My Hedged Fund - Another "Trend-Following" Post

Dec 21, 2010
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#46
Another question I would have for you is this -- by whichever metric you use to enter long positions, would all your longs have been in place had you started a month earlier? Or two months earlier?

The way I operate is if I add a new market, it may already be "long" by the system rules, so I need to wait until it is "naturally" stopped out before looking for a new signal to go long.

In other words, if I was starting a trend fund on Jan 1st, unless the market retraces a few percent, I would be waiting a while to establish my first trade.
You are correct. Each and every one of my positions would have been in place before this past week; those positions were actually all "in," I just reallocated them this past week. That said, and with the way I operate, if cash becomes available, and a market is already "long," I go long. In other words, I do not wait until the position is "naturally" stopped out before going long.
 
Dec 21, 2010
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#47
It's also interesting that you've got a discretionary element in there. In my opinion you should keep the technical/trend elements separate from any "views" you may have on the market as they are at completely different ends of the investment strategy spectrum

I agree with your opinion in its entirety... it was the logic behind the "Fundamentals" write-up. Which discretionary element are you referring to? I'd like to remove it as quickly as I can...
 
Dec 21, 2010
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#48
Having read Boston's rules, the only one i'd have a mental conflict with would be no.6; When sharp losses in equity are experienced, take some time off. Many traders employ this rule and I can see why you would if you're mainly a discretionary trader. However in my experience of trading a medium term FX trending strategy, sharp losses in equity more often than not immediately precede opportunities to position yourself in the early stages of trends, as the markets become less cluttered due to the weeding out process that naturally has to occur. Could this rule actually end up costing you more Boston? I know when i've had 6/7 losses in a row as part of a more prolonged drawdown, i start to get a bit excited (weird i know), because usually good things start to happen if you keep taking your trades.
Very good point. I bought into this rule thinking that under a "sharp loss" condition, one could be tempted to tinker with the system... question or interpret its signals. Rather than taking such a risk, it would be best to "temporarily withdraw." This is not a good rule, for a couple of reasons. It is discretionary as Adamscj stated (how sharp is sharp?), it does not outline when to get back in and it takes you out when experience tells us the turnaround is about to come.

I have never made use of the rule, meaning I have never gotten out because of sharp losses, and it makes no sense to keep it in. I'll remove it from the "Trading Rules."

On that topic, any "rules" you care to share?
 

meanreversion

Well-known member
Jan 20, 2009
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#49
You're long nat gas? It looks like a huge downtrend to me.. what is your criteria for determining trend?
 
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anley

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Dec 16, 2003
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#50
MHF

Thanks for replying to all our points, believe me I and I think the others aren't trying to goad you.

Back to your hedging part, you say you will trade some shorts against longs, I understand that but where are your shorts? Or are some of those ETFs short ones (although they're bought)?
 

isatrader

Well-known member
Oct 20, 2010
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#51
You're long nat gas? It looks like a huge downtrend to me.. what is your criteria for determining trend?
He said he has $8K in FCG, which I just looked at and is First Trust ISE Revere Natural Gas (ETF). Is not a pure play on natural gas, but a fund index that is an equal-weighted index consisting of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. Looks like it had a low of $8.60 in March 09 and is now at $19.65. So looks like he’s done pretty well out of it.
 
Sep 16, 2008
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#52
I agree with your opinion in its entirety... it was the logic behind the "Fundamentals" write-up. Which discretionary element are you referring to? I'd like to remove it as quickly as I can...
Sorry I mis-interpreted your fundamentals write up, I thought this was somehow being factored into your TF strategy. After re-reading I realise was something else entirely
 

JRP2891

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Dec 12, 2008
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#53
Very good point. I bought into this rule thinking that under a "sharp loss" condition, one could be tempted to tinker with the system... question or interpret its signals. Rather than taking such a risk, it would be best to "temporarily withdraw." This is not a good rule, for a couple of reasons. It is discretionary as Adamscj stated (how sharp is sharp?), it does not outline when to get back in and it takes you out when experience tells us the turnaround is about to come.

I have never made use of the rule, meaning I have never gotten out because of sharp losses, and it makes no sense to keep it in. I'll remove it from the "Trading Rules."

On that topic, any "rules" you care to share?

Well, the only rule i have regarding this topic, is to keep taking my trades regardless of the number of losses i've experienced before. I deem the risk of not taking one of my method's trades to be infinitely larger than taking another small loss if it doesn't work out.
 

meanreversion

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Jan 20, 2009
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#54
Well, the only rule i have regarding this topic, is to keep taking my trades regardless of the number of losses i've experienced before. I deem the risk of not taking one of my method's trades to be infinitely larger than taking another small loss if it doesn't work out.
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.
 
Sep 16, 2008
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#55
But by far and away the biggest issue is in not taking entry signals, it's imperative to take them all.
That's why I prefer a trading a continuous signal rather than defined entry/exit rules for a TF strategy - it prevents you being tempted to second guess your own rules!
 
Sep 16, 2008
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#57
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.
 

meanreversion

Well-known member
Jan 20, 2009
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#58
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?
 
Sep 16, 2008
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#59
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
 

meanreversion

Well-known member
Jan 20, 2009
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#60
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.