Andreas' previous book Following the Trend is one of my favorite books on trend following as it not only breaks certain myths about the concept of trend following but also demonstrates it with data.
During the course of my journey of trend following and backtesting strategies on Stocks I pretty much came to the same conclusions that Andreas came to in this article provocatively titled Trend Following does not work on Stocks so it resonated deeply with me. An aha moment. Key point is that standard trend following strategies do not work on stocks. First change that has to be made is DO NOT SHORT STOCKS. (Unless you are Bill Ackman) and definitely not using STANDARD trend following strategies. Second is that stocks are a homogenous group and there is massive internal correlation. Owning stocks beyond a certain number is not diversification , it dumb-versification. For more on that read Warren Buffett portfolio by Robert Hagstrom.
And now Stocks on the Move. I will try and give as little as away so that you discover it for yourself when you read the book. Andreas talks about Mutual Funds and how most of them under perform the index itself. He also explains how the new and specific ETFs are not really well understood by people who trade them. He then uses this foundation to talk about why equities are such a difficult asset class to trade and more so on the short side. And most of the observations are spot on. And because of these issues, why Trend Following (TF), as a strategy which was specifically designed to trade a diversified basket of low correlated futures markets cannot be blindly applied to trading stocks on the long and short side.
Andreas then goes on to explain the difference between trend following and momentum and through the next chapters he very transparently explains his strategy. He clarifies that is not the only strategy that works, but this is one of them that works well. Also he encourages readers to focus on trading or investing based on concepts and not get too fixated on parameters.
He then very simply explains the building blocks and the rationale behind those building blocks in very simple terms. A purist Quant might cringe but a practitioner will be elated to read a momentum strategy in English language without much greek and latin notations thrown in.
Then like the previous book he takes us through a fascinating year by year review from 1999-2014 of how the strategy would have worked through those years. And there is a lot of learning here. Of course there is nothing like going through it yourself but hearing it from someone who has been there done that is the next best.
And no he is not going to give you the source code for the strategy simulation. And you know what, it doesn't matter. Because he has given you the core engine. Now go make your car.
Now just one spoiler. The strategy does employ a couple of trend filters which are important elements of the strategy so I would not call this a pure momentum strategy, but practitioners shouldn't care about this because in my view of what I have read about momentum and trend following strategies they are close cousins and so its all in the family.
The charts are hard to read but Andreas has put the images on his website here.
Other than that I enjoyed reading the book and learnt a few new things and the book is going to stay close to me for a while.
Disclamer: Please note the links are provided only for convenience and am not an affiliate of Amazon or the author in any way.
During the course of my journey of trend following and backtesting strategies on Stocks I pretty much came to the same conclusions that Andreas came to in this article provocatively titled Trend Following does not work on Stocks so it resonated deeply with me. An aha moment. Key point is that standard trend following strategies do not work on stocks. First change that has to be made is DO NOT SHORT STOCKS. (Unless you are Bill Ackman) and definitely not using STANDARD trend following strategies. Second is that stocks are a homogenous group and there is massive internal correlation. Owning stocks beyond a certain number is not diversification , it dumb-versification. For more on that read Warren Buffett portfolio by Robert Hagstrom.
And now Stocks on the Move. I will try and give as little as away so that you discover it for yourself when you read the book. Andreas talks about Mutual Funds and how most of them under perform the index itself. He also explains how the new and specific ETFs are not really well understood by people who trade them. He then uses this foundation to talk about why equities are such a difficult asset class to trade and more so on the short side. And most of the observations are spot on. And because of these issues, why Trend Following (TF), as a strategy which was specifically designed to trade a diversified basket of low correlated futures markets cannot be blindly applied to trading stocks on the long and short side.
Andreas then goes on to explain the difference between trend following and momentum and through the next chapters he very transparently explains his strategy. He clarifies that is not the only strategy that works, but this is one of them that works well. Also he encourages readers to focus on trading or investing based on concepts and not get too fixated on parameters.
He then very simply explains the building blocks and the rationale behind those building blocks in very simple terms. A purist Quant might cringe but a practitioner will be elated to read a momentum strategy in English language without much greek and latin notations thrown in.
Then like the previous book he takes us through a fascinating year by year review from 1999-2014 of how the strategy would have worked through those years. And there is a lot of learning here. Of course there is nothing like going through it yourself but hearing it from someone who has been there done that is the next best.
And no he is not going to give you the source code for the strategy simulation. And you know what, it doesn't matter. Because he has given you the core engine. Now go make your car.
Now just one spoiler. The strategy does employ a couple of trend filters which are important elements of the strategy so I would not call this a pure momentum strategy, but practitioners shouldn't care about this because in my view of what I have read about momentum and trend following strategies they are close cousins and so its all in the family.
The charts are hard to read but Andreas has put the images on his website here.
Other than that I enjoyed reading the book and learnt a few new things and the book is going to stay close to me for a while.
Disclamer: Please note the links are provided only for convenience and am not an affiliate of Amazon or the author in any way.
Hi Anish, I too read the book and liked it. I am planning to back text using ninja trader. However major issue is reliable historical data for Nee. Which nse data provider you are using for your back testing.
ReplyDeleteThanks
Govind
Hi Govind,
DeleteI use data from Global Datafeeds and NSE website.
Thanks
Anish
Thanks Anish. The problem with nse bhavcopy is raw data and not adjusted for corporate actions. I will check global datafeeds.
ReplyDeleteRegards,
Govind
Govind, the charting platform like Amibroker or Ninja should take care of stock splits or bonus. I use Ami and it detects the splits. Ofcourse it has to be done manually but its very quick.
ReplyDelete