day to run the thing.
    You are correct, it is all about fat tails. Therefore, you may want to start with researching those mega-winners, and see if you can find a common answer. I found mine in fundamentals.



  10. ofcourse this is an extremely simplified version using commonly understood lanquage, but you get the idea.

    #10     Apr 26, 2005