Following the Trend: Diversified Managed Futures Trading (Wiley Trading)

An up-to-date and practical roadmap for diversified futures trading using CTA fund strategies 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. Cover 1 Title Page 5 Copyright Page 6 Contents 7 Foreword by Jerry Parker 13 Foreword to the First Edition 15 Preface 17 Chapter 1 Cross-Asset Trend Following with Futures 23 Diversified Trend Following in a Nutshell 25 The Traditional Investment Approach 26 The Case for Diversified Managed Futures 30 Criticism of Trend-Following Strategies 31 Managed Futures as a Business 33 Differences between Running a Trading Business and Personal Trading 37 Marketability of Your Strategy 37 Volatility Profile 38 Subscriptions and Redemptions 39 Psychological Difference 40 Chapter 2 Futures Data 43 Futures as an Asset Class 43 Futures Exchanges 43 Futures and Currency Exposure 43 Futures Data 45 Dealing with Limited Life Span 45 Term Structure 47 Basis Gaps 49 The Change in How Continuations Are Used 52 Futures Sectors 53 Agricultural Commodities 53 Non-Agricultural Commodities 56 Currencies 59 Equities 61 Rates 62 Chapter 3 Constructing Diversified Futures Trading Strategies 67 They Are All Doing the Same Thing 68 Cracking Open the Magic Trend-Following Black Box 71 The Investment Universe 71 Position Sizing 73 Slippage and Commission 76 Strategy Personality 76 Anatomy of a Trend-Following Strategy 77 Chapter 4 Two Basic Trend-Following Strategies 81 Strategy Performance 83 Correlations Between Strategies 90 Conclusions from the Basic Strategies 92 Combining the Strategies 93 Trend Filter 93 A Core Trend-Following Strategy 96 Controlling the Risk Level 98 Cash Management and the Effect of Free Government Money 100 Loading Fees 105 Chapter 5 In-Depth Analysis of Trend-Following Performance 107 Strategy Behaviour 107 Strategy Long-Term Performance 109 Crisis Alpha 110 Trading Direction 115 Sector Impact 118 Putting Leverage into Context 121 As a Complement to an Equity Portfolio 125 Chapter 6 A Year-by-Year Review 129 How to Read This Chapter 130 2002 131 2003 139 2004 146 2005 152 2006 158 2007 164 2008 170 2009 178 2010 184 2011 189 2012 195 2013 201 2014 206 2015 212 2016 217 2017 222 2018 227 2019 233 2020 239 2021 245 Year-by-Year Conclusions 252 Chapter 7 Counter-Trend Trading 257 Building a Counter-Trend Model 258 Counter-Trend Performance 261 Chapter 8 Systematic Trading Without Time Series 265 Term Structure 266 Measuring Term Structure 269 Using Term Structure for Trading 271 Limitations of Term Structure Models 273 Chapter 9 Tweaks and Improvements 275 Trading Synthetic Contracts 276 Correlation Matrices, Position Sizing, and Risk 277 Optimisation and Its Discontents 279 Style Diversification 280 Volatility-Based Stop Loss 284 Chapter 10 Practicalities of Futures Trading 287 Required Asset Base 287 Going Live 289 Execution 290 Cash Management 291 Higher Volatility in Drawdown Mode 294 Portfolio Monitoring 295 Strategy Follow-Up 295 Chapter 11 Modelling Futures Strategies 297 Why You Need to Do Your Own Research 297 A Word about Programming 298 Settling on a Research Environment 299 Python and Zipline 300 Sourcing Your Data 302 Data Storage 303 The Dangers of Backtesting 304 Chapter 12 Does Trend Following Work on Stocks? 305 Define Trend Following 305 What about ETFs? 307 Chapter 13 Trading for a Living 309 How Much Does a Good Trader Make? 309 Getting a Job in Trading 311 Trading Your Own Money 314 Trading OPM 315 Reasons Not to Trade OPM 316 Chapter 14 Final Words of Caution 319 Diminishing Returns of Futures Funds 319 Setting the Initial Risk Level 320 Going Live 322 Bibliography 325 About the Author 329 Index 331 EULA 339 "The highly successful first edition of Following the Trend: Diversified Managed Futures Trading presented a systematic asset management methodology employed by the CTA industry, explaining their strategies in such a way as to enable the reader to emulate their success. This fully updated new edition: Reviews whether CTA hedge funds continue to show high internal correlation and to exhibit homogeneous behavior, and explores the reasons for potential deviations. Explains why and how the financial markets have changed and how that has impacted everything, including the trading strategy of the CTA industry. Changes include a low and negative interest rate environment, massive inflows, the rise of quant trading firms, etc. Explores additional, related strategies. Combining different type of models can greatly enhance performance, and this is how the industry currently operates; such strategies are explained fully, complete with rulesets and an analysis of the value of combining such models with the core trend approach"-- Provided by publisher