add counter-trend part to a trend following system?
Posted: Sun Oct 17, 2004 11:13 am
Hi there,
Several days ago I lose a little bit when the HGZ4 copper futures crashed. The market gapped down, and when my stop order was executed, the price had already fallen about 10 percent from overnight close. That compelled me to consider adding a counter-trend part to my current trend following system, because it seems to possess the ability to smooth the system's equity curve especially when market is extremely volatile. And it seems to be a trend among famous trend-followers. If my memory doesn't goes wrong, I have heard before in somewhere that, according to Tom Shanks of Hawksbill, everyone from Bill Dunn to Campbell had introduced counter-trend elements except him in the past decade, and in the Market Wizards by Jack Schwager, Richard Dennis also recommended to add a "counter-trend-within-trend' approach to fine-tune the trend-following systems.
But I did not know where to start. My question is 'how' to integrate a counter trend element into a trend following strategy. Does it mean that I just need to combine two single different approaches into one system, for example simultaneously using both Turtle Trading System and Turtle-Soap system, or the counter-trend part should work like a profit target or something, and it should be triggered only when the system is holding a position? Any thought or recommendation on this? or are there on the web some more detailed introductions on this topic? Thanks in advance.
cnyub
Several days ago I lose a little bit when the HGZ4 copper futures crashed. The market gapped down, and when my stop order was executed, the price had already fallen about 10 percent from overnight close. That compelled me to consider adding a counter-trend part to my current trend following system, because it seems to possess the ability to smooth the system's equity curve especially when market is extremely volatile. And it seems to be a trend among famous trend-followers. If my memory doesn't goes wrong, I have heard before in somewhere that, according to Tom Shanks of Hawksbill, everyone from Bill Dunn to Campbell had introduced counter-trend elements except him in the past decade, and in the Market Wizards by Jack Schwager, Richard Dennis also recommended to add a "counter-trend-within-trend' approach to fine-tune the trend-following systems.
But I did not know where to start. My question is 'how' to integrate a counter trend element into a trend following strategy. Does it mean that I just need to combine two single different approaches into one system, for example simultaneously using both Turtle Trading System and Turtle-Soap system, or the counter-trend part should work like a profit target or something, and it should be triggered only when the system is holding a position? Any thought or recommendation on this? or are there on the web some more detailed introductions on this topic? Thanks in advance.
cnyub