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Platform: TradeLink, OpenQuant, considering anything that works...
Trading: if it trades...
Posts: 94 since Oct 2010
Thanks Given: 24
Thanks Received: 39
I’m greatly appreciate if someone could point me towards some solid thinking / content on this? Whether that be research articles, book, comments on a forum, etc.
In my research on trend following systems I’ve found that payoffs generally cluster within a instrument type / timeframe. For example, if you are trading a trend following system on forex then the payoff with cluster – that is, groups of losses together and groups of wins together.
I’m wondering if anyone has found any research or articles dealing with this.
I had a thought, if one could devise a method to scale into these positions effectively it would ease the payoff. Therefore, softening the highs whilst making the payoffs of the repeated losers (as is the nature of trend following systems) as the positions of the losers were of lesser value then the winners.
I’ve included an example graph here where the payoffs cluster to certain hours.
Thanks and regards,
drolles
Can you help answer these questions from other members on NexusFi?
Platform: TradeLink, OpenQuant, considering anything that works...
Trading: if it trades...
Posts: 94 since Oct 2010
Thanks Given: 24
Thanks Received: 39
Fat Tails,
Thanks for the reply.
Yes, I agree. One needs an appropriate same size.
I've noticed this across probably 10 trend following systems I've backtested with 1000s of trades each.
My question was more general. You can take also any standard trend following system (e.g. double MA cross, Chande's 65sma 3cc strategy, etc) in my view you will see the same behavior. My particular view is base on my experience of backtesting trend following systems on FX (multiple timeframes). I suspect it has something to do with correlation of movements with USD or JPY crosses. But I'm wondering if anyone could share any views on that. Possibly point me towards a research paper or another source.
I do not have a research paper to offer, but I would have a look on intraday volatility. If volatility is expanding, a trend following system should do better than if volatility is contracting. Also many trading days follow a screenplay. The RTH open often produces a reversal, in any case testing and probing, and the trend is usually not confirmed. If there is a trend it should occur in the second half of the morning, prior to noon, then pause and eventually resume in the afternoon.
If your data allows you to find more profitable times to trade, why don't you simply use a time filter, which you add to your system to improve profitability?
Platform: TradeLink, OpenQuant, considering anything that works...
Trading: if it trades...
Posts: 94 since Oct 2010
Thanks Given: 24
Thanks Received: 39
Fat Tails,
Thanks again for the reply.
Thanks for the views on looking at time filters. There are a number of references of using time filters in intra-day FX strategy. A number of ideas and strategies can be found in this book: Toshchakov, Igor (2006) Beat the Odds in Forex Trading – John Wiley & Sons. Personally, I’m sceptical of these, I’ve spent considerable amount of time backtesting strategies dependent on things like the “London open” to no avail.
