Following the Trend, 2nd Edition

CHAPTER 1Cross‐Asset Trend Following with Futures

There is a group of hedge funds and professional asset managers who have shown a remarkable performance for over 30 years, consistently outperforming conventional strategies in both bull and bear markets, and during the 2008 credit crunch crisis showing truly spectacular returns. These traders are highly secretive about what they do and how they do it. They often employ large quant teams staffed with top‐level PhDs from the best schools in the world, adding to the mystique surrounding their seemingly amazing long‐term track records. Yet, as this book shows, it is possible to replicate their returns by using fairly simple systematic trading models, revealing that not only are they essentially doing the same thing, but also that it is not terribly complex and within the reach of most of us to replicate.

This group of funds and traders goes by several names and they are often referred to as CTAs (for Commodity Trading Advisors), trend followers or managed futures traders. It matters little which term you prefer because there really are no standardised rules or definitions involved. What they all have in common is that their primary trading strategy is to capture lasting price moves in either direction in global markets across many asset classes, attempting to ride positions as long as possible when they start moving. In practice, most futures managers do the same thing they have been doing since the 1970s: trend following. Conceptually ...