Traders' Roundtable

In my post “Trend Efficiency Indexâ€

Oh well, here is a link if anyone is interested. Looks a bit rude but since I am unable to post the full article here..............
http://tradersplace.net/forum/thread/74 ... 1-to-2012/

Relevant Blox (by Sluggo) available for download here: viewtopic.php?t=3636&highlight=tharp+basso

I ran a few more tests using runs of 5,000 tests rather than 1,000 in an effort to make the results a little more robust. This time looking at the efficacy of using a long term trend filter. Are the entries still random using a long term trend filter? Well, yes, to the extent there is no entry logic whatsoever, no to the extent a trade is refused if it does not pass the filter test.

To recap, for newcomers to the thread and those simply lost or bored:

Entry. If there is no position in a particular instrument, take one: either long or short on a random basis. You always have a position in each instrument in the portfolio, either long or short.
Exit. A trailing 5 ATR stop based on a 20 day simple average ATR. When a position is stopped out it will immediately be re-entered as per 1 above.
Risk Management. This simply consists of limiting the initial position size on entry. On entry 1% of the portfolio will be risked (volatility adjusted fixed fractional position sizing based on the distance to the stop). No other attempt will be made to limit risk.
Portfolio: I took a balanced portfolio of 24 futures as follows: Bonds (3), Currencies (3), Energy (3), Grains (4), Interest Rates (3), Metals (3), Softs (2) Stock Indices (3).


Assumptions:

No interest earned on unused cash balances.
Slippage: 7% (further explanation provided if required).
Commission per contract: US $7

First series of tests:

Start Date: 1st January 2000
End Date: 31st December 2010

Second series of tests:

Start Date: 1st January 211
End Date: 26th February 2013

Starting Capital: US $ 4,000,000

For each of the first and second time periods I ran 2 x 5,000 tests. One run of 5,000 tests was with no “filterâ€

For me the basic takeaway from testing random entries with exits which simply run profits and cut losses is that, in the very broadest terms, trend following works. Or at least has worked in the past on markets for which we have data.

In the past, markets have trended for long periods of time in a way which has enabled simple trend following systems to profit. Some will want to argue that the past data used has a “biasâ€

Have you looked at any themed equity portfolios under this theory? like large caps, international, dividend, etc.........

akhoury wrote:Have you looked at any themed equity portfolios under this theory? like large caps, international, dividend, etc.........

No, I must say I have not. What I did do a few years back was to look at sector rotation using indices and sub indices in the equity market but never using random entries. I was hoping that sector rotation might prove a fruitful area for a momentum strategy along the lines of the "No Load Fund X" principle https://fundx.com/default.aspx but unfortunately my research did not prove very fruitful.