462# Great Trend Trading System

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A while agoI used a quote from Winton manager and trend Follower David Harding found in this interview saying:. If you put in stops and run your profits and trade randomly you make money; and if you put in targets and no stops, and you trade randomly you lose money. So the old saw about cutting losses and running profits has some truth to it.

Like the proverbial dart-throwing monkey? It seems so… In effect, Harding is saying that entry points do not matter so much: I once met with a fund manager, who described his strategy as very similar to that random system in the Harding quote. What was really important to them was the position sizing for each new signal, as well as the exit strategy. The portfolio used for this test is a subset of the one used in the State of Trend Following reportbasically all those instruments that I have data for going back to the start of the test: Since this is a random experiment, I generated multiple test outputsall based on the same parameters, and averaged their monthly returns to create a composite equity curve, which performance summary statistics can be seen below:.

The 2-ATR stop level is somehow an arbitrary choice and I wanted to check whether this bore an impact on the test results. I ran a further test, stepping the ATR-multiple for stop calculation from 2 to Each ATR-multiple set was run times again and averaged to give a composite equity curve. Note how the diversification and rebalancing over several ATR-multiple stop levels have a substantial impact on the Max Drawdown and volatility.

The concept of random entries with trailing stops has actually been discussed before. Note that his study found an opposite result, showing a turn in profitability downwards of random systems after portfolio and parameter values are different thoughso you might want to run your own test to verify this concept for yourself….

Is the ATR value used for the trailing stop fixed at the time of entry or updated while the position is open? Excellent post as usual. I get exactly the same feeling about entries, they explain a very small part of a TF system profitability.

I think that trading with the trend is more than enough. I understood that when I read Mandelbrot. Exits, position sizing and most importantly learning to deal with DD is what counts.

I have had the pleasure to speak with a few of the Market Wizards, they have given me some very useful advice…. It is also curious to know that in the seminars I have attended, entries are among the first and most asked questions. Indeed great post as usual. I came to the same conclusion during one of my back testing analysis. I fixed the entry point and tested several exit strategies.

Then I fixed the exit strategy; and tested several entry points. The excellent exit strategy will always result into a profitable system. Unlike poor exit; it will mostly destroy any entry point strategy. Thanks for the post. Did your system consider pyramiding entries? That might change results a bit though I guess the overall takeaway will remain the same. This is interesting but not enough information is provided to come to a conclusion.

I would like that you kindly provide the following:. Take simple channel breakout for example. If you fix the breakout days, and change exit days to 15 days, 20 days, or 30 days, you will see the performance difference is not that dramatic.

But if you change the breakout days from 20 days, 50 days, days, and fix the exit days, you will see huge performance difference. Your article only show random entry can have profit. In my opinion, if want to design an excellent system, the entry is the key, just use simple days low as exit and some exit filter high volatility exitthis simple exit is better than ATR trailing stop most of the time at least from my testing because it does a better job to make profit fly.

Rick I did not compute the exact Win rate as I only output the equity curves, due to the high number of tests and trades. Not sure if Buy-and-Hold is the best benchmark for this strategy since it goes both long and short, but it would be worth the comparison. Jing, Agree that entries are not completely irrelevant. The goal of the post was not to show that exits were more or less important than entries. As Pretorian was saying, not many Market Wizards give advice regarding entries, but rather on position sizing and money management, which — to me — also includes letting profits run as your day exit would.

For entries, you can optimize it to fit historical curve, but no one can guarantee this entry will work excellent in future, so excellent entry may be susceptible to curve fitting. But position sizing, money management and make profit fly are more robust and universal, not matter how markets change, these concepts are very robust.

After 20 years, a previous excellent entry rule may not work well but money management and make profit fly always work. Rick I ran a quick test with simple Buy-and-Hold of the same 22 instruments. I normalized the results with the curves in the post for equal monthly returns standard deviation and the CAGR is 5. You can see the comparative chart there.

