Trend following not working on my 7,000 backtests !

DionysusToast

Well-known member
Dec 6, 2009
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www.jigsawtrading.com
#46
I have lost all confidence on trend following.

I back-tested the below system over 9 major FX pairs using 4 hour charts over 13 years which consisted of exactly 7,004 trades.

Plot 3 EMAS on chart: 5,21,55
Use a Stop loss od 2ATR(14)

Enter long/short when 5 EMA crosses above/below the 55 EMA
Exit when 5EMA crosses back over ANY of the 21 or 55 EMA (whichever comes first)

And that's it !

As you can see it adheres to all the fundamental rules of a good trading system:
- IT knows what instruments it trades
- Knows entry signal
- Knows exit signal before entering which facilitates both cutting losses and maximising profits
- cuts losses
- lets profits run
- knows risk in advance

It barely broke even before costs (It had an expectancy of 0.01R per trade). Since costs were about 0.02 R it had an expectancy of -0.01R per trade.

I then tweaked it slightly whereby I closed any trades that were not in profit after 24 hours. And for those that were in profit I moved the SL to breakeven.
Again- the overall results were very similar.

I'm not saying trend-following cant assist in trading. But based on my back tests - (which was a significant sample size in anyone's language) it definitely isn't a simple case of cut your losses and let your profits run and you are guaranteed profits in the long run like many sites lead you to believe.

It really needs to be fine tuned a bit better than that. I really don't know where to go from here to be honest.

Ya - you can tweak the parameters - but that should now make any difference in the long run.

Id be curious to get other peoples thoughts on it.
In the markets, there is cause and effect.

The effect is the price you see on the chart. Something caused the price to move like that.

Your issue is that you are looking at effect (where we traded) and looking for cause. Sadly, cause is not there.

So no matter how you slice and dice it - you need to focus on causes.
 
Apr 4, 2016
1,959
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#49
i got that part but wondered who it was..

im not using MAs i was kidding
Well just search 3 ducks and you will find him.

Maybe you should post up your trades, then we get a better idea on what you are doing. I promise I won't steal your idea. Although I can't promise itsnotpossible won't copy trade you.
 

Kaeso

Active member
Oct 4, 2015
861
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#50
Well just search 3 ducks and you will find him.

Maybe you should post up your trades, then we get a better idea on what you are doing. I promise I won't steal your idea. Although I can't promise itsnotpossible won't copy trade you.
oh yes i found it thanks ill have a look later. Maybe one day ill be post some results and/or trades yeah.. i am interested to do that but haven't felt inclined as yet.
 

tomorton

Well-known member
Feb 28, 2002
7,051
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Exeter
#52
Explanation for TF failure in recent years was offered on the basis that there is not enough dumb money to support this style of trading. Interesting article here.

Neal Berger's a fund manager talking about fund management to fund managers. Anyone who invests in a passive quant fund rather than doing what we do, as private retail traders, is certainly dumb money.
 
Mar 19, 2002
19
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London
#53
Read Rob Carver's blog and/or his book or even his thread on ET (globalarbtrader is his name). Trend following absolutely does work and while no-one can definitively say why obviously he has a very good handle (which is probably the industry consensus among CTAs) on a reasonable explanation for it.
 
Mar 19, 2002
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London
#54
BUT...you should expect long term trend following to have down years and long flat periods like any other investment that just seeks to extract a risk-premium without an informational edge (eg equity risk premium)
 
Apr 4, 2016
1,959
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#55
Read Rob Carver's blog and/or his book or even his thread on ET (globalarbtrader is his name). Trend following absolutely does work and while no-one can definitively say why obviously he has a very good handle (which is probably the industry consensus among CTAs) on a reasonable explanation for it.
If it works, why are you not following trends ? If you did shouldn't you be rich already, instead of going on internet to look for magic formulas ?
 
Mar 19, 2002
19
0
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London
#56
I'll ignore the childish this time.

Anyone who trades or has an interest in trading can learn something from Rob Carver's work whether you use it or not.