Trend Following

///Trend Following

Book Review — Market Timing with Moving Averages

By | 2017-12-20T09:53:01+00:00 December 20th, 2017|Trend Following, Trend-Following Course, Research Insights, Book Reviews|

Trend-following is something I've struggled with for years -- always felt like voodoo magic and data-mining. That said, I finally came around to appreciating the practice after a ton of research replication efforts, independent research. [...]

Do Trend-following Managed Futures Increase Safe Withdrawal Rates?

By | 2017-11-08T12:09:53+00:00 November 8th, 2017|Trend Following, Research Insights, Managed Futures Research|

Andrew Miller, a regulator contributor to the blog, is passionate about the intersection of academic finance research and financial planning. We obviously love the academic finance research stuff, but our financial planning advice lacks serious [...]

Trend-Following: A Deep Dive Into A Unique Risk Premium

By | 2017-10-18T10:56:41+00:00 October 18th, 2017|Factor Investing, Trend Following, Research Insights|

Trend-following strategies have historically been laughed at via the modern academic finance research community. Having first-hand knowledge of that community, we can verify that academic researchers are humans like the rest of us (we checked, [...]

Trend-Following with Valeriy Zakamulin: Trading in Various Financial Markets (Part 8)

By | 2017-11-21T11:33:56+00:00 September 8th, 2017|Trend Following, Trend-Following Course, Introduction Course|

In our final blog post, that finishes the trend-following series, we briefly review the results of the forward-tests of the profitability of various trend following rules in different financial markets: stocks, bonds, currencies, and commodities. [...]

Trend-Following with Valeriy Zakamulin: Trading the S&P 500 Index (Part 7)

By | 2017-09-01T08:02:37+00:00 September 1st, 2017|Trend Following, Trend-Following Course, Introduction Course|

The Standard and Poor's (S&P) 500 index is a value-weighted stock index based on the market capitalizations of 500 large companies in the US. This index was introduced in 1957 and intended to be a [...]

Trend-Following with Valeriy Zakamulin: Anatomy of Trading Rules (Part 4)

By | 2017-08-18T16:54:23+00:00 August 13th, 2017|Trend Following, Trend-Following Course, Guest Posts, Investor Education, Introduction Course|

In our context, a technical trading indicator can be considered as a combination of a specific technical trading rule with a particular moving average of prices. In two preceding blog posts we showed that there [...]

Diversification Benefits of Time Series Momentum

By | 2017-08-18T17:06:44+00:00 August 10th, 2017|Trend Following, Larry Swedroe, Research Insights|

Similar to some better-known factors like size and value, time-series momentum is a factor that historically has demonstrated above average excess returns. Time-series momentum, also called trend-momentum or absolute momentum, is measured by a portfolio long assets that have had recent positive returns and short assets that have had recent negative returns. Compare this to the traditional (cross-sectional) momentum factor that considers recent asset performance only relative to other assets. The academic evidence suggests that inclusion of a strategy targeting time-series momentum in a portfolio improves the portfolio’s risk-adjusted returns.

Trend-Following with Valeriy Zakamulin: Types of Moving Averages (Part 2)

By | 2017-08-18T16:54:20+00:00 July 21st, 2017|Trend Following, Trend-Following Course, Guest Posts, Investor Education, Introduction Course|

In this post we aim to give an overview of some specific types of moving averages. Specifically, we cover "ordinary" moving averages and mention some examples of exotic moving averages.

Trend-Following with Valeriy Zakamulin: Moving Average Basics (Part 1)

By | 2017-08-18T16:54:22+00:00 July 14th, 2017|Trend Following, Trend-Following Course, Guest Posts, Investor Education, Introduction Course|

One of the basic principles of technical analysis is that ``prices move in trends". Traders firmly believe that these trends can be identified in a timely manner and used to generate profits and limit losses. Consequently, trend following is the most widespread market timing strategy; it tries to jump on a trend and ride it. Specifically, when stock prices are trending upward (downward), it's time to buy (sell) the stock. Even though trend following is very simple in concept, its practical realization is complicated. One of the major difficulties is that stock prices fluctuate wildly due to imbalances between supply and demand and due to constant arrival of new information about company fundamentals. These up-and-down fluctuations make it hard to identify turning points in a trend. Moving averages are used to ``smooth" the stock price in order to highlight the underlying trend.

