Following the Trend

1.  Foreword by Jerry Parker 1 2. Forewords to the First Edition 2 3. Preface 4 1. Cross Asset Trend Following with Futures 1 Diversified Trend Following in a Nutshell 3 The Traditional Investment Approach 5 The Case for Diversified Managed Futures 9 Managed Futures as a Business 14 Differences between Running a Trading Business and Personal Trading 19 Marketability of Your Strategy 19 Volatility Profile 20 Subscriptions and Redemptions 22 Psychological Difference 23 2. Futures Data 25 Futures as an Asset Class 25 Futures Exchanges 25 Futures and Currency Exposure 25 Futures Data 28 Dealing with Limited Life Span 28 Term Structure 31 Basis Gaps 33 The Change in how Continuations are used 36 Futures Sectors 37 Agricultural Commodities 37 Non-Agricultural Commodities 40 Currencies 44 Equities 46 Rates 49 3. Constructing Diversified Futures Trading Strategies 53 They are all doing the Same Thing 54 Cracking Open the Magic Trend Following Black Box 58 Investment Universe 58 Position Sizing 61 Slippage and Commission 64 Strategy Personality 65 Anatomy of a Trend Following Strategy 66 4. Two Basic Trend Following Strategies 69 Strategy Performance 72 Correlations Between Strategies 80 Conclusions from the Basic Strategies 82 Combining the Strategies 83 Trend Filter 83 A Core Trend Following Strategy 85 Controlling the Risk Level 87 Cash Management and the Effect of Free Government Money 90 Loading Fees 96 5. In-Depth Analysis of Trend Following Performance 98 Strategy Behaviour 98 Strategy Long Term Performance 100 Crisis Alpha 103 Trading Direction 105 Sector Impact 108 Putting Leverage into Context 111 As a Complement to an Equity Portfolio 117 6. Year by Year Review 121 How to read this chapter 122 2002 123 2003 132 2004 139 2005 145 2006 151 2007 156 2008 162 2009 169 2010 174 2011 179 2012 185 2013 191 2014 195 2015 200 2016 205 2017 209 2018 215 2019 220 2020 226 2021 232 Year by Year Conclusions 239 7. Counter Trend Trading 244 Building a Counter Trend Model 245 Counter Trend Performance 249 8. Systematic Trading without Time-series 252 Tem Structure 253 Measuring Term Structure 255 Using Term Structure for Trading 258 Limitations of Term Structure Models 260 9. Tweaks and Improvements 262 Trading Synthetic Contracts 263 Correlation Matrices, Position Sizing and Risk 265 Optimisation and its Discontents 267 Style Diversification 269 Volatility Based Stop Loss 272 10. Practicalities of Futures Trading 275 Required Asset Base 275 Going Live 277 Execution 279 Cash Management 281 Higher Volatility in Drawdown Mode 284 Portfolio Monitoring 285 Strategy Follow-Up 285 11. Modelling Futures Strategies 287 Why you need to do your own research 288 A Word about Programming 289 Settling on a research environment 289 Python and Zipline 291 Sourcing your data 293 Data Storage 295 The Dangers of Backtesting 295 12. Does Trend Following work on Stocks? 297 Define Trend Following 297 What about ETFs? 300 13. Trading for a Living 302 How much does a good trader make? 302 Getting a Trading Job 305 Trading your own Money 308 Trading OPM 309 Reasons not to Trade OPM 311 14. Final Words of Caution 313 Diminishing Returns of Futures Funds 313 Setting the Initial Risk Level 314 Going Live 316 15. Bibliography 318 Author Website 318