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 myhedgedfund - Pyramiding – how do traders add to their investments? There are many ways. One of ...

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Old Feb 6, 2011, 3:02pm   #81
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Re: My Hedged Fund - Another "Trend-Following" Post

Quote:
Originally Posted by myhedgedfund View Post
- Pyramiding – how do traders add to their investments? There are many ways. One of the variables I use is the basic Standard Deviation / Price, which is of course a volatility play as well.

Boston


Thank you for your comprehensive thread Boston. It makes a nice change from the mass of intraday trading journals.

Would you be kind enough to expand on how you use the basic Standard Deviation / Price in pyramiding please.

Thanks
Jason
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Old Feb 6, 2011, 8:46pm   #82
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Re: My Hedged Fund - Another "Trend-Following" Post

myhedgedfund started this thread
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Originally Posted by Jason101 View Post
Thank you for your comprehensive thread Boston. It makes a nice change from the mass of intraday trading journals.

Would you be kind enough to expand on how you use the basic Standard Deviation / Price in pyramiding please.

Thanks
Jason
Thanks for the question and for the good feedback Jason.

Let me first go a little into the “reason” why I use the “Std Dev / Price” (SD/P) variable. As you know, setting a pyramiding decision based on a fixed percentage change threshold could result in buys (same logic would apply to a sell / short decision) not reflective of the underlying “opportunity.”
Example: Suppose assets A and B are both priced at $10. We could set a threshold that signals a pyramiding buy at say, +5%. Here you would purchase a second block at a price of $10.50. Now, A and B may be similar assets, in which case an undiscriminating 5% may work, or they may be significantly different assets (say technology and bonds), with significantly different risks, in which case we should discriminate. In the latter example you would want to consider a volatility measure such as the standard deviation. The bonds’ low volatility may result in a buy signal at, say, $10.20, while the high volatility of the Technology asset could result in the buy signal coming in at $11.00. Considering volatility in this fashion could help in aligning risk amongst different asset types.
That said Jason, the main technical indicator I use in pyramiding is not the SD/P but the Average True Range (ATR). Here, one would use different ATR multiples, depending on the time-scale of the system; a low ATR multiple (1-2?) for systems of short time-scale (days), higher ATR multiples (10?) for longer systems. I’m in the middle of the road here.

My main use of the SD/P variable is as a secondary metric, part of an algorithm I use in prioritizing entries, exits and pyramiding; I use this algorithm only when faced with multiple signals. This algorithm (also outlined in the “Week 5” post), considers the SD/P, the distance between price and MA’s (the greater the better), and the distance between price and 52-week highs (the smaller the better).

This post may be of interest if you're interested in the math behind the SD/P metric.

Best,


Boston

Last edited by myhedgedfund; Feb 7, 2011 at 2:30am.
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Old Feb 11, 2011, 11:22pm   #83
Joined Dec 2010
Re: My Hedged Fund - Another "Trend-Following" Post

myhedgedfund started this thread Week 6: Settling in...

Current Positions:

I completed the following transactions this week:
- Sold my positions in Russia (RSX), Taiwan (EWT), South Korea (EWY), Palladium (PALL), Metals & Mining (XME) and Biotech (IBB). These sales were completed in all cases to fund additional purchases in the assets listed below. EWT and EWY would have seen sell signals during the week anyways.
- Sold INDZ (India short) based on technical thresholds late in the week.
- Added to UPRO (S&P 500) and JJG (Grains) after receiving “pyramiding” buy signals.
- Bought UDOW with the INDZ proceeds based on technical signals.
I am at this point holding "only" 20 positions, the lowest number possible as per the system. This happens only in situations of extended trends, with multiple assets signaling additional purchases. This results in basically selling "the weak" and giving the proceeds to "the strong."

The reader can find all of my current positions in more detail here.

Current performance:

Week 5 was yet again a good week, with the fund increasing in value by 1.89%; total return YTD stands at 9.23%. The investments in leveraged ETF's are paying off, with ERX (up 24%), Financials (up 12%), Midcaps (up 17%) and Nasdaq (up 11%) leading the way. Chart with some relevant benchmarks below:

Click the image to open in full size.

Current sector allocations below:

Click the image to open in full size.

Comments and questions are always welcomed and often answered...

Boston
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Old Feb 11, 2011, 11:27pm   #84
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Re: My Hedged Fund - Another "Trend-Following" Post

hi

can i ask a easy question - what are the criteria rof an etf being "ok" or "not ok" for the rules

like do they all have to track a calculated index (one that you can know about)?
is it ok if the etf pms can aim for relative returns?
what about liquidity and volume parameters?
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Old Feb 11, 2011, 11:28pm   #85
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Re: My Hedged Fund - Another "Trend-Following" Post

another question - do you beta weight your allocations?
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Old Feb 11, 2011, 11:32pm   #86
Joined Jan 2011
Re: My Hedged Fund - Another "Trend-Following" Post

more questions:

are all your etf investing in stocks?
so no bonds or currency etfs?

I can see commodities in the pie graph but this could just be like miners stuff...

nice blog
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Old Feb 12, 2011, 12:00am   #87
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Re: My Hedged Fund - Another "Trend-Following" Post

myhedgedfund started this thread
Quote:
Originally Posted by DashRiprock View Post
hi

can i ask a easy question - what are the criteria rof an etf being "ok" or "not ok" for the rules

like do they all have to track a calculated index (one that you can know about)?
is it ok if the etf pms can aim for relative returns?
what about liquidity and volume parameters?
Let me point you here for the specific ETF's I invest in.

The idea in general is to have an "ETF menu" which considers countries, fixed income, currencies, "Morningstar" segments, SPDR sectors and Commodities. Different times of the year would see me invested in different assets, based of course on trends.

Volume is a tricky one... I aim to trade on ETF's with a minimum volume of 100,000, but that's not always possible. Thirteen of the ETF funds currently listed in the "Menu" trade at less than 100,000 shares per day. Two of my current holdings (grains and the leveraged DOW) fall in this category.

Boston
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Old Feb 12, 2011, 12:06am   #88
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Re: My Hedged Fund - Another "Trend-Following" Post

thank you for good answers on that question

can you answer the others just as good :)
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Old Feb 12, 2011, 12:07am   #89
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Re: My Hedged Fund - Another "Trend-Following" Post

myhedgedfund started this thread
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Originally Posted by DashRiprock View Post
another question - do you beta weight your allocations?
While the allocations are not beta-weighted, the investment decisions do take into account the beta of the asset, with my goal of being "beta neutral" a distant one as of today (see chart below)" There are just not that many low / negative beta opportunities in the "trending" realm right now.

Boston

Click the image to open in full size.
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Old Feb 12, 2011, 12:08am   #90
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Re: My Hedged Fund - Another "Trend-Following" Post

very good

can your broker save shorts for you?i mean is you rremit long only?
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