Hello to all,
Having been a lurker on this forum for a while, I finally decided to sign up to and start making some (hopefully) useful contributions. So here goes.
I've implemented and backtested a number of the strategies described on this forum and to my surprise discovered that performance hasn't materially deteriorated much since the 1980s. This contrasts markedly with the returns achievable from stat arb (my day job) which have declined pretty much year on year since the mid 1990s due to increased competition, lower market volatility, widespread knowledge of the strategies etc.
I've been asking myself what is it about a trend following futures strategy which gives it this longevity and came up with the following ideas:
- Relatively high drawdowns mean fewer trades will stay in the game thus preventing over exploitation of the strategy.
- Higher hedgers to speculator ratio than in say equity markets.
- Product expansion (new contracts, more liquid exchanges) continues.
- Relative low liquidity prevents strategy being employed by medium to large hedge funds, prop desks etc.
I'm not sure if any of the above are feasible reasons and would be very interested to hear what others have to say on the subject.
Longevity of trend following strategies (futures)
Maybe these prior threads by Algonquin will reinforce some of your ideas, contradict others of them, and perhaps stimulate some additional new ideas.
viewtopic.php?t=3788
viewtopic.php?t=4425
I will offer a small and tangential suggestion of my own: purchase and read Markowitz's book (link). It contains an idea that many believe is one of the cornerstones of good returns to simplistic (some say "mindless") rule-based commodity trading algorithms. An idea that seems not to be present in your preliminary list above.
viewtopic.php?t=3788
viewtopic.php?t=4425
I will offer a small and tangential suggestion of my own: purchase and read Markowitz's book (link). It contains an idea that many believe is one of the cornerstones of good returns to simplistic (some say "mindless") rule-based commodity trading algorithms. An idea that seems not to be present in your preliminary list above.