Long term trend following on equities a fool's game?

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rabidric
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Post by rabidric » Tue May 22, 2012 4:01 am

I like this thread.

AFAICT the application of a momentum screening approach is the single best way to get edge in stock trading. All of the successful equities traders that I ever met(not an exactly massive sample admittedly) never had even halfway decent actual entry/exit logics. e.g. they were just buy/sell if Momentum(10)>0. And so if you tested them out, applied universally, you would lose quite efficiently. But what all these guys did in one way or another was come up with a way to filter down firstly to a more manageable universe of diversified stocks that were active, and then only placed positions(intraday) in a few of the strongest/weakest. I think this was the real adge, as any old momentum rule works in strongly moving tme-series.
The key lies in not applying rules and trades to markets that don't have momentum going forward.

I have seen similar evidence elsewhere that this is how people make money trading JUST currencies.

I think that regardless of the merits found in backtests of a universal application of trades across all the constituents of a large(futures) portfolio, it is highly probable that a well thought out way of objectively measuring and then filtering for momentum and then trading only a [perhaps very] small subset, will be more robust in live application.

I think I have a good baseline filter that I might be willing to share....

Bravochico
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Post by Bravochico » Mon May 28, 2012 8:35 pm

That works on stocks.

adamant
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Post by adamant » Sun Jul 08, 2012 11:59 am

This is an interesting thread.

I am a PM at a UCITS global long short equities fund(long biased).

Although UCITS rules allow us some leverage, shorting and the use of options, I have come to the unsurprising conclusion that a private investor without constraints has a clear competitive advantage versus the vast majority of institutions (like us), w the exception of hedge funds with very free mandates.

Idiotic rules abound. They definitely lower our returns, and no not reduce risk. VaR constraints is only one example. Very frustrating.

Also, an individual should strive to trade morethan one asset class. This is obvious to forum members, but the general public does not understand this. at all!

If I were free (:)) to make my own mandate, I would stick to a large portfolio of futures, and skip single stocks altogether.

One last thing: it is not true that there is no fundamental screen that can provide an edge over the long term w reg to stocks. The evidence for a better absolute and risk-adjusted return from a systematic value investing methodology is very compelling, even when accounting for small cap bias. (hint: a p/b filter does not really work, but another simple filter does, across both time and geographical boundaries). The evidence is readily available in the literature.

Still, the bottom line is that a very good systematic futures trading program can outperform even such strategies on all meaningful risk-adjusted metrics.

So why should the unconstrained systematic investor/trader trade stocks? I can't think of a good reason.

Moto moto
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Post by Moto moto » Sun Jul 08, 2012 1:35 pm

adamant wrote:
So why should the unconstrained systematic investor/trader trade stocks? I can't think of a good reason.
not disagreeing with you but offering some reasons.
When you are unconstrained and not required to invest, then when the ducks line up some stocks and segments offer fantastic trends with big moves.
eg; Nasdaq bubble and bust, mining booms and busts
If you can get the same leverage as you do in futures, then maybe your universe is bigger and you can spread it, and there are many stocks that compound far more than some of the futures markets.
I guess its just lately that equities have been pretty flat for a while now.

adamant
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Post by adamant » Sun Jul 08, 2012 2:31 pm

I see your point. But I'd rather play that type of situation through long dated options in a discretionary manner and stick to futures in the systematic department.

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