Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Counter
Trend
Models
Andreas F. Clenow
CIO ACIES Asset
Management
Zurich
Presentation Outline
Trend
Following
• Basics of Trend Following
• Demo Model
Counter
Trend
• Strategy Premise
• Demo Mode...
Chicago to the WorldNo longer a fringe strategy
www.FollowingTheTrend.com
Principles of Trend FollowingThe Basics
Aims to guarantee participation in all trends.
Enter in the direction of price mov...
Understanding Trend FollowingKey Points
TF is about diversification.
Without diversification it will not work.
Most trades...
Following the TrendWhich by coincidence is the title of my first book.
www.FollowingTheTrend.com
Constructing a ModelThe Components
Objective
Investment Universe
Trading Frequency
Entry Rules
Exit Rules
Allocation Rules...
A Basic Trend Following Model
Middle of the Road Approach
Ensures entries only in direction of trend.Trend Filter
• Simple...
Investment UniverseDiversified Portfolio
Agricultural
• Cocoa
• Cotton
• Feeder Cattle
• Coffee Arabica
• Lumber
• Milk
• ...
Example TradesS&P 500
www.FollowingTheTrend.com
Example TradesSugar #5
www.FollowingTheTrend.com
Basic Trend Model Simulation
Not too bad
21% Annualized
40% Max Drawdown
Swings around mean
getting larger
www.FollowingTh...
Drawdown Most of the TimeStrategy Expectations
Strategy lost on over 60% of all trades entered.
Often stops out prematurel...
Trend Following ConcernsKey Developments
Trend
following
over time
relies on
diversificati
on
Increasing
single factor
ris...
Trend Following ConcernsKey Developments
Brexit
Debt
Ceiling
Greece
Spain
Election
Trum
p
US
default
www.FollowingTheTrend...
Trend Following ConcernsKey Developments
US 30 Bond Future – Bull Trend for Decades
www.FollowingTheTrend.com
Trend
follow...
Trend Following ConcernsKey Developments
High yields meant free return on excess capital.
www.FollowingTheTrend.com
Trend
...
Counter Trend ModelsTwo Types of Counter Trend
Models
Fading
Major Trend
Go against
overdone
trends.
Predicts
End of Main
...
Fading the Major TrendParking on the Train Tracks
Overheated
www.FollowingTheTrend.com
Fading the Major TrendParking on the Train Tracks
Overheated
again
Overheated
www.FollowingTheTrend.com
Fading the Major TrendParking on the Train Tracks
Overheated
again
Overheated
What
about
now?
www.FollowingTheTrend.com
Fading the Major TrendParking on the Train Tracks
Overheated
again
Overheated
What
about
now?
The markets can keep trendin...
Fading the Major TrendParking on the Train Tracks
Of course.
Predicting trend reversals: They
always happen right after yo...
Fading CorrectionsStill trades with the main trend
Trend reversals only come ones,
but dips come around all the time.
www....
Measuring CorrectionsPredicting Stop Points
Determine
Trend
Direction
Find Last
Extreme
Measure
Distance
from Extreme
Norm...
Clenow Plunger™Another indicator. Just what the world needs.
Components
- Trend Filter: Dual Moving Average
- Highest High...
Plunger Available in Quantopian!
Well, actually not, but it might be after all of you start mass mailing them about it.
Po...
A Counter Trend ModelImplementing counter trend entry
Buy the dips.Entry
• Enter on five ATR pullback.
Fixed stop and targ...
Example TradesS&P 500
www.FollowingTheTrend.com
Example Trades#5 Sugar
www.FollowingTheTrend.com
Counter Trend ProfileSimulation results
21% Annualized
40% Max Drawdown
www.FollowingTheTrend.com
A Shorter Counter Trend Model
Time Stop Only
Buy the dips.Entry
• Enter on five ATR pullback.
Stop, no target.Exit
• Exit ...
Trade ExampleLumber
www.FollowingTheTrend.com
Counter Week ProfileSimulation results
20% Annualized
35% Max Drawdown
www.FollowingTheTrend.com
Combine modelsDampen Volatility with Satellite Strategies
Higher Return per Volatility Unit
Logical Fit
Low
Correlations
P...
What are we Learning Here?Strategy lessons learnt
Traditional
trend stops
make for good
entry points.
Pullbacks
likely
exa...
A Trend Model without StopsBypassing the Stop Issue
• Monthly• Volatility
Parity
• 250 day
return
• Weekly
Trading
Trading...
12M Trade ChartA very long term approach
Price
12M
Ago
Directio
n Flip
Monthly
Rebalanci
ng
www.FollowingTheTrend.com
Simple 12 Months ModelSuch a simple model can’t possibly work. Can it?
Annualized Return: 22%
Max Drawdown: 27%
www.Follow...
www.FollowingTheTrend.com
Andreas F. ClenowCIO ACIES Asset Management, Zurich, Switzerland and
author of two really neat b...
Upcoming SlideShare
Loading in …5
×

The QuantCon Keynote: "Counter Trend Trading – Threat or Complement to Trend Following?" by Andreas Clenow, Chief Investment Officer of ACIES Asset Management

5,102 views

Published on

Presented at QuantCon Singapore 2016, Quantopian's quantitative finance and algorithmic trading conference, November 11th.

