Very simple trend-following set-up

This is a discussion on Very simple trend-following set-up within the Swing & Position Trading forums, part of the Methods category; Hi Tomorton, thank you so much for sharing some of your techniques here. Can I ask something about your trend-following ...

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Old Feb 23, 2015, 11:35pm   #17
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Hi Tomorton, thank you so much for sharing some of your techniques here.

Can I ask something about your trend-following in fx and other markets? I presume that your trades end up being open for a long time, say several weeks or even months. If that is the case, do you find that the daily rollover/financing charges really end up eating into your trading profits?

That's a question that has always been at the back of my mind for EOD-based trend-following strategies?

Many thanks in advance!

G
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Old Feb 24, 2015, 12:29am   #18
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Originally Posted by tomorton View Post
Trend-following in tricky market conditions -

Have to report I have only taken 4 trades so far this month - 2 winners, 2 losers, none still open, slightly neg outcome to date. But absence of trend-following entry signals right now in forex, while the EUR/Greece crisis still overhangs the markets is not necessarily a bad thing. For illustration, most of the pairs marked out as strongest-trending up or down by my system delivered counter-trend performances last week, so finding some way to enter them would have automatically been low probability trades.

The exception is the USD pairs which mostly continue to rise, perhaps as a safe haven against rising EUR surprise risk.
Hi tomorton,
My system is very similar to yours (my ma's are 200, 50, 20 and 10, (10 being an ema.)) Just in response to your post about Greek uncertainty . In the last few days I have switched all my open trend following positions to swing trade exits (no doubt I will soon regret this as the trend picks up again!)
Conventional trading wisdom says not to switch time frames once in open trades, but I have found it has often served me well.
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Old Feb 24, 2015, 9:07am   #19
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tomorton started this thread
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Originally Posted by options-george View Post
Hi Tomorton, thank you so much for sharing some of your techniques here.

Can I ask something about your trend-following in fx and other markets? I presume that your trades end up being open for a long time, say several weeks or even months. If that is the case, do you find that the daily rollover/financing charges really end up eating into your trading profits?

That's a question that has always been at the back of my mind for EOD-based trend-following strategies?

Many thanks in advance!

G

Hi options-george -

Actually, I think my longest running trades using trend-following tend to about 10 sessions only, more often in the 2-5 session range, and there are several reasons for that.

Firstly, I trail my stop higher based on intra-day range values so don't ever leave the stop further and further behind. Although I also push the target forward, I don't increase the reward factor against risk after entry.

Secondly, if the trend starts to weaken as identified by worsening results from my trend criteria, I will seek a manual exit. I don't want to run trend-following trades through ranges. I will never expect to see one of these trades run for 3 weeks, the loss of trending in the price would make it pointless to my mind and such a parabolic price momentum is bound to hit my exit target in that time.

I don't closely monitor overnight costs - and that might not be comparable to anyone else's trading anyway - position size, SB company, broker, account type etc. all make this a moving target. I manually closed a winning trade this month after 9 sessions as price had flattened and find I took a 7% hit on overnight costs - your call if that's acceptable to you but for me that's a bad bad outcome. It was a longish trade duration and the trade lost pace so badly I had to exit. The original profit target if hit would have been double what I actually made and under more normal conditions would have been hit quickly.

Of course, its fun to speculate on what might have been...
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Old Mar 8, 2015, 4:43pm   #20
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Thank you tomorton for the rules . I will try to backtest them.
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Old Mar 8, 2015, 5:13pm   #21
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tomorton started this thread Very happy with that Solas0077 - please share results here - especially if you're working outside the major forex pairs - I am only just looking at applying to FTSE350 shares so no data on them yet.
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Old Mar 9, 2015, 1:08pm   #22
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Starting out at this I always understood that the simplest solution would be best, and that there was absolutely no reason to re-invent the wheel.

I have a couple of moving averages that show what the trend is.

And stochastics to help identify pullbacks.

That's it.

Not rocket science, this !

Market Wizard and Multi-Billionaire Paul Tudor Jones:


PTJ: I teach an undergrad class at the University of Virginia, and I tell my students, “I’m going to save you from going to business school. Here, you’re getting a $100k class, and I’m going to give it to you in two thoughts, okay?
You don’t need to go to business school; you’ve only got to remember two things. The first is, you always want to be with whatever the predominant trend is.

