Trend Following

[vish4al]

Hope I've found the right forum here. I'm new to trading. Been researching into Trend Following quite a bit as it seems a lot of the big players (AHL, Louis Bacon etc) seem to use it. The thing I can't get over is the simplicity. I've read a few books on the topic.

If we take for example the turtle trader strategy it's as simple as trade the 55 day breakout with 2 x ATR as a stop and add to your position every 1/2 ATR in your direction whilst risking no more than 2% in any one trade. No indicators, no fundamental analysis just essentially fishing for a trend by accepting small losses. Theory being, even if you have more losses than wins (during whipsaws) the magnitude of the wins will outweigh the losses in the long term as markets tend to trend.

I strongly agree that markets tend to trend. look at any market and you can see signs of it. I guess what I'm asking is, is there anyone on here that uses a system as simple as this? Maybe not exactly the same thing but similar as there are loads of variations of this system.

The next step for me is to create a VBA based back testing spreadsheet for this strategy with the ability to change the parameters and see how it works. I think the real key is diversification therefore trading as many non-correlated markets as you can. S&P, USD, Pork Bellies, Lumber, Wheat etc.

So anyone on here use a system similar to this who would be willing to help out a novice????

(On another note, I have also been reading up on Joe Ross's 1-2-3 & Ross Hook strategy. Anyone on here use that???????)

 

[BadgerMatt]

I've not got any answers to your questions as I am much of a rookie myself, but I've been wondering exactly the same thing - I'll be interested to find out what others think

 

[vish4al]

Hey, good to see I'm not alone. I really do strongly believe the key to a system is simplicity. I have a huge exam in June, so can't spend too much time on this at the moment but after June I am going to spend some serious time researching this. As I'll have nothing else to do. I really like the idea of long-term trading by looking at daily charts. Intra-day trading doesn't appeal to me and is not the kind of lifestyle I am trying to achieve. I am planning on coding the turtle traders system up in VBA and seeing the results. I want to essentially use that as a blueprint and try and tweak it and see what the results are. I know that there are better packages out there than Excel but I am very very familiar with Excel so would rather stick to it.

I realise that all books have agendas but I have looked at Michael Covel's website and he is selling interviews with some of the greatest traders and their proprietary mechanical excel based trading systems. I realise he is not a trader himself and the asking price of $3k is extremely steep. However even though he is not a trader he has collated the insights of the most successful in the game. I do believe that information is valuable and a million times better than these stupid courses advertised everywhere but I can't justify the $3k tag.

I am however more than willing to go halves on it with someone. If anyone is interested PM me.

I am also looking for anyone who is looking to set up a trend following system. I believe the chances of success are much greater in a partnership than if I try it alone. Also with a partner the pooled initial investment is a lot greater than if you invest on your own.

I know it's a long shot but if anyone's interested in splitting the cost of that Covel package or looking for a partner to develop a trend following system PM me.

 

[HowardCohodas]

You might check out Prodigio, a ThinkOrSwim application, to develop you strategy with back-testing.

 

[vish4al]

You might check out Prodigio, a ThinkOrSwim application, to develop you strategy with back-testing.

I will have a look but am familiar with VBA up to an advanced level and since I want to keep things simple it should be more than sufficient for my means for now. Although thanks.

 

[HowardCohodas]

I will have a look but am familiar with VBA up to an advanced level and since I want to keep things simple it should be more than sufficient for my means for now. Although thanks.

You're welcome.

BTW, I am a retired software engineer and have built back-testing and trading strategies in VB6, FORTRAN, VB.NET and PHP. And yet, were I do to one today, I would do it in Prodigio because of the GUI rapid design and testing process and easy access to market data.

 

[myhedgedfund]

I have implemented a trend following system of my own... as basic as they come, based on moving averages and ATR's, nothing else. Investment vehicles are ETF's, although I invest in individual companies (small caps) from time to time.

I have created a blog where I will be posting my trading activities live beginning on 1/1/11. I would be interested in your feedback.

