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 Does that entail (potentially) daily re-balancing of the portfolio? in theory yes, although in practice you'll ...

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Old Jan 9, 2011, 3:29pm   #57
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Re: My Hedged Fund - Another "Trend-Following" Post

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Originally Posted by meanreversion View Post
Does that entail (potentially) daily re-balancing of the portfolio?
in theory yes, although in practice you'll round the target position to the nearest lot/contract of whatever you're trading so you'll end up staying constant for a fair amount of time. You'll see this in action if you check out the s/s I sent over - whilst the raw signal changes daily, the ContractPos is a lot more stable. The net result it a big saving in trading costs at the expense of tracking error to the underlying strategy.
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Old Jan 9, 2011, 3:37pm   #58
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Re: My Hedged Fund - Another "Trend-Following" Post

It's an interesting idea, one I'd not come across before.

My background is not IT but I did manage to code up an algo to trade a short term FX system. I could in theory extend it for the medium term system, but all trades there are done in futures (including FX). Where I come unstuck with trying to code algos for futures is the non-standard and sometimes changing contract names.. also, there is the occasional roll which has to be manually executed.. this complicates matters further. As the medium term system is low frequency (10-15 trades/month), I enter/modify orders manually each morning.

I use a Donchian channel for breakouts.. I've looked at moving averages and Bollinger bands, but for me the advantage of using a channel is placing orders in the morning and forgetting about it. With MA or Bollinger, you're then faced with the issue of having to (attempt to) trade on the close or immediately on the open, which is not something I would be comfortable with on a daily basis (i.e. I don't want to be up at 11pm each night dealing in thin markets..!).

Is your system fully automated, and what time of the day does it re-balance?
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Old Jan 9, 2011, 3:43pm   #59
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Re: My Hedged Fund - Another "Trend-Following" Post

I thin I mentioned before, I've got 2 completely independent systems.

The first is for intraday (3~5 trades per day) FX and for this one I've coded up my own application that subscribes to market data, calculates a few signals and then can automatically place a trade. This is only running in Demo at the moment.

The second one is the longer term trend following running G7 (ish) and most relevant to this thread. As this only uses daily data I do everything in Excel and trade manually. I'll take a price at a fixed time of day (4pm), enter into Excel, compute the new signal and trade the difference if necessary. The whole process for a few currencies takes 2/3mins so I just accept the time risk
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Old Jan 9, 2011, 3:47pm   #60
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Re: My Hedged Fund - Another "Trend-Following" Post

Have a look at Amibroker, $280 one off fee. You can do absolutely anything you want from it, backtesting, algos, statistical analysis, etc. Gets round having to use Excel.
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Old Jan 9, 2011, 3:56pm   #61
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Re: My Hedged Fund - Another "Trend-Following" Post

I'll certainly take a look. I quite like using a combination of excel and matlab but always willing to try something new
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Old Jan 9, 2011, 4:45pm   #62
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Re: My Hedged Fund - Another "Trend-Following" Post

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Originally Posted by meanreversion View Post
We've obviously been on a similar path. I tried getting cute with some signals last year, and it ended up costing about 10% of my equity in P/L. There were two big bloopers - not taking an AUD long signal just before it rallied 10% in spot, and not taking a sugar long signal, shortly prior to a 20% rally.

There were a few occasions when I skipped signals and it saved money, but the overall effect was sharply negative.

What I would say is that I have no issue with modifying the strategy from time to time. You can't possibly know everything on day 1, so it's only natural that (subtle) alterations will be made along the way. As an extreme example, the Turtles changed their channel daycount when brokers cottoned on to the system and started jamming their stops. I've made a couple of modifications in the last six months, one of which is to include a drawdown limit. I also threw one market out (CAD) and brought in the 10yr T-note, to achieve (I believe) a better balance.

But by far and away the biggest issue is in not taking entry signals, it's imperative to take them all.
The self-fulfilling prophecy of trying to save a few £'s by not taking signals/getting out before your stop is hit (guilty as charged), and the end result being that it costs you significantly more £'s, is always evident when you break certain rules which really must never be broken.

I agree, modifications which you've reflected on and tested should always be implemented if they're going to potentially add to your bottom line. I'm still making subtle changes to my strategy like yourself, but i think i'm getting very close to the point where the only thing on my mind will be correct execution.

With regards to your drawdown limit, is that to stop you giving back more than x% of open profits?
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Old Jan 9, 2011, 5:47pm   #63
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Re: My Hedged Fund - Another "Trend-Following" Post

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You're long nat gas? It looks like a huge downtrend to me.. what is your criteria for determining trend?
Sorry for the use of short-hand. I am not long on natural gas (UNG), which is a sideways trend at this point, but FCG which I call in my own files "Natural Gas Exploration and Production." A more complete description of the ETF is below:

"The ISE-Revere Natural Gas Index is an equal-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas."

The uptrend started here in late August, I've had buy signals for a few weeks now.
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