TR: So my next question is, how do you determine the trend?

PFJ: My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.

TR: That is considered one of the top three trades of all time, in all history (1987 Crash)! Did your theory about the 200-day moving average alert you to that one?

PTJ: You got it. It had done under the 200-day moving target. At the very top of the crash, I was flat.

TR: What’s the second thought for students?

PTJ: 5:1 (risk /reward). Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.


http://tradethetape.com.au/tag/paul-tudor-jones/

Overcomplication is just a giveaway that someone hasn't grasped what's the wheat, and what's the chaff.

80:20 as everything in life.

:-)
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Old Mar 9, 2015, 1:39pm   #23
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Quote:
Originally Posted by BSD View Post
Starting out at this I always understood that the simplest solution would be best, and that there was absolutely no reason to re-invent the wheel.

I have a couple of moving averages that show what the trend is.

And stochastics to help identify pullbacks.

That's it.

Not rocket science, this !

Market Wizard and Multi-Billionaire Paul Tudor Jones:


PTJ: I teach an undergrad class at the University of Virginia, and I tell my students, ďIím going to save you from going to business school. Here, youíre getting a $100k class, and Iím going to give it to you in two thoughts, okay?
You donít need to go to business school; youíve only got to remember two things. The first is, you always want to be with whatever the predominant trend is.

TR: So my next question is, how do you determine the trend?

PFJ: My metric for everything I look at is the 200-day moving average of closing prices. Iíve seen too many things go to zero, stocks and commodities. The whole trick in investing is: ďHow do I keep from losing everything?Ē If you use the 200-day moving average rule, then you get out. You play defense, and you get out.

TR: That is considered one of the top three trades of all time, in all history (1987 Crash)! Did your theory about the 200-day moving average alert you to that one?

PTJ: You got it. It had done under the 200-day moving target. At the very top of the crash, I was flat.

TR: Whatís the second thought for students?

PTJ: 5:1 (risk /reward). Five to one means Iím risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and Iím still not going to lose.


http://tradethetape.com.au/tag/paul-tudor-jones/

Overcomplication is just a giveaway that someone hasn't grasped what's the wheat, and what's the chaff.

80:20 as everything in life.

:-)
Hi BSD

I have tremendous respect for Paul Tudor Jones - you have to have with the amount of success he has had - but would have to disagree with him on so many things

The main point for me is inefficiency - he's actually encouraging retail traders to be inefficient - purely by saying - you can still be successful with just a 20% + win ratio.

As an analogy - Yes - I could get away slumping it in a 4 star hotel in nice holiday resort - but I would prefer to stay at the Burj al arab - 7 star - because its better and 90% of holiday makers would also prefer it - so why suffer with mediocrity - if you can do better

Similar in trading - its totally wrong for normal retail traders with their normal small capital accounts of under $5k or $10k - to be mislead by this billionaire and other commercial guys.

Aim and make sure you have a method of at least 65% success rate - also aim for RR's of even 10 and 20 when you have learnt how to get your timing correct and dont be mislead with the inefficiency of investment type trading with multi millions or billions.

99.7% of all retail traders are being mislead by the Market Wizards stuff and they guys they interview

Yes- its nice inspirational stuff - but trade under $50 or $100k totally different to these guys and then if you are lucky to ever have $5 or $20 million of your own money - then fine - go back to inefficiency and old school thinking

Just my own strong view - but maybe not the right place to debate it in this thread - so maybe another topic for a great debate.

Regards


F
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Old Mar 9, 2015, 2:00pm   #24
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I really think that winning percentages are pretty meaningless and really only the focus of amateurs.

This guy is at a major hedge fund:

What he says, quite simply, is that very high winning percentages come at the cost of making less money overall, which is not what the objective should be. And that's not based on theories, but comes from his first hand experience working with some of the very best traders on this planet.

Brett Steenbarger:

"...As a rule, maximizing batting average/minimizing drawdown comes at the cost of lowering overall system profitability...."

"William Eckhardt:

The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. …

What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”

Market Wizards


George Soros:

"I don't care about being right or wrong on the market.

What counts is how much you make when you are right."


Kenneth Grant, in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:

ACROSS ALL TRADING STYLES, TIME FRAMES AND TRADERS, ONE RULE HOLDS TRUE:

10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS !
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