Trend Following using the “F Trend” trading system algorithm.
Formula Trading Systems offers individual trading approaches and an elegant blended approach to trading and trade management.
A bit about me, the developer. When I first started designing trading systems back in 2001, my initial focus was on a trend following approach, though my real world trading up until that time had been of a technical, shorter-term foundation (more on this later). The markets trended, but they sure don’t trend all of the time or even most of the time. Markets consolidate when they are not trending, thus they are either bouncing around or going sideways. Simply put, in order to capture more trends, to reveal more trading opportunities, necessitates the need to follow more markets at the same time. When some markets trend others do not and vice versa. The more markets you follow with a trend following approach, the more chance you have of catching a trend. If you just focus on a single market with a single approach, you are not going to have as many good trading opportunities.
Crude Oil Trades from F Trend (included in Austin and Austin Plus)
Gold Trade from F Trend (included in Austin and Austin Plus)
So, I begin my research into portfolio approaches to trading the markets. Instead of tracking a single market or even a few markets. The approach would do best by following multiple markets inside of multiple market sectors. By following more markets and market sectors we are presented with more trend trading opportunities.
For trend following. I like to follow a little bit of everything. Fuels, metals, grains, softs, meats and currencies. And even better is to have multiple markets within each market sector which requires a certain degree of balance. You don’t want too many or too few markets, you want the best risk/reward ratio and enough opportunity. It is extremely important to follow the most liquid of the markets. In the metals; gold and copper work for us, but palladium and platinum do not (only due to the lack of trade volume, they trend very well), etc.
Another key element with a robust trend following approach is to use a consistent methodology to the markets you are following. i.e. with trend following you don’t want to curve-fit a trading systems algorithm on a per market basis. It would be quite easy to make a trading system look good on paper if you were to have different sets of rules for different markets. Like, if you were to only enter a gold trade during this time with that stop and a certain target vs a crude oil trade with a different range and with a tighter or loser stop, a tighter or loser profit, and then a sugar trade with even more different constraints and targets. A non-robust, curve fit system’s trades may look good on paper and in back-testing, but typically the wheels will fall off of it in the real world of constantly changing markets.
Our “F Trend” algorithm is a good example of how best to approach a multi market and multi market sector trend following portfolio. F Trend uses the exact same algorithm for each and every market and market sector it trades. The same algorithm that is applied to gold is also applied to gas oil, sugar, copper, cotton, etc. I can not over emphasize the importance of being able to use the same algorithm across multiple markets and market sectors at the same time with trend following approaches.
Our performance reports are available for the F Trend algorithm following both a 10 market portfolio (Austin) and a 10 market portfolio plus (Austin Plus). These levels work the best without overkill or under kill. The important thing is to follow a little bit of everything. You want to follow; metals, fuels, softs, grains, meats and currencies. The difference between the Austin trading system and Austin Plus trading system is simply the number of markets being followed in each market sector. Performance reports for the Silverstone and Le Mans trading systems are available here on our website.
If you would like to request a trading system demo, I can walk you through our strategies personally and even show you the application of the strategy to the particular market to give you confidence that we use the same strategy on each market in the F Trend portfolios. If you are doing a trend following approach, you want something that is robust and consistent.
See our other trading methods.