Regarding Covel, I agree with you, the guy come across as logical, transparent, and honest. That said, do you think is worth it to spend that much money to listen to him? Can you give me some specifics as to what the money will buy you?

Hope to keep in touch...

Boston

 

[vish4al]

You're welcome.

BTW, I am a retired software engineer and have built back-testing and trading strategies in VB6, FORTRAN, VB.NET and PHP. And yet, were I do to one today, I would do it in Prodigio because of the GUI rapid design and testing process and easy access to market data.

That's a lot of experience under your belt, no doubt you're a smart guy and I do agree with you that there is software out there that can do things 100 times better than excel but I am very familiar with excel and only need an EOD futures feed for what I'm trying to achieve. As I said before, I strongly believe in simplicity. I had a look at Prodigio but the issue with me is I want to implement my strategy by spreadbetting which I don't think is supported. I know that spreadbetting companies 'play' with the prices but I think that affects intra-day scalpers a lot more than it would affect me. Also the competition is quite high so they can't deviate from the true price too much. The tax benefits and automatic currency hedge outweighs the price manipulation for me. Also the key to a good strategy, to me, is diversification. Through spread betting I have access to a lot of non-correlated markets.

I have implemented a trend following system of my own... as basic as they come, based on moving averages and ATR's, nothing else. Investment vehicles are ETF's, although I invest in individual companies (small caps) from time to time.

I have created a blog where I will be posting my trading activities live beginning on 1/1/11. I would be interested in your feedback.

Regarding Covel, I agree with you, the guy come across as logical, transparent, and honest. That said, do you think is worth it to spend that much money to listen to him? Can you give me some specifics as to what the money will buy you?

Hope to keep in touch...

Boston

Very very interesting blog. I have only had a quick glance at your blog but it looks very good. Exactly what I'm trying to work towards! I will definitely follow it and stay in touch. I am getting a bit ahead of myself as I won't be able to properly focus on trading until June, which is a while away, but I can still plan!

Regarding Covel's stuff I do not see his course as the holy grail. In reality there is no such thing. What I think is unique about Covel's offering is that he has compiled a load of trading systems that successful traders have used, that is really all I'm after. I want to see how they work and analyse the merits and failures of each system. Also he has a number of interviews on DVDs of very successful trend followers (not well known traders but the important thing is they are successful) which I think will give a really good insight into the mindset and psychology needed to succeed. Although I really liked his book, he didn't really go actual trading strategies that much. I would love to just get my hands on the trading systems but unfortunately it's only available with the $3k package (convenient that!).

To see what's included check it out here - www trendfollowing com/new_2997.html

And no I'm not working on commission basis for Covel!! lol

If you are interested in splitting the costs do let me know (PM).

Cheers

 

[intradaybill]

if you are interesting in trend following this blog has a lot of information and studies

http://www.automated-trading-system.com/

One of the best I have come across.

 

[vish4al]

if you are interesting in trend following this blog has a lot of information and studies

http://www.automated-trading-system.com/

One of the best I have come across.

Cheers for that - looks pretty good.

 

[es175]

If you are seriously interested in pursuing this path, I can save you some time by pointing you in the right direction. While I think it's the absolutely right approach, whether it suits you is another question. Hopefully interesting if nothing else.

1 Read Ultimate Trading Guide by Hill for an overview of trading methods. (Read, learn from, then ignore the Turtle method)
2 Buy Tradingblox for backtesting. (The forum is the most useful trading forum out there - high signal to noise ratio)
3 Play with longer term MA crossovers and Bollinger Band Breakouts for signal generation. (Signals are important but not, arguably, the most important component of a properly designed trading program)
4 Play with Bet sizing, risk management, portfolio design, profit taking or not
4 Get yourself some CSI data (industry standard global end of day day)
5 Make sure you are properly funded, perhaps £100k to trade a diversified portfolio of futures

All the best,
es175

 

[vish4al]

If you are seriously interested in pursuing this path, I can save you some time by pointing you in the right direction. While I think it's the absolutely right approach, whether it suits you is another question. Hopefully interesting if nothing else.

