Analysis of a Global Futures Trend-Following Strategy
Date
2019-06
Authors
Nokes, Derek
Fulton, Lawrence V.
Journal Title
Journal ISSN
Volume Title
Publisher
Multidisciplinary Digital Publishing Institute
Abstract
Systematic traders employ algorithmic strategies to manage their investments. As a result of the deterministic nature of such strategies, it is possible to determine their exact responses to any conceivable set of market conditions. Consequently, sensitivity analysis can be conducted to systematically uncover undesirable strategy behavior and enhance strategy robustness by adding controls to reduce exposure during periods of poor performance/unfavorable market conditions, or to increase exposure during periods of strong performance/favorable market conditions. In this study, we formulate both a simple systematic trend-following strategy (i.e., trading model) to simulate investment decisions and a market model to simulate the evolution of instrument prices. We then map the relationship between market model parameters under various conditions and strategy performance. We focus, in particular, on identifying the performance impact of changes in both serial dependence in price variability and changes in the trend. The long-range serial dependence of the true range worsens performance of the simple classic trend-following strategy. During periods of strong performance, the dispersion of trading outcomes increases significantly as long-range serial dependence increases.
Description
Keywords
trend-following, Monte Carlo, sensitivity analysis, Health Administration
Citation
Nokes, D., & Fulton, L. (2019). Analysis of a global futures trend-following strategy. Journal of Risk and Financial Management, 12(3): 111.
Rights
Rights Holder
© 2019 The Authors.
Rights License
This work is licensed under a Creative Commons Attribution 4.0 International License.