In the newly revised second edition of Following the Trend: Diversified Managed Futures Trading, renowned hedge fund founder and asset manager Andreas F. Clenow presents a systematic asset management methodology in a way that allows readers to emulate the success of CTA industry professionals. In the book, you’ll find performance and attribution details for every year between 2002 and 2021 and detailed explanations of how the markets, industry, and strategy have evolved between the publication of the first edition and today.
The author also offers: - Detailed discussions of whether CTA hedge funds continue to show high internal correlation and exhibit homogeneous behaviour - The impact of low and negative interest rate environments, massive inflows into equity markets, and the rise of quant trading firms - Explorations of the combination of different types of trading models to enhance performance, complete with rulesets and fulsome analyses
A ground-breaking and thoroughly incisive examination of the commodity trading advisor industry, Following the Trend: Diversified Managed Futures Trading is an essential volume for sophisticated retail traders, day traders, private investors, investment managers, portfolio managers, and institutional investors.
Table of Contents
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
