Characteristics of Trend and Counter-Trend Trading Models
Trend following is undoubtedly the most common trading system employed by managed futures funds. In general,
a trend following system aims to invest in the direction of the long term trend of a commodity, interest rate, exchange
rate, or equity index. A trend is considered the dominate direction of movement for a market over a specified timeframe.
Trend following comes with a distinct statistical signature. For the most part, trend following systems trade infrequently,
they have a low percentage of winning trades (25%-45%), and they have a high winning trade to losing trade ratio
(usually greater than 2). Additionally, trend following systems tend to give back substantial profits at market turning
points and they are subject to whipsaw in directionless markets.
Counter-trend systems are far less common in managed futures strategies. Nevertheless, counter-trend models offer a systematic, reactionary framework for trading that is equally as effective as trend following, but completely opposite in methodology. Counter-trend systems generally have shorter duration trades, a higher percentage of winning trades, and a smaller win/loss ratio than their trend following counterparts. A typical counter-trend strategy will trade more frequently than a trend following strategy and produce 55% to 60% winning trades with a winning trade to losing trade ratio less than 1.5.
The majority of counter-trend models are looking to sell short term overbought levels and buy short term oversold levels. This behavior allows counter-trend models to thrive in directionless/volatile markets and to react quickly to market turning points. The drawback of counter-trend models is that they often struggle in steady, trending environments.
From http://361capital.com/wp-content/uploads/2014/09/Counter_Trend_vs_Trend_Following_Executive_Briefing.pdf
Counter-trend systems are far less common in managed futures strategies. Nevertheless, counter-trend models offer a systematic, reactionary framework for trading that is equally as effective as trend following, but completely opposite in methodology. Counter-trend systems generally have shorter duration trades, a higher percentage of winning trades, and a smaller win/loss ratio than their trend following counterparts. A typical counter-trend strategy will trade more frequently than a trend following strategy and produce 55% to 60% winning trades with a winning trade to losing trade ratio less than 1.5.
The majority of counter-trend models are looking to sell short term overbought levels and buy short term oversold levels. This behavior allows counter-trend models to thrive in directionless/volatile markets and to react quickly to market turning points. The drawback of counter-trend models is that they often struggle in steady, trending environments.
From http://361capital.com/wp-content/uploads/2014/09/Counter_Trend_vs_Trend_Following_Executive_Briefing.pdf
Comments
Post a Comment