Over the past 30 years, trend following has been a remarkably successful futures trading strategy. Once a fringe trading style barely known outside of Chicago, it has grown into a 300 billion dollar global industry. It would be very difficult indeed to claim that trend following doesn’t work in the face of decades of empirical evidence otherwise. But trend following isn’t completely without problems.

It is well known that classic trend following models tend to lose money on a majority of trades. This is not necessarily an issue, since trend following is all about accepting a large number of small losses in exchange for a small number of large gains. As long as the net is positive, all is fine. That is the underlying idea of the strategy and it has historically worked very well.

However, if you dissect trend following models you can find weaknesses which could be exploited. This is what counter trend trading models are about. These counter trend models usually operate on a shorter time frame and with nearly opposite logic.

As counter trend models are gaining popularity in the systematic trading hedge fund field, a few questions arise. Are these models a threat to trend following? Can they be a complement to trend following? Can trend following be adapted to be less susceptible to the counter trend issue?

Published in: Economy & Finance
  • Login to see the comments

  • Be the first to like this

The QuantCon Keynote: "Counter Trend Trading – Threat or Complement to Trend Following?" by Andreas Clenow, Chief Investment Officer of ACIES Asset Management

  1. 1. Counter Trend Models Andreas F. Clenow CIO ACIES Asset Management Zurich
  2. 2. Presentation Outline Trend Following • Basics of Trend Following • Demo Model Counter Trend • Strategy Premise • Demo Model Combining Them • How the Models can Work Together A Different TF Approach • Removing the Vulnerability www.FollowingTheTrend.com
  3. 3. Chicago to the WorldNo longer a fringe strategy www.FollowingTheTrend.com
  4. 4. Principles of Trend FollowingThe Basics Aims to guarantee participation in all trends. Enter in the direction of price movement. Exit after an adverse move. Trade a wide amount of markets. www.FollowingTheTrend.com
  5. 5. Understanding Trend FollowingKey Points TF is about diversification. Without diversification it will not work. Most trades lose money. Any given market or asset class can keep losing for years. www.FollowingTheTrend.com
  6. 6. Following the TrendWhich by coincidence is the title of my first book. www.FollowingTheTrend.com
  7. 7. Constructing a ModelThe Components Objective Investment Universe Trading Frequency Entry Rules Exit Rules Allocation Rules www.FollowingTheTrend.com
  8. 8. A Basic Trend Following Model Middle of the Road Approach Ensures entries only in direction of trend.Trend Filter • Simple moving average used. 50/100 cross marks trend shift. Symmetrical. Enter breakouts in direction of trend.Entry • Buy or short 50 day extreme in trend direction. Trailing volatility stop.Exit • Exit on three ATR units against the position. Volatility parity sizing.Allocation • Target 20 basis points per day, based on ATR. The most critical component.Diversification • Model applied on 50+ markets across all major asset classes. www.FollowingTheTrend.com
  9. 9. Investment UniverseDiversified Portfolio Agricultural • Cocoa • Cotton • Feeder Cattle • Coffee Arabica • Lumber • Milk • Live Cattle • Coffee Robusta • Sugar #5 • Oats • Orange Juice • Rough Rice • Soybeans • Sugar #11 • Soybean Meal Non-Agricultural • Crude Oil • Gold • Copper • Heating Oil • Natural Gas • Palladium • Platinum • Gasoline • Silver • Platinum • Palladium Currency • Australian Dollar • British Pound • Canadian Dollar • Euro • Japanese Yen • New Zealand Dollar • EURJPY • EURGBP • Dollar Index Equity • S&P 500 • Nikkei • Nasdaq • MSCI Taiwan • VIX • DAX • CAC 40 • EuroStoxx 50 • FTSE 100 • Hang Seng • China Enterprises Rates • Eurodollar • US 5Y • US 2Y • US 10Y • US 30Y • Bund • Schatz • Long Gilt • JP 10Y • Euribor • Short Sterling www.FollowingTheTrend.com
  10. 10. Example TradesS&P 500 www.FollowingTheTrend.com
  11. 11. Example TradesSugar #5 www.FollowingTheTrend.com
  12. 12. Basic Trend Model Simulation Not too bad 21% Annualized 40% Max Drawdown Swings around mean getting larger www.FollowingTheTrend.com
  13. 13. Drawdown Most of the TimeStrategy Expectations Strategy lost on over 60% of all trades entered. Often stops out prematurely. In a drawdown most of the time. Deeper and deeper drawdowns lately. Drawdowns getting deeper. www.FollowingTheTrend.com
  14. 14. Trend Following ConcernsKey Developments Trend following over time relies on diversificati on Increasing single factor risk Historically, rates have been main driver Yield decline had dual impact Same trend model on set of equity indexes only. 1.5% p.a. at 56% max dd. www.FollowingTheTrend.com
