Improving Trend-Following Strategies With Counter-Trend Entries

[Ferru]

Interesting article:

Improving Trend-Following Strategies With Counter-Trend Entries « CSSA

Does anyone know of any other studies that look at combining the trend following 'cut your losses, let your profits run' approach with counter-trend entries?

Thanks

Jeff

 

[andrabr9]

I would be very cautious of counter trend concepts. I have tested not hundreds of trend following concepts and counter trend ideas but thousands to mitigate the draw downs of trend following and have found that not to be profitable. One way to mitigate draw downs is risk less percentage per trade...risk less per sector and risk less in the total portfolio.

There was a famous blowup on a counter trend trader in 2011. Dighton tried counter trend concepts against the Swiss Franc and was forced to close his CTA.
There are other ways to mitigate DD...counter trend trading is not one of them...at least in my testing and trading...I am a CTA & actually wrote a book called The Bible of Trend following.
Andrew

 

[Ferru]

Thanks Andrew.

Do you think that, even if counter-trend methods might not work across the board, there are circumstances in which they might be the best approach? For example, might selling at the top of a range be a good idea (providing you exit your position quickly if the market continues to rise)?

Also, if the market has been trading strongly in a particular direction, and there is a sharp reversal, might that not be a good entry point? It could be the point at which traders in the previous trend exit their positions, further fueling a new move. And if the previous trend continues, you can always exit quickly with a minimal loss.

Jeff

I would be very cautious of counter trend concepts. I have tested not hundreds of trend following concepts and counter trend ideas but thousands to mitigate the draw downs of trend following and have found that not to be profitable. One way to mitigate draw downs is risk less percentage per trade...risk less per sector and risk less in the total portfolio.

 

[andrabr9]

There is nothing perfect when we trade. I learned over the years I can not avoid losses or draw downs and stopped trying. They will always happen. I think the best approach is accepting the inevitable and following exactly ones trading plan that matches their personality and being consistent. I have tested...and tested with my programmer this concept and as much as I believe in multiple trading systems, counter trend in theory seems good but does not hold up. I have seen it not hold up as well with other CTAs.

Where I have made much more money over the years was working on risk management ideas. One big improvement for me was capping my dollar risk per contract. For example..I risk 1% of my account size on a trade... if my account is $200,000 it is a $2,000 risk...however if my account is $500,000 I am risking $5,000 on a 1 lot... this I learned was not good trading. I only will take a trade if it hits all my risk parameters as well as no more than $2000- $2500 per contract...depending on which of my models....

Hope this helps you...
Best
Andrew

Thanks Andrew.

Do you think that, even if counter-trend methods might not work across the board, there are circumstances in which they might be the best approach? For example, might selling at the top of a range be a good idea (providing you exit your position quickly if the market continues to rise)?

Also, if the market has been trading strongly in a particular direction, and there is a sharp reversal, might that not be a good entry point? It could be the point at which traders in the previous trend exit their positions, further fueling a new move. And if the previous trend continues, you can always exit quickly with a minimal loss.

Jeff

 

[Ferru]

Thanks Andrew.

Jeff