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Is trend following still alive?

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Attain Capital Management has put out a quality piece of research named Is Trend Following DeadBasically, the argument goes that trend following programms are in noticable drawdown and historically this has been a good entry point to invest in such programms. And an implication that nothing has changed, trend following is live and kicking and as sound investment approach as ever.

I would like to add shades of grey to plain black and white picture. Obviously, trend following is not dead. Many traders and asset management companies still use it as one of their principal strategies. Then there is the issue of the definition of trend following which is vague at best. Ed Seykota, probably the best known and the most respectable trend following apologist, says that the difference in price necessary to create the profit implies a trend. But, hej, this is true about any investment approach, not just trend following.

In Attain’s case the question of the definition is more straighforward — they consider the investment programm as trend following if the asset manager labels it as such. However, the question remains open what exactly are the  trend following strategies those asset managers use. Technically speaking, the only difference between high frequency trading and trend following may well be just timeframe. None provides a detailed description of the models used and  those may well have evolved beyond recognition from the original ones. In that sense trend following may not be dead but the inner workings of the system may well be a completely different from the classic notion of trend following.

Then there seems to be sufficient evidence that the returns from trend following systems are declining. This is a trend in its own right. If to draw a trendline on the chart (see below) from Attain’s research, the returns are in obvious downtrend and this may well be a secular trend which is not going to change.


The Turtles are widely considered as the posterboys of trend following. They have been successful beyond doubt, but the returns from their system have diminished with time to reach a point where the returns are not competitive anymore. I’ve written about it before here.

Trend following is not dead. Traders still widely use it. But the inner workings of the system have changed over time beyond recognition and trend following today may well be something totally different from what it was decades ago. In terms of performance, the “classic” trend following has stopped working long time ago as can be seen from “the Turtle system” test results. And the chart from the Attain’s research may well serve as another evidence that the returns from trend following systems are on secular “downtrend”.

The trend following is not dead but in its classic form has decayed into useless and the modern version of trend following may be  different from other investment approaches in name only. However, nothing said here invalidates Attain’s suggestion that a bet on trend followers may be a good move now. Those asset managers are smart and rebound is highly probable.


Written by A.S.

November 7, 2012 at 8:30 am

DIY System Trading

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Can a person, having full time occupation, do the system trading by himself? The short answer is “Yes, but too risky”.

Why? By far the hardest, the most time consuming work that requires certain qualifications as well is system development itself. And this is not an issue. Companies like Covestor, Collective2 or Zulutrade have done a good job to offer sufficient amount of back-tested and well-maintained trading systems to choose from. To acquire some basic working knowledge on trading system analysis shouldn’t be a major problem either.

The key issue with DIY system trading is still far from 100% reliable routing of the trade from the system vendor to live account. The hard fact is that automated system trading from to time results in mismatched positions in live account. Mismatched positions, if not corrected in timely manner, is one of the costliest mistakes one can make in system trading.

Written by A.S.

January 5, 2012 at 5:59 pm

Attain Capital Management

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For investors embracing system trading as an investment style Attain Capital Management may be of interest. As well, they have no-nonsense research and a blog. I´ve no first-hand experience with them and would like to hear from someone who has.

Written by A.S.

March 1, 2011 at 5:09 pm

Trading forex on fundamental data

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Is it possible to trade on fundamental data? Some are highly sceptical about it, call it funny-mentals … The key problem seem to be timing the entry and measuring stoploss levels. Fundamentals may tell that the financial instrument is ¨cheap¨ or ¨undervalued¨, but it tells nothing about entry points. The fact that something is cheap doesn´t mean that it can´t get even cheaper. If somebody buys something based on fundamental analysis and the price goes down, the lower price makes the buy argument stronger while the account carries unrealised loss.

Common wisdom tells that trading forex on fundamental data is almost impossible. Too many factors at play, some of those hardly measurable – the noise is likely to be too overwhelming and the probability of mistake so high that any findings are rendered useless.

Nevertherless, we find one simple fundamental model fairly reliable predictor of exchange rate. The model analyses the interaction of several fundamental factors such as GDP growth, inflation, money supply to project exchange rate direction. The rationale is that, although the exchange rates may divert from the fundaments to a great extent, sooner or later the exchange rates will correct to reflect the fundaments of the underlying economies.

This particular fundamental model has been noticably precise. It needs some non-fundamental, technical input to identify entries and exits, but it is a great tool to improve the odds of long-term trend-following trade being profitable.

