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Following the Trend: Diversified Managed Futures Trading

Book Description

During bull and bear markets, there is a group of hedge funds and professional traders which have been consistently outperforming traditional investment strategies for the past 30 odd years. They have shown remarkable uncorrelated performance and in the great bear market of 2008 they had record gains. These traders are highly secretive about their proprietary trading algorithms and often employ top PhDs in their research teams. Yet, it is possible to replicate their trading performance with relatively simplistic models. These traders are trend following cross asset futures managers, also known as CTAs. Many books are written about them but none explain their strategies in such detail as to enable the reader to emulate their success and create their own trend following trading business, until now.

Following the Trend explains why most hopefuls fail by focusing on the wrong things, such as buy and sell rules, and teaches the truly important parts of trend following. Trading everything from the Nasdaq index and T-bills to currency crosses, platinum and lean hogs, there are large gains to be made regardless of the state of the economy or stock markets. By analysing year by year trend following performance and attribution the reader will be able to build a deep understanding of what it is like to trade futures in large scale and where the real problems and opportunities lay.

Written by experienced hedge fund manager Andreas Clenow, this book provides a comprehensive insight into the strategies behind the booming trend following futures industry from the perspective of a market participant. The strategies behind the success of this industry are explained in great detail, including complete trading rules and instructions for how to replicate the performance of successful hedge funds. You are in for a potentially highly profitable roller coaster ride with this hard and honest look at the positive as well as the negative sides of trend following.

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Dedication
  5. Foreword
  6. Preface
    1. WHY WRITE A BOOK?
    2. Acknowledgements
  7. Chapter 1: Cross-Asset Trend Following with Futures
    1. DIVERSIFIED TREND FOLLOWING IN A NUTSHELL
    2. THE TRADITIONAL INVESTMENT APPROACH
    3. THE CASE FOR DIVERSIFIED MANAGED FUTURES
    4. CRITICISM OF TREND-FOLLOWING STRATEGIES
    5. MANAGED FUTURES AS A BUSINESS
    6. DIFFERENCES BETWEEN RUNNING A TRADING BUSINESS AND PERSONAL TRADING
  8. Chapter 2: Futures Data and Tools
    1. FUTURES AS AN ASSET CLASS
    2. FUTURES DATA
    3. FUTURES SECTORS
    4. REQUIRED TOOLS
  9. Chapter 3: Constructing Diversified Futures Trading Strategies
    1. THEY ARE ALL DOING THE SAME THING
    2. CRACKING OPEN THE MAGIC TREND-FOLLOWING BLACK BOX
  10. Chapter 4: Two Basic Trend-Following Strategies
    1. STRATEGY PERFORMANCE
    2. IMPROVING THE STRATEGIES
  11. Chapter 5: In-Depth Analysis of Trend-Following Performance
    1. STRATEGY BEHAVIOUR
    2. AS A COMPLEMENT TO AN EQUITY PORTFOLIO
    3. TRADING DIRECTION
    4. SECTOR IMPACT
    5. CASH MANAGEMENT AND THE EFFECT OF FREE GOVERNMENT MONEY
    6. PUTTING LEVERAGE INTO CONTEXT
  12. Chapter 6: Year by Year Review
    1. HOW TO READ THIS CHAPTER
    2. 1990
    3. 1991
    4. 1992
    5. 1993
    6. 1994
    7. 1995
    8. 1996
    9. 1997
    10. 1998
    11. 1999
    12. 2000
    13. 2001
    14. 2002
    15. 2003
    16. 2004
    17. 2005
    18. 2006
    19. 2007
    20. 2008
    21. 2009
    22. 2010
    23. 2011
    24. CONCLUSIONS OF YEAR BY YEAR REVIEW
  13. Chapter 7: Reverse Engineering the Competition
    1. INVESTMENT UNIVERSES
    2. COMPARING THE INVESTMENT UNIVERSES
    3. REPLICATING EXISTING FUNDS
    4. CONCLUSIONS
  14. Chapter 8: Tweaks and Improvements
    1. TRADING MULTIPLE TIME FRAMES
    2. TRADING SYNTHETIC CONTRACTS
    3. ADDING A COUNTER-TREND COMPONENT
    4. INTRADAY STOPS
    5. CORRELATION MATRICES, POSITION SIZING AND RISK
    6. THE ROLLOVER EFFECT
    7. OPTIMISATION AND ITS DISCONTENTS
  15. Chapter 9: Practicalities of Futures Trading
    1. REQUIRED ASSET BASE
    2. GOING LIVE
    3. EXECUTION
    4. CASH MANAGEMENT
    5. HIGHER VOLATILITY IN DRAWDOWN MODE
    6. PORTFOLIO MONITORING
    7. STRATEGY FOLLOW-UP
  16. Chapter 10: Final Words of Caution
    1. DIMINISHING RETURNS OF FUTURES FUNDS
    2. ENDING UP IN THE SOUP BOWL
    3. SETTING THE INITIAL RISK LEVEL
  17. Bibliography
    1. OFFICIAL BOOK WEBSITE
    2. RESEARCH PAPERS, ARTICLES AND WEBSITES
    3. BOOKS
  18. Index