SI30: Should you adjust your position size based on recent volatility?

Apr 7, 2019

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Is it wise to adjust position-size according to recent volatility? Can back-testing a Trend Following strategy end up as just being a form of curve-fitting? We discuss the merits of Long-Term evidence over Recency Bias, the importance of Sharpe Ratios, the significance of price gaps, and whether leverage is a necessity for all CTAs. You will hear our thoughts on the idea of risking 1% per trade and how diversification affects this, the pros and cons of a crowded Trend Following market, and we touch on the topic of whether or not a trade can be held for too long.

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Episode TimeStamps:

00:00 – Intro

01:45 – Review of last week’s episode with Jesse Felder

06:45 – Weekly review of performance

11:00 – Top tweets

32:20 – Question 1: John; Are you always fully invested?

41:00 – Question 2: John; Across all trades, how much total risk is there in a TF system?

46:30 – Questions 3/4/5/6: Woody; What are the pros and cons of using managed futures in ETFs vs mutual funds vs other vehicles? Will liquid alts suffer from a big bank crisis? Do you need leverage and concentrated positions to get the benefits of managed futures? Is there a disadvantage of using ‘blue chip’ managed futures mutual funds?

01:07:30 – Question 7: Brian; Why do investors use Sharpe ratios?

01:15:50 – Question 8: Sam; What are your thoughts on price gaps?

01:19:30 – Questions 9/10: Andrew; Do you use Trend Following signals to manage your cash positions? How does DUNN use swaps in relation to fees?

01:26:50 – Question 11: Sam; Is there a time period that is too long-term for a trade?

01:31:00 – Benchmark performance update

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