1.
Counter
Trend
Models
Andreas F. Clenow
CIO ACIES Asset
Management
Zurich

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.
Chicago to the WorldNo longer a fringe strategy
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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.
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.
Following the TrendWhich by coincidence is the title of my first book.
www.FollowingTheTrend.com

7.
Constructing a ModelThe Components
Objective
Investment Universe
Trading Frequency
Entry Rules
Exit Rules
Allocation Rules
www.FollowingTheTrend.com

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.
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.
Example TradesS&P 500
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11.
Example TradesSugar #5
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12.
Basic Trend Model Simulation
Not too bad
21% Annualized
40% Max Drawdown
Swings around mean
getting larger
www.FollowingTheTrend.com

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.
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.
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.
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.
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.
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.
Fading the Major TrendParking on the Train Tracks
Overheated
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20.
Fading the Major TrendParking on the Train Tracks
Overheated
again
Overheated
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21.
Fading the Major TrendParking on the Train Tracks
Overheated
again
Overheated
What
about
now?
www.FollowingTheTrend.com

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.
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.
Fading CorrectionsStill trades with the main trend
Trend reversals only come ones,
but dips come around all the time.
www.FollowingTheTrend.com

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.
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.
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.
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.
Example TradesS&P 500
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30.
Example Trades#5 Sugar
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31.
Counter Trend ProfileSimulation results
21% Annualized
40% Max Drawdown
www.FollowingTheTrend.com

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.
Trade ExampleLumber
www.FollowingTheTrend.com

34.
Counter Week ProfileSimulation results
20% Annualized
35% Max Drawdown
www.FollowingTheTrend.com

35.
Combine modelsDampen Volatility with Satellite Strategies
Higher Return per Volatility Unit
Logical Fit
Low
Correlations
Positive
Expectations
www.FollowingTheTrend.com

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.
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.
12M Trade ChartA very long term approach
Price
12M
Ago
Directio
n Flip
Monthly
Rebalanci
ng
www.FollowingTheTrend.com

39.
Simple 12 Months ModelSuch a simple model can’t possibly work. Can it?
Annualized Return: 22%
Max Drawdown: 27%
www.FollowingTheTrend.com

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