Universal Tactics of Successful Trend Trading

BRENT PENFOLD is a full-time trader, author, educator and advisor. He began his career in 1983 as an institutional dealer with Bank America and today specializes in trading global forex, index and commodity markets. He is the author of two Wiley books, The Universal Principles of Successful Trading (2010) and Trading the SPI (2005). Brent publishes daily newsletters for active futures traders and is a popular and sought-after international speaker.

• Acknowledgements xiiiPreface xvIntroduction xixChapter 1 The Paradox 1Nirvana and Despair 1It’s Also a Confusing Time 2How I Can Help You 3How to Trade Successfully 4Summary 4Chapter 2 Key Messages 5Knowledge 6Risk 24Application 36Execution 54Summary 63Chapter 3 The Appeal of Trend Trading 64It’s a Punch and Judy Show 64What is Trend Trading? 65Why are Trends so Important? 67The Appeal of Trend Trading 67Summary 119Chapter 4 Why Do Trends Exist? 120Confusion Reigns 120Behavioural Finance 120Path Dependency 125And the Winner is? 126Summary 126Chapter 5 Why Do So Many Fail? 127Science Says We Can’t Lose 127Overview of Trend Trading 127WhydosoManyFailatit? 130Variability Kills Indicators 137Popular Indicators 137Rsi 139Strategy Robust Review 139Rtt 140Traders Always Change Variable Values 156Universe of Alternative Equity Curves, Expectancies and ROR 156Best Set of Variable Values Always Change 158Know Your Strategy’s Universe of Alternative Equity Curve’s Upper and Lower Bands 160Stratgey Robustness Review 161The More Variables, the More Alternatives, the More Risk 161Variable and Subjective Tools 163Independent Objective Tools 164So, What to Do? 165Summary 165Chapter 6 Strategies 167Markets 168Trading Naked without Technical Analysis 169Trend-Trading Strategies 177Momentum Trend Trading 177Relative Strength Trend Trading 178Hypothetical Results 180Relative Momentum Trend Trading 180Absolute Momentum Trend Trading 195Retracement Trend Trading 223Return of Random Trend Trader (2020) 230Summary 232Chapter 7 Measuring Risk 234How to Measure Strategy Performance 234Risk-Adjusted Return Measurements 235Standard Deviation—Proxy for Risk 238The Ulcer Index—a Superior Risk Proxy 245The Ulcer Performance Index—a Superior Risk-Adjusted Return Measurement 246Not all Strategies are Created Equal 257Summary 259Chapter 8 Moving Forward 260The Toolkit 260Portfolio Construction 261Data 263Software 263Attributes of Winning Strategies 264Strategy Review 267Strategy Benchmark 279Strategy Development 300Summary 302Chapter 9 Back to the Future 303Strategy Development 303Find a Methodology 304Code the Methodology 311Review the Methodology 312Compare the Methodology 312Adjust the Methodology 314Equity Curve Stability Review 359Sensible Trading Destination 360Drawdown 361Charles Dow (1851–1902) 364Back to the Future to Move Forward 364Embrace Diversification 365Thank You 365Appendix A Literature on Trend Trading 368Cowles and Jones (1933) 368Levy (1967) 368Jegadeesh and Titman (1993) 369Asness, Liew and Stevens (1997) 369Rouwenhorst and Geert (1998) 369LeBaron (1999) 370Moskowitz and Grinblatt (1999) 370Rouwenhorst (1999) 370Griffin, Ji and Martin (2003) 370Hwang and George (2004) 370Wilcox and Crittenden (2005) 371Faber (2006) 371Szakmary, Shen and Sharma (2010) 371Liu, Liu and Ma (2010) 371Hurst, Ooi and Pedersen (2010) 372Moskowitz, Ooi, Hua and Pedersen (2011) 372Antonacci (2012) 372Luu and Yu (2012) 372Hurst, Ooi and Pedersen (2012) 373Lempérière, Deremble, Seager, Potters and Bouchard (2014) 373Greyserman and Kaminski (2014) 373Clare, Seaton, Smith and Thomas (2014) 373Glabadanidis (2016) 374Georgopoulou and Wang (2016) 374Hamill, Rattray and Van Hemert (2016) 374D’Souza, Srichanachaichok, Wang and Yao (2016) 374Geczy and Samonov (2017) 375Hurst, Ooi and Pedersen (2017) 375Index 377