My Hedged Fund - Another "Trend-Following" Post

This is a discussion on My Hedged Fund - Another "Trend-Following" Post within the Trading Journals forums, part of the Reception category; Originally Posted by meanreversion Ok, very specific. Can I ask what you're looking to gain from keeping this public record, ...

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Old Jan 2, 2011, 1:38am   #8
Joined Dec 2010
Re: My Hedged Fund - Another "Trend-Following" Post

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Originally Posted by meanreversion View Post
Ok, very specific. Can I ask what you're looking to gain from keeping this public record, is this with a view to raising outside funds?

Do you also have a day job?
I am not looking to raise funds... and yes, I do have a day job. But, what is there to gain? It is a fair question...

One of the most significant challenges (in my opinion) system traders have is sticking to the strategy. It is tempting for some of us to deviate from our plan whenever significant drawdowns (or even minor losses) are experienced. Some of the mistakes include:

- Seeing lines where they don't exist,
- Touches where there aren't any,
- Trying to insert macro-economic events in statistical calculations,
- Questioning past decisions / data,
- Looking for alternate asset classes
- and... as you know... many, many more

In making my trading public I am trying to acquire yet an additional defense against strategy deviations. The mere possibility of a reader questioning one of my moves will help keep me straight... I must always be able to explain away my trades using my strategy...

"Losing face" in "public" should be a good deterrent. That said, please know that I consider myself to be a disciplined investor, and have not deviated from my strategy in a long time, but, it's yet another fail-safe.

Thanks for the good question...


Boston
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Old Jan 2, 2011, 8:25am   #9
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Re: My Hedged Fund - Another "Trend-Following" Post

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Originally Posted by adamscj View Post
meanreversion - two 30% drawdowns in a year sounds quite hefty - what kind of annualized vol are you running at?
Good question. The big drawdowns I recall from memory (it may have been more like one of 30 and one of 20-25, but still large). I only record my month end equity, which doesn't capture the full drawdown.

To calculate my volatility, do I need daily equity numbers?
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Old Jan 2, 2011, 10:30am   #10
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Re: My Hedged Fund - Another "Trend-Following" Post

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Originally Posted by meanreversion View Post
Good question. The big drawdowns I recall from memory (it may have been more like one of 30 and one of 20-25, but still large). I only record my month end equity, which doesn't capture the full drawdown.

To calculate my volatility, do I need daily equity numbers?
The strategy Boston (OP) is looking to run is similar to many of the systematic hedge funds who developed the turtle rules into large scale trend following operation. As I'm sure you know they have different methods of measurement when it comes to performance compared to your average day trader, looking at things like annualized returns, annualized vol (therefore Sharpe) and max drawdown etc. All of these are calculated off daily returns (as a % of investment) so yes, you would need daily equity figures to be accurate.

The reason for working out drawdown using dailies is that most of these funds act as CTA's rather than true "black box" hedge funds and so will offer daily liquidity, unlike the macro/discretionary guys who might only give monthly or quarterly liquidity windows. Therefore if you can draw your money out at any time it obviously makes sense to work out all your NAV figures on a daily basis, whilst reporting results annualised for consistency
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Old Jan 2, 2011, 10:32am   #11
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Re: My Hedged Fund - Another "Trend-Following" Post

And sorry I should have said (apologies if I'm stating the obvious) you can calculate the annualized vol by simply taking the standard deviation of daily returns multiplied by 260.
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Old Jan 2, 2011, 2:23pm   #12
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Re: My Hedged Fund - Another "Trend-Following" Post

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As I'm sure you know they have different methods of measurement when it comes to performance compared to your average day trader
You mean John Henry and David Harding aren't trying to make 50 pips a day?

Good replies, interesting to hear the professional view. Are you still on the buy side or independent now?
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Old Jan 2, 2011, 3:11pm   #13
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Re: My Hedged Fund - Another "Trend-Following" Post

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Good replies, interesting to hear the professional view. Are you still on the buy side or independent now?
I'm actually back on the sell side now for my sins. I'd love to spend my days at home day trading but I've got a young family to support and I can't justify giving up my current comp for unknown returns to my wife!

I do a bit of FX long term trend following on my own account and also developed a couple of intraday FX strategies that I'm currently running in Sim. Having worked in the investment community I have made a few good contacts so I'm still holding onto the dream that oneday I'll have something good enough to start my own fund and get some decent backing ($50m has to be the minimum for a 2+20 type fund once you've taken IT costs and potential other employees into account)
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Old Jan 2, 2011, 3:51pm   #14
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Re: My Hedged Fund - Another "Trend-Following" Post

Spent several years on the sell side myself, you can't really knock the pay.

My main strategy is medium term trend following where a successful trade could last a couple of months. I trade FX, commodities and interest rates.

You (and Boston) might find this link interesting -

http://www.automated-trading-system....d-performance/
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