Last few weeks, have been going through podcasts and books of famous trend following fund managers (managing hundreds of millions to billions).
Most of them use a x-day/week breakout with a moving average filter to enter, and trail their stop with trend.
Most of them use a x-day/week breakout with a moving average filter to enter, and trail their stop with trend.
Most of them have also delivered 12%+ returns over last 20-30 years with less than 20-25% maximum drawdown (with the exception of Dunn).
They have been using the same rules, having tweaked the basic parameters (like lookback period) few times over the last 30 years.
They have been using the same rules, having tweaked the basic parameters (like lookback period) few times over the last 30 years.
Their success comes from risk management.
Entry rules and trailing rules are simple.
"Simple" offers robustness.
They all trade on timeframes Daily and above.
Entry rules and trailing rules are simple.
"Simple" offers robustness.
They all trade on timeframes Daily and above.
The risk management part comes from the most important insight.
You can't be a successful trend follower, trading only one market/asset class.
You might as well throw your capital into fire if you're trend following on only one instrument/product/market.
You can't be a successful trend follower, trading only one market/asset class.
You might as well throw your capital into fire if you're trend following on only one instrument/product/market.
They way these guys have been successful has been to trade 30+ instruments across 6-7+ asset classes.
Their key to success - risk allocation amongst the diversified instruments.
Their key to success - risk allocation amongst the diversified instruments.
The most proprietary stuff is in that portfolio design, asset allocation, and risk allocation to each asset in any period during their lifetime.
They trade anything from Agri, Commodities, Softs, Metals, Energy, Fixed income, Currencies, etc.
They trade anything from Agri, Commodities, Softs, Metals, Energy, Fixed income, Currencies, etc.
Almost all of FinTwit has an obsession over entry/exit rules.
But for most of the successful traders, the entry/exit rules are secondary.
Risk management, portfolio management - this is primary.
But for most of the successful traders, the entry/exit rules are secondary.
Risk management, portfolio management - this is primary.
Trend Following as a methodology is a positive skew method of trading.
What's special about trend following trades is that you lose in roughly 2/3rd of all trades.
The remaining 1/3rd make up for most of it.
Goes without saying win-rates will be less than 35-40%.
What's special about trend following trades is that you lose in roughly 2/3rd of all trades.
The remaining 1/3rd make up for most of it.
Goes without saying win-rates will be less than 35-40%.
There are also going to be time where you spend months in a drawdown.
How much leverage you use, how much you allocate to each trade, asset class, instrument, and which markets you trade will dictate your returns.
How much leverage you use, how much you allocate to each trade, asset class, instrument, and which markets you trade will dictate your returns.
The claim that if you trade one single market, one single product/index, that you can and will be successful over say 10-20-30 years,
is either going to be through a short-lived alpha that decays faster (and your ability to regularly find them)
or by being God.
is either going to be through a short-lived alpha that decays faster (and your ability to regularly find them)
or by being God.
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