Jun

10

Trend Days, from Jim Sogi

June 10, 2015 |

Trend days are the exception rather than the rule. We are looking for are rules, but is it possible to find the exceptions also? Trend days are something to avoid for mean reverters who get caught in a trend day or multiday trends. However, if one stays long all the time, its been found that a large percentage of the overall increase in value comes on a few days. Just playing the long side probably helps the odds in the long run. On the other hand, the big jumps in volatility and big moves on occasion are to the downside. The only thing I can see that sets up a big trend day is when buyers or sellers are totally outnumbered exponentially right from the open. Big up trends days can set up after big declines but its a matter of being positioned and hold long enough to catch the big trend days that can make your year. One must also avoid being caught the wrong way that can end your career. The Learned Professor posits the opposite: that fat tails are the rule and that the exception eventually swallows the rule. Statistically one must hold the defined period at the defined leverage to realize the normal expectation. My common error has been to try to beat the expectation which apparently is not possible over time. In conclusion, it appears that one can only follow the rule, not the exception. The problem however is in reality the actual variance has and will exceed the expected variance.

Larry Williams writes: 

There are 2 things that help define trend days.

First, they are hard to know in advance, but trend days (large ranges) almost always close at the high (up trend) or low (down trend) so best working strategy is to hold to the close if it looks like you are in a trend day.

Secondly, trend days are usually proceeded by small ranges and small open to closes.

Stefan Martinek adds: 

Once we are in a high range day, usually more is coming in the same direction (vol. clustering with a drift). To overcome the cost of trading, it seems that 3-5 days (bars) holding or some combination is preferred. Regarding the point below "Just playing the long side probably helps the odds in the long run.", it is maybe correct in equities. When we trade on a basket of futures, not just ES, eliminating short trades usually damages risk adjusted returns.
 


Comments

WordPress database error: [Table './dailyspeculations_com_@002d_dailywordpress/wp_comments' is marked as crashed and last (automatic?) repair failed]
SELECT * FROM wp_comments WHERE comment_post_ID = '10367' AND comment_approved = '1' ORDER BY comment_date

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search