  15. 15. Trend Following ConcernsKey Developments Brexit Debt Ceiling Greece Spain Election Trum p US default www.FollowingTheTrend.com Trend following over time relies on diversificati on Increasing single factor risk Historically, rates have been main driver Yield decline had dual impact
  16. 16. Trend Following ConcernsKey Developments US 30 Bond Future – Bull Trend for Decades www.FollowingTheTrend.com Trend following over time relies on diversificati on Increasing single factor risk Historically, rates have been main driver Yield decline had dual impact
  17. 17. Trend Following ConcernsKey Developments High yields meant free return on excess capital. www.FollowingTheTrend.com Trend following over time relies on diversificati on Increasing single factor risk Historically, rates have been main driver Yield decline had dual impact
  18. 18. Counter Trend ModelsTwo Types of Counter Trend Models Fading Major Trend Go against overdone trends. Predicts End of Main Trend. Fading Minor Trend Go against overdone corrections. Trades in direction of main trend. www.FollowingTheTrend.com
  19. 19. Fading the Major TrendParking on the Train Tracks Overheated www.FollowingTheTrend.com
  20. 20. Fading the Major TrendParking on the Train Tracks Overheated again Overheated www.FollowingTheTrend.com
  21. 21. Fading the Major TrendParking on the Train Tracks Overheated again Overheated What about now? www.FollowingTheTrend.com
  22. 22. Fading the Major TrendParking on the Train Tracks Overheated again Overheated What about now? The markets can keep trending longer than you can keep putting up margin. Still posting margin? www.FollowingTheTrend.com
  23. 23. Fading the Major TrendParking on the Train Tracks Of course. Predicting trend reversals: They always happen right after you give up trying to predict them. www.FollowingTheTrend.com
  24. 24. Fading CorrectionsStill trades with the main trend Trend reversals only come ones, but dips come around all the time. www.FollowingTheTrend.com
  25. 25. Measuring CorrectionsPredicting Stop Points Determine Trend Direction Find Last Extreme Measure Distance from Extreme Normalize Distance Percentages are not helpful. www.FollowingTheTrend.com
  26. 26. Clenow Plunger™Another indicator. Just what the world needs. Components - Trend Filter: Dual Moving Average - Highest High, Lowest Low - Average True Range Inputs - SMA Periods - High/Low Periods - ATR Periodswww.FollowingTheTrend.com
  27. 27. Plunger Available in Quantopian! Well, actually not, but it might be after all of you start mass mailing them about it. Positive Trend Plunger = ((recentHigh – Close) / ATR) *-1 Negative Trend Plunger = (Close - recentLow) / ATR) www.FollowingTheTrend.com Trend Shift Pullbac k
  28. 28. A Counter Trend ModelImplementing counter trend entry Buy the dips.Entry • Enter on five ATR pullback. Fixed stop and target.Exit • ATR based entry/exit point. Failsafe time stop. Volatility parity sizing.Allocation • Allocation based on ATR. The most critical component.Diversification • Model applied on 50+ markets across all major asset classes. www.FollowingTheTrend.com
  29. 29. Example TradesS&P 500 www.FollowingTheTrend.com
  30. 30. Example Trades#5 Sugar www.FollowingTheTrend.com
  31. 31. Counter Trend ProfileSimulation results 21% Annualized 40% Max Drawdown www.FollowingTheTrend.com
  32. 32. A Shorter Counter Trend Model Time Stop Only Buy the dips.Entry • Enter on five ATR pullback. Stop, no target.Exit • Exit after one week, no matter what. Volatility parity sizing.Allocation • Allocation based on ATR. The most critical component.Diversification • Model applied on 50+ markets across all major asset classes. www.FollowingTheTrend.com
  33. 33. Trade ExampleLumber www.FollowingTheTrend.com
  34. 34. Counter Week ProfileSimulation results 20% Annualized 35% Max Drawdown www.FollowingTheTrend.com
  35. 35. Combine modelsDampen Volatility with Satellite Strategies Higher Return per Volatility Unit Logical Fit Low Correlations Positive Expectations www.FollowingTheTrend.com
  36. 36. What are we Learning Here?Strategy lessons learnt Traditional trend stops make for good entry points. Pullbacks likely exaggerated by trend followers. Trend Following works fine, but suffers from stops. Satellite models can enhance overall profile. www.FollowingTheTrend.com
  37. 37. A Trend Model without StopsBypassing the Stop Issue • Monthly• Volatility Parity • 250 day return • Weekly Trading Trading Long or Short Rebalance Position Size www.FollowingTheTrend.com
  38. 38. 12M Trade ChartA very long term approach Price 12M Ago Directio n Flip Monthly Rebalanci ng www.FollowingTheTrend.com
  39. 39. Simple 12 Months ModelSuch a simple model can’t possibly work. Can it? Annualized Return: 22% Max Drawdown: 27% www.FollowingTheTrend.com
  40. 40. www.FollowingTheTrend.com Andreas F. ClenowCIO ACIES Asset Management, Zurich, Switzerland and author of two really neat books that you should go buy right now. www.FollowingTheTrend.com a.clenow@acies-am.com

×