So actually you have just one stop? Isnt the standart ATR 14 days not 39? Is it so difficult to include commissions in your test? If you can backtest, it should be easy to include a fixed commission rate.

Most backtesters have the option already, no need to do anything. There is no way for us to know how realistic are these tests unless there is commission included. Totally agree that the money management is the key…. It is funny concept but indeed the money management is the CEO of multiple trading system. But going back to entries and exit strategies. In the post; random entry represented multiple entry strategies Note that different strategies not changing only parameters while fixing the exit point.

And indeed the result was a profitable system. Meaning selling or holding randomly! The system will just result into losses for sure, which confirms the point of this post. Trend following is based on the concept of letting profit run and cutting losses short; and the only way to do that is by controlling the exit not the entry!

But definitely; I would give importance to both entry and exit in live trading to give me as much as possible of positive mathematically expectancy.

And then design a money management system that can give me as much as possible of geometric mean of return. It does not tell what the percentage of traders is who will underperform this average and more importantly the percentage of those who will fail. This is because, what you calculated is not the performance of a specific system but an average of many systems trading many futures contracts. I have seen similar discussions in several forums recently and I have prepared an analysis to illustrate the issues involved:.

Michael, Apart from a few teething issues, website seems to be running fine now — thanks. Note that the exponential moving average smoothing constant in Trading Blox is calculated in a different way from the more specific Wilder ATR moving average such that: This omission is actually a choice to avoid making assumptions on commissions and slippage amounts, which is variable for every trader based on size, broker, market, etc.

I agree that not much information was provided to do this, though. I purposely ran many tests to calculate an average to detect the tendency of such systems. Same concept goes for the use of multiple instruments — as I was saying in a diversification post:. This is the way I see diversification: All that is left is to collect the small edge from all the instruments via your preferred trading strategy ies. Hi Jez, excellent post. Thanks for posting it. Since you posted the average returns of the multiple tests in both cases, I was wondering if you could give some numbers on what were the worst cases, and best cases, or a chart with all the various performances of each run, for each case, in order to see how consistent is the return over time with a single test and an average.

Alternatively, just to understand what is the worst and best drawdown and returns you found in your tests would be also useful. Thanks again for your work! This is a very interesting statement but it needs to be proven, I think you have already agreed to that. I also think, as others have already commented, that you should include commissions in your studies. You can use IB commission levels as representative.

This is important because as I have demonstrated recently in a response to an article by Bespoke Group about the performance of a simple system based on buying on the close — selling on the open of next day, for SPY, total ruin is possible due to commissions only, although studies without commissions show spectacular returns. You can find the study here: Michael, I do not understand your point about averaging.

To me, averaging a random process is absolutely necessary to squeeze out the randomness and detect the central tendency and other aspects such as dispersion, etc.

Without averaging many random runs, but instead relying on one random run, there is no way to understand how much randomness played a part in the results achieved, just by looking at the results. This is why I think it is vital to average when running random tests. If you think about it, this is exactly the same concept as when you run a test of a strategy on one single instrument: A back-test on many trades will allow to determine the tendency of that market-system. I just said it may be misleading in some context.

I will give an example:. Let us say that in a possible parallel universe there are only 4 fund managers with the following average yearly returns:. What is the meaning of saying that the average yearly return of managers in that world is 3.

Even if we state the standard deviation of Along with the good tests you did I believe you should also calculate the number of systems that fail on the average because when you use random entries, you get many possible systems based on the tossing sequences obtained.

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In the last bear market the trend following systems turned bearish and we profited from bearish option and ETF positions. Actual bearish trade examples in will be displayed.

A trend following system allows us to 'trade with the trend' instead of trying to predict the future price direction of a stock. Using a system to select trades helps us avoid emotional decision making which can quickly derail a trading program and instead gives us the discipline needed to be successful option traders. If the trend following system can identify a stock moving up in price, we can profit from purchasing call options. This allows us to profit from the tremendous leverage that options provide.

