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Following the Trend: Diversified Managed Futures Trading by Andreas F. Clenow

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5

In-Depth Analysis of Trend-Following Performance

This chapter uses the core strategy outlined in Chapter 4 to conduct an in-depth analysis into where the profit and loss in this type of strategy comes from. I dig deeper into sector attribution and long versus short attribution and explain the consequences of the resulting analysis.

STRATEGY BEHAVIOUR

The strategy we now have in our hands seems to perform quite well over time, but before trading real money you need to be fully aware of how the strategy makes, and loses, money. To manage such a strategy you need to be very familiar with its characteristics before launching or else you will certainly get cold feet at the first sign of trouble and start overriding the rules. Too many strategy developers rely only on the overview statistics generated by their back-testing software to understand the strategy behaviour, and therefore I go in much deeper and show year by year how the sausage is really made. The statistics from your average back-testing software have their value too, at least some of them, but they only tell a very small part of the story. I start by giving you some general statistics on this strategy and then take a look at the real details.

The average holding period for a position is six weeks and four days where profitable trades average ten weeks and three days holding and the losing trades only two weeks. This is not so strange because winning trades are held onto for as long as they are not giving back too much ...

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