1 Read Ultimate Trading Guide by Hill for an overview of trading methods. (Read, learn from, then ignore the Turtle method)
2 Buy Tradingblox for backtesting. (The forum is the most useful trading forum out there - high signal to noise ratio)
3 Play with longer term MA crossovers and Bollinger Band Breakouts for signal generation. (This is, arguably, important but not the most important important component of a properly designed trading program)
4 Play with Bet sizing, risk management, portfolio design, profit taking or not
4 Get yourself some CSI data (industry standard global end of day day)
5 Make sure you are properly funded, perhaps £100k to trade a diversified portfolio of futures

All the best,
es175

I am extremely serious about what I want to achieve and I know it's not easy. Saying that there is no way I can afford £100k. I need to start small. That's another reason I'm going to implement my strategy through spread betting as you can take on small positions. I will definitely take a look at the other sites you have mentioned. My endgame (if I am successful) is to seek prop desks/investment banks to back me after being able to prove my strategy makes money.

Cheers.

 

[es175]

Prop desks / IBs unlikely to back you... You won't fit their needs and secondly, there's a huge established industry out there already.

If funding is difficult, consider becoming a shorter-term discretionary trader.

Some pointers for that route:
1 - Trading Naked, examine the Floor Trader method
2 - Watts Trading - buy the guys book, helpful community a massive bonus
3 - Read this thread:
http://www.elitetrader.com/vb/showthread.php?threadid=99283
4 - Buy and read Trading In The Zone by Mark Douglas
5 - Create a cast iron trading plan (what, when, how etc)
6 - Document your trading versus your plan in a trading journal.

In short, keep it simple, buy pullbacks in upward trending markets (and vice versa). It's all about learning and trading price action, and keeping your discipline.

All the best,
es175

 

[vish4al]

Prop desks / IBs unlikely to back you... You won't fit their needs and secondly, there's a huge established industry out there already.

If funding is difficult, consider becoming a shorter-term discretionary trader.

Some pointers for that route:
1 - Trading Naked, examine the Floor Trader method
2 - Watts Trading - buy the guys book, helpful community a massive bonus
3 - Read this thread:
http://www.elitetrader.com/vb/showthread.php?threadid=99283
4 - Buy and read Trading In The Zone by Mark Douglas
5 - Create a cast iron trading plan (what, when, how etc)
6 - Document your trading versus your plan in a trading journal.

In short, keep it simple, buy pullbacks in upward trending markets (and vice versa). It's all about learning and trading price action, and keeping your discipline.

All the best,
es175

I respectfully disagree, I have read numerous articles of people who have done just that. Not prop desks (admittedly) but they got into investment banks.

I don't like the idea of trading short term. I want to trade long term.

Cheers for all the pointers, I will def read your recommendations.

 

[rathcoole_exile]

I strongly agree that markets tend to trend.

aye, about 20% of the time

but as long as they have your seal of approval, that'll do rightly then

 

[adamscj]

You're right that a lot of the big hedge funds are still following the basic rules that were laid down for the Turtles and are now easily available free online.

The problem you'll have trading on your own account is
a) Trading costs
b) drawdown

The big players can pretty much trade at choice price as the banks are so desperate for the flow which makes a BIG difference to the profitability of the strategy. On your own you'll be paying a big chunk of spread, especially in some of the more esoteric commodities.

Also, beware of drawdown. The standard trend following techniques do make money of the long run but can also have some pretty long runs of flat or negative performance (> 1yr). It's not uncommon to lose 10-15% in a year, only to make it back (and more) over the following years. Most of the systematic trend followers give investors a guide time horizon of 3-5years so don't expect to get rich quick with this.

Finally, Trend following is not something that you can live off. It will typically return you 10-15% per annum which is very nice for a hedge fund who make their money off 2+20 but means you need a sizable investment up front to make a living off it.

Good Luck

 

[vish4al]

You're right that a lot of the big hedge funds are still following the basic rules that were laid down for the Turtles and are now easily available free online.

