Hello everyone,
I am working on a strategy to take advantage of reversion to mean on Equity Curve.
I am looking for a studies done by Tom Demark a few years ago. The topic was something like "strategies on Buying CTAs' drawdown."
Has anyone seen it ? many thanks.....
Reversion to Mean on Equity Curve - Looking for Demark's
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Jake Carriker
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As far as I recall, Tom DeMark does a lot of counting "sequentials" and "countdowns" and other things that, in my testing at least, have not proven to be very worthwhile.
Tom Basso, on the other hand, ran a firm called TrendStat and put out some pretty interesting research. Perhaps the paper I am attaching here is the one you are looking for?
The poison in the brew of this particular research effort may be found in the section titled, "What's wrong with this picture." You can understand how assuming that a given return stream always ends up profitable (or at least not defunct) might encourage one to invest more during drawdowns.
To his credit, Tom points out this leap of faith himself in the paper. However, I am not certain that he emphasizes the GREAT importance of this leap and exactly how much faith it requires.
Jake
Tom Basso, on the other hand, ran a firm called TrendStat and put out some pretty interesting research. Perhaps the paper I am attaching here is the one you are looking for?
The poison in the brew of this particular research effort may be found in the section titled, "What's wrong with this picture." You can understand how assuming that a given return stream always ends up profitable (or at least not defunct) might encourage one to invest more during drawdowns.
To his credit, Tom points out this leap of faith himself in the paper. However, I am not certain that he emphasizes the GREAT importance of this leap and exactly how much faith it requires.
Jake
- Attachments
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- Basso on Drawdown.doc
- Basso on investing in CTA drawdowns
- (57.5 KiB) Downloaded 544 times
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AFJ Garner
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Equity Curves
See also:
Jack Schwager
Managed Futures: Myths and Truths http://www.amazon.com/gp/product/047102 ... e&n=283155
He has much the same to say as Mr Serenity. Talking of trading equity curves in general, there is quite a distinction between trading the equity curve of your own system/systems and that of an investment with a CTA. Both are fraught with uncertainty and problems of course but in my view the latter is perhaps the riskier.
With your own system(s) you will always have the nail biting decision "are my system (s) ever going to recover or should I abandon them/some of them?". You can analyse worst drawdown, time in drawdown and all other statistics and try to make some sort of judgement. You may be correct in your analysis, you may be wrong but at least you will have the fullest amount of information possible in order to make your judgement.
With an investment with a CTA you will not have the luxury of being able to make this basic analysis since, understandably, you will not have access to the details of the CTA's system(s). Additionally, you have the problem of whether the CTA will survive as a business. Regardless of how good a CTAs system is, if he is not going to be around to trade it for you, you will not have the opportunity to recover from a drawdown.
Obvious stuff I guess but worth noting. I have just had an unpleasant experience of this. I had a small investment in a hedge fund run by Gruss. The manager of the relevant fund left and they closed the fund while I was in a drawdown from my initial investment level.
I have cut back considerably on 3rd party investments in view of rising interest rates ( with 6 month T bill rates as they are and HF returns on the decline, why take the risk?).
But who am I to pontificate?
Jack Schwager
Managed Futures: Myths and Truths http://www.amazon.com/gp/product/047102 ... e&n=283155
He has much the same to say as Mr Serenity. Talking of trading equity curves in general, there is quite a distinction between trading the equity curve of your own system/systems and that of an investment with a CTA. Both are fraught with uncertainty and problems of course but in my view the latter is perhaps the riskier.
With your own system(s) you will always have the nail biting decision "are my system (s) ever going to recover or should I abandon them/some of them?". You can analyse worst drawdown, time in drawdown and all other statistics and try to make some sort of judgement. You may be correct in your analysis, you may be wrong but at least you will have the fullest amount of information possible in order to make your judgement.
With an investment with a CTA you will not have the luxury of being able to make this basic analysis since, understandably, you will not have access to the details of the CTA's system(s). Additionally, you have the problem of whether the CTA will survive as a business. Regardless of how good a CTAs system is, if he is not going to be around to trade it for you, you will not have the opportunity to recover from a drawdown.
Obvious stuff I guess but worth noting. I have just had an unpleasant experience of this. I had a small investment in a hedge fund run by Gruss. The manager of the relevant fund left and they closed the fund while I was in a drawdown from my initial investment level.
I have cut back considerably on 3rd party investments in view of rising interest rates ( with 6 month T bill rates as they are and HF returns on the decline, why take the risk?).
But who am I to pontificate?