Attached here is a reseach summary back in Y2008 calling for ¨doomed GBP¨. The chatter was positive for the cable at the time and there was little to suggest a sharp downtrend in GBP. The rest is history.

Empirical evidence suggests that this fundamental analysis model can be applied to predict long-term currency moves. Yet, conventional technical analysis is required to identify entry and exit price levels.

Written by A.S.

February 23, 2011 at 8:36 pm

Zweig 4 Percent Model: Full Backtest Results

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The results are available here.

Written by A.S.

February 14, 2011 at 10:57 pm

Sources of Trading Systems

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The ecosystem of automated trading develops fast. Capital allocated to system trading through industry leaders, such as Covestor or Collective2, reportedly grows by 50% annually.

There is still a plenty of room for growth as the investors ¨chop off the old block¨, i.e. disallocate the funds from chronically non-performing and increasingly risky traditional investments in stocks and bonds.

I here list 8 sources for you to choose as a provider of trade signals for your system trading account. Those sources are the ones likely to be used by both emerging system developers as well as investors.

Collective2 or C2 is an internet-based company. C2 collects performance data of various trading systems, independently verifies such performance data and makes the systems available to subscribers to trade in real-life trading accounts. At the time of writing there are about 7’000 trading systems registered on C2.
The way it works is — you go to C2 web site, register as a user, find a trading system which, as an example, shows 88% annual return, make a few clicks to set the system up to send the trades to your brokerage account and, if the systems lives up to the expectations, you have just arranged for an investment with 88% annual return.
C2 promotes itself as think of Collective2 as „do-it-yourself” hedge fund.
C2 works only with hypothetical data, although it checks all the signals in real-time and provides both estimates (slippage, realism factor) and tools for investors to evaluate what performance in live accounts would look like.

Covestor (and
Covestor is one of the best-managed and innovative trading system aggregators.
Covestor displays performance data from live trading accounts and is limited to stocks only.

Zulutrade deals with hypothetical forex signals only.
Zulutrade is probably the fastest growing of all system aggregators. It takes only a couple of minutes to sign up as a system vendor. Zulutrade is equally easy for investors as account opening procedure is straigthforward and easy with any of the selected brokers.
There are no fixed fees for neither system vendors, no investors. Systems can be added and removed from trading in live accounts with just a few clicks and at no cost. Fee for the services is pay-as-you go in form or bid-ask spread markup. Such spread mark-up (about 2 pips round-turn for the most liquid currency pairs) is then shared between Zulutrade and the system vendor.

Tradency service is available through selected forex brokers, including several major retail brokers, such as FXCM.
Tradency system performance data is hypothetical rather than based on live account trade logs.

If you´re looking for system aggregator service for forex signals based on live accounts, then is for you.

Myfxbook positions itself more than a community of forex traders rather than system aggregator service provider.
Forex traders allow data from live forex accounts to be explained on Myfxbook website. Potential investors can review the data and contact the trader directly for signal delivery terms and conditions.

AlphaClone compiles data about major equity positions from 200 major hedge funds and institutional investors from their public filings.
There is a time-delay involved as such public filings with SEC are made quarterly. If you feel comfortable to ¨clone¨ positions of, say Warren Buffet, this is the service to use.

Alpari PAMM
Alpari is a Russian-owned forex broker with operations in several countries, including UK and UAE.
Alpari customers may enable their live account performance to be available for public disclosure. If done so, the live account performance is ranked and any investor may open PAMM account to copy the trades of the most profitable traders.
The fees related to PAMM account are structured as performance fee. Under this arrangement, investor pays a share of profits as a performance fee and such fee is shared between the broker and the trader.

Source: free e-book Be Your Own Hedge Fund Manager.

Looking for more trading system sources

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I´m looking for more trading system sources, apart from, and

So far I´ve spotted and marked for further research the following ones:

1. FXCM and Alpari
Both are forex brokers. Brokers, generally, are well-placed to identify the best traders and trading systems. They keep customer funds and have all the trade information recorded on their servers.  At at the time of writing, FXCM  has 2077 systems listed, Alpari – 499.

2. AlphaClone allows investing in ¨the stock ideas of top managers at the time their stock ideas become public¨. There is time delay involved, of course, as funds disclose top holdings quarterly. Basically, information from 200+ funds ¨cloned¨ into 15´000+ investment portfolios.