Following the Trend: Diversified Managed Futures Trading

8

Tweaks and Improvements

In this chapter I provide some ideas on the type of improvements that may prove beneficial to our core strategy. There are several possible objectives when it comes to tweaking a strategy such as this one, and whilst not necessarily the most important, increased profitability is only one. If increasing the annual compounded return is the only objective, all you need to do is increase the leverage to just slightly shy of risking a complete blow-up. This is, of course, just stretching the theoretical arguments and not how reality looks. It is important to be able to achieve a high enough annualised return for the strategy to be of interest to investors and worth the time and effort involved in achieving it, but in reality it is much more important, and difficult, to reduce volatility and correlations to similar products.

If you can reduce your drawdowns, lower the volatility levels and achieve a slightly different return profile from the average CTA product, you will find your product much easier to sell. Most of these subjects would require a book all by themselves to analyse properly and my intention in this chapter is only to point you in the right direction for further research on these topics. After all, in order to really trust and trade strategies with a potential 1,000 to 1 leverage, you need to do some serious research either way.

TRADING MULTIPLE TIME FRAMES

One of the most common and also one of the easier ways to increase the volatility adjusted ...