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Greetings --

Regarding John Henry, trend-following systems, and equity curve behavior.

John Henry had a great record and earned a lot of money for himself and his clients in his CTA accounts.

According to the president of the CTA firm that I worked for a few years ago, who was a friend of Henrys, Henry's technique was primarily Donchian-style breakout -- that is, buy new highs, sell new lows.

CTA firms are required to disclose their methodology to the public and to the regulatory agencies. Henry's disclosure documents also state that their systems are primarily trend-following.

Most of the CTA firms that used breakout-style systems have been doing poorly lately, not just Henry's.

Trend-following systems are designed to take every signal, losing on most trades (70% or so), winning on a few (30% or so), with small losers and big winners. The smoothness of the equity curve depends on having enough capital to trade many markets, and to have those trades be relatively uncorrelated. While the many commodity markets traded would appear to be uncorrelated, readers of Lowenstein (When Genius Failed) and Taleb (Fooled by Randomness and The Black Swan) will not be surprised to hear that the trades made are often very correlated.

There are statistical tests can that can be performed to determine whether a trade system is in a drawdown or broken. Two examples are a "runs" test that evaluates the number of wins and losses, and a "t" test that compares the mean of one sample (when the system is working) with another (recent performance) and gives a probability estimate of whether those two samples were drawn from the same distribution or not.

Thanks,
Howard
www.quantitativetradingsystems.com

<blockquote data-quote="howardbandy" data-source="post: 198912" data-attributes="member: 9179">Greetings --Regarding John Henry, trend-following systems, and equity curve behavior.John Henry had a great record and earned a lot of money for himself and his clients in his CTA accounts.&nbsp; According to the president of the CTA firm that I worked for a few years ago, who was a friend of Henrys, Henry&#039;s technique was primarily Donchian-style breakout -- that is, buy new highs, sell new lows.CTA firms are required to disclose their methodology to the public and to the regulatory agencies.&nbsp; Henry&#039;s disclosure documents also state that their systems are primarily trend-following.Most of the CTA firms that used breakout-style systems have been doing poorly lately, not just Henry&#039;s.&nbsp; Trend-following systems are designed to take every signal, losing on most trades (70% or so), winning on a few (30% or so), with small losers and big winners.&nbsp; The smoothness of the equity curve depends on having enough capital to trade many markets, and to have those trades be relatively uncorrelated.&nbsp; While the many commodity markets traded would appear to be uncorrelated, readers of Lowenstein (When Genius Failed) and Taleb (Fooled by Randomness and The Black Swan) will not be surprised to hear that the trades made are often very correlated.There are statistical tests can that can be performed to determine whether a trade system is in a drawdown or broken.&nbsp; Two examples are a &quot;runs&quot; test that evaluates the number of wins and losses, and a &quot;t&quot; test that compares the mean of one sample (when the system is working) with another (recent performance) and gives a probability estimate of whether those two samples were drawn from the same distribution or not.Thanks,Howard<a href="http://www.quantitativetradingsystems.com" target="_blank">www.quantitativetradingsystems.com</a></blockquote>

[QUOTE="howardbandy, post: 198912, member: 9179"] Greetings -- Regarding John Henry, trend-following systems, and equity curve behavior. John Henry had a great record and earned a lot of money for himself and his clients in his CTA accounts. According to the president of the CTA firm that I worked for a few years ago, who was a friend of Henrys, Henry's technique was primarily Donchian-style breakout -- that is, buy new highs, sell new lows. CTA firms are required to disclose their methodology to the public and to the regulatory agencies. Henry's disclosure documents also state that their systems are primarily trend-following. Most of the CTA firms that used breakout-style systems have been doing poorly lately, not just Henry's. Trend-following systems are designed to take every signal, losing on most trades (70% or so), winning on a few (30% or so), with small losers and big winners. The smoothness of the equity curve depends on having enough capital to trade many markets, and to have those trades be relatively uncorrelated. While the many commodity markets traded would appear to be uncorrelated, readers of Lowenstein (When Genius Failed) and Taleb (Fooled by Randomness and The Black Swan) will not be surprised to hear that the trades made are often very correlated. There are statistical tests can that can be performed to determine whether a trade system is in a drawdown or broken. Two examples are a "runs" test that evaluates the number of wins and losses, and a "t" test that compares the mean of one sample (when the system is working) with another (recent performance) and gives a probability estimate of whether those two samples were drawn from the same distribution or not. Thanks, Howard [url]www.quantitativetradingsystems.com[/url] [/QUOTE]

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