Learn how the three-step trade selection process allows us to identify stocks and options with the best profit potential and profit in any type of market condition. Actual option trades will be used to demonstrate the ability of the three-step trade selection process to select profitable option trades. The trend following system is used to take both bullish and bearish trades. This allows us to profit in both bull and bear markets. The trend following system is easy to download from the internet and gives us an 'instant picture' as to whether we should be taking long or short positions.

Our trend following system is used to take both bullish and bearish trades. The video below will look at using monthly price data to generate buy and sell signals for stocks and options. This monthly trend following system is used to take both bullish and bearish trades. The monthly trend following system has been performing well during the current market conditions as well as the two severe bear markets in and when we were heavily short most global equity markets.

Using a system to select trades helps us avoid emotional decision making which can quickly derail an investing program. This week let's explore a simple trend following system for trading stocks and options. The goal of the trend following system is to quantitatively measure the buying and selling pressure of a stock.

This enables us to follow the trend instead of trying to predict the trend. Options are derivatives that derive their value from the price of the underlying stock. Option profits are determined by the price movement of the underlying stock.

If you can identify a stock moving up in price, you can profit from purchasing call options. Conversely, if you can identify a stock moving down in price you can profit from purchasing put options. Chuck has been using Trend Following successfully for more than 30 years.

His trend following system worked will during the and bear markets when he profited from short positions. In this video we will learn how to identify stocks and options with the best profit potential and select a low risk entry point for our trades.

From Chuck's "Guaranteed Real Income Program" we will look at 25 years of seasonal analysis to explain where trends lie and how to take advantage of them. We will also explore how you can use seasonality for the indexes. The Major Trend System is used to take both bullish and bearish option trades in global currency, commodity and equity markets.

When the Major Trend System is on a 'buy' signal we buy call options and when the system is on a 'sell' signal we buy put options. The goal of the Major Trend System is to identify major price trends in a broadly diversified portfolio of global markets.

This trend identification in diverse global markets has resulted in a consistent flow of trading profits from both long and short trades in bull and bear markets. The Major Trend System is a trend following system that allows us to 'trade with the trend' instead of trying to predict the future price direction of a market.

The Major Trend System is easy to download from the Internet and gives us an 'instant picture' as to whether we should be taking long or short ETF option positions.

Real time trading profits presented in this video demonstrate how the Major Trend System has profited training ETF options is both bull and bear markets. The Major Trend System takes bullish and bearish trades in global currency, commodity and equity markets.

Most investment programs recommend diversifying your portfolio across different industry groups. One of the great advantages of the Major Trend System is that it allows you to also diversify your portfolio by asset class which further reduces risk and can result in higher returns. The ability of the Major Trend System to take both long and short trades also increases the diversity and profit opportunities of the system.

Real time trading profits presented in this video demonstrate how the Major Trend System has profited in both bull and bear markets. In this video we will explore the Prime Trade Select stock selection process. Prime Trade Select allows us to quantitatively measure a stocks trend , confirm the trend and select a low risk entry point.

Discover how Prime Trade Select can lead you to stocks with the best potential. In this video we will explore a simple trend following system used to trade stocks and call options. It only takes 10 minutes per month to implement this strategy.

In this video we will explore a unique strategy that uses a simple technical indicator to buy and sell ETF's in different asset classes. Despite its simplicity this strategy has not had a losing year since Chuck Hughes has been successfully using his simple trend following systems to trade stocks and options for more than 27 years.

Currently there are many stocks on a trend following system 'buy' signal. In this video we will learn trend confirmation indicators that allow us to select stocks and options with the best profit potential. Taking short positions in the direction of the major trend helps prevent 'whipsaw' trades when counter-trend rallies occur.

Preventing whipsaw trades can increase profits, reduce losses and increase the percentage of winning trades. Please contact us for more information on Chuck's Option Trading Seminars. It's not how much money you start with Prime Trade Select A trend following system allows us to 'trade with the trend' instead of trying to predict the future price direction of a stock.

Monthly Trend Following System The video below will look at using monthly price data to generate buy and sell signals for stocks and options.