The problem you'll have trading on your own account is
a) Trading costs
b) drawdown

The big players can pretty much trade at choice price as the banks are so desperate for the flow which makes a BIG difference to the profitability of the strategy. On your own you'll be paying a big chunk of spread, especially in some of the more esoteric commodities.

Also, beware of drawdown. The standard trend following techniques do make money of the long run but can also have some pretty long runs of flat or negative performance (> 1yr). It's not uncommon to lose 10-15% in a year, only to make it back (and more) over the following years. Most of the systematic trend followers give investors a guide time horizon of 3-5years so don't expect to get rich quick with this.

Finally, Trend following is not something that you can live off. It will typically return you 10-15% per annum which is very nice for a hedge fund who make their money off 2+20 but means you need a sizable investment up front to make a living off it.

Good Luck

I have been looking at the spread and you are right on some of the more exotic commodities like for example timber the spreads are pretty big. Like I have said, I want to implement this through spread betting as it gives me access to a lot of markets I otherwise wouldn't be able to trade due to account size. However I think initially I will exclude any markets that have a huge spread.

I have read a lot of articles talking about whether the turtle traders results were all luck as they wouldn't have performed well in certain years. The biggest problem with these articles is they look at one market (normally a US equity Index) and apply the strategy. I plan on trading numerous markets with low correlation, therefore if one is not trending then I'll have another 10 or so to look at. With this strategy you don't have to be right all the time just make sure when you are right you keep adding to your position. Correlation between markets is extremely important in this strategy.

I have been working one bullsh*t job after the next since graduating and am sick of it all. I am going to put significant amounts of my time & resources in to researching various strategies but I do want to make this my living. From what I have read so far I really like trend following. To me life is about taking calculated risks to achieve what you want and this the first step for me to get the kind of life I want instead of waiting for someone somewhere to give me a 'big break'.

Part of the allure to trend following is the fact it is not a get rich quick scheme. However what do you think my chances are of getting backed by an investment bank once I can prove I have something that really works? I realise that's a big if but that is my endgame. There is no way I will be able to come up with the kind of money I need to live off it but need to try and convince someone who does have money that I can make them money.

Cheers for all the help & advice

 

[adamscj]

Part of the allure to trend following is the fact it is not a get rich quick scheme. However what do you think my chances are of getting backed by an investment bank once I can prove I have something that really works? I realise that's a big if but that is my endgame. There is no way I will be able to come up with the kind of money I need to live off it but need to try and convince someone who does have money that I can make them money.

You're unlikely to get backed by an investment bank, a better bet is private investors. Typically you would need to show both a strategy that backtests well (e.g. over 10+ years for TF) and also actual returns from you own trading (e.g. 1-2 years) that proves the reality matches your theory.

Once you've got that, the only way you're seriously going to make it work is by making the right friends as no-one will hand over (say) $/£5m to a complete stranger!

 

[vish4al]

You're unlikely to get backed by an investment bank, a better bet is private investors. Typically you would need to show both a strategy that backtests well (e.g. over 10+ years for TF) and also actual returns from you own trading (e.g. 1-2 years) that proves the reality matches your theory.

Once you've got that, the only way you're seriously going to make it work is by making the right friends as no-one will hand over (say) $/£5m to a complete stranger!

It would be really useful to hear what your background is when you post such conclusive statements.

If I have something that works and can prove it does work then why would it be unlikely to get backed by a prop desk somewhere.

My other idea is to try and get into a trading grad scheme. All banks hire junior traders. Most of these are oxbridge graduates but if I go for a grad scheme having had all this experience, wouldn't you say I have a much better chance than a recent graduate. I should add I have almost completed the CFA (only L3 left).

 

[adamscj]

It would be really useful to hear what your background is when you post such conclusive statements.

I've worked at 2 investment banks (still at one of them now) and a large systematic hedge fund that concentrated on trend following.

I started my career on an investment bank Grad scheme. They're generally not interested in your trading background, much more your educational background and general mathematical aptitude.