The Value Momentum Trend Philosophy

By | 2017-11-27T10:46:44+00:00 June 6th, 2017|Factor Investing, Trend Following, Research Insights, Key Research, Value Investing Research, Momentum Investing Research|

If you've been reading our blog for a number of years you're 1) probably a finance geek, and you're 2) probably tired of us discussing the following themes: Value investing: buy cheap stocks (see our [...]

The Dirtiest Word In Finance: Market Timing

By | 2017-08-18T16:55:39+00:00 March 20th, 2017|Trend Following, Research Insights, Guest Posts, Tactical Asset Allocation Research|

In 2015, Cliff Asness made the case that to earn attractive returns with proper risk-based diversification and low correlation to traditional markets, investors need to embrace ‘the three dirty words in finance,’ which he defined [...]

Dual Momentum with Stock Selection

By | 2017-10-27T18:10:46+00:00 March 14th, 2017|Trend Following, Research Insights, Momentum Investing Research, Tactical Asset Allocation Research|

Jack did a nice recap on a momentum paper last week that looks at using fundamentals (revenue volatility, low cost of goods, and B/M) to help identify the best price momentum stocks. This paper sounds similar to the paper Jack reviewed, but there is a key difference: the researchers are looking at the momentum of the fundamentals, not the absolute value of the fundamentals. The authors compile a fundamental momentum variable by calculating the moving averages of 7 elements: return on equity return on assets earnings per share accrual-based operating profitability cash-based operating profitability gross profitability net payout ratio

Tactical Asset Allocation Insights via the Geeks from Thinknewfound

By | 2017-08-18T16:56:23+00:00 February 16th, 2017|Trend Following, Interviews, Tactical Asset Allocation Research|

How do we identify who is a flash in the pan blogger versus the next Michael Kitces, Josh Brown, or Ben Carlson? We've tried to do our part and help to promote and share research from up and coming "undiscovered" bloggers/writers out there. In our early days, we were helped by long-time bloggers such as Meb Faber and Tadas Viskanta, so we try and return the favor. Recent examples of up and coming guest writers we've highlighted include Dan Sotiroff (now heading to Morningstar!), Aaron Brask, Andrew Miller, Elisabetta Basilico, and Dan Grioli -- all of whom have written interesting and insightful pieces!

Go Skew Yourself with Managed Futures

By | 2017-08-18T17:04:39+00:00 January 10th, 2017|Trend Following, $wdti, Research Insights, Guest Posts, Managed Futures Research|

Skewness is a statistical measure of how returns behave in the tails of a probability distribution.  Wikipedia has a more robust definition of skewness with some good visuals here. If an investment (e.g., stocks) has negative [...]

Using Trend-Following Rules to Enhance Factor Performance

By | 2017-08-18T16:53:57+00:00 January 4th, 2017|Factor Investing, Trend Following, Research Insights, Tactical Asset Allocation Research|

After reviewing the 2016 performance of trend-following (-18.15%), its unclear why anyone would mention the word "trend following" in a public forum. But we'll give it a whirl anyway... The comedian Victor Borge once famously observed, [...]

Avoiding the Big Drawdown with Trend-Following Investment Strategies

By | 2017-11-27T10:44:35+00:00 August 13th, 2015|Trend Following, Research Insights, Key Research, Tactical Asset Allocation Research|

Simple timing rules, focused on absolute and trending asset class performance, seem to be useful in a downside protection context. Our analysis of the downside protection model (DPM), applied on various market indices, indicates there is a possibility of lowering maximum drawdown risk, while also offering a chance to participate in the upside associated with a given asset class. Important to note, applying the DPM to a portfolio will not eliminate volatility and the portfolio will deviate (perhaps wildly) from standard benchmarks. For many investors, these are risky propositions and should be considered when using a DPM construct.

Magic Formula and MA Rules: A Bad Combo!

By | 2017-08-18T17:01:14+00:00 November 27th, 2011|Trend Following, Research Insights, Value Investing Research|

Recently, I've been investigating various risk management systems. A lot of the work we've done is beyond the scope of the blog and/or is related to things we do with our investment management business. Nonetheless, [...]