Top Traders Unplugged

SI300: Finding the Optimal Trend Following Rules ft. Richard Brennan

Jun 15, 2024

Expert in trend following strategies, Richard Brennan, discusses finding optimal trend rules, market regimes, Markov models, and AI's impact on trading competitiveness. Topics include industry performance updates, using ATR for position sizing, optimizing rules in different market regimes, skepticism in fund performance, and exploring future trend episodes.

57:19

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Episode guests

Richard Brennan

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Episode notes

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Quick takeaways

Optimize trend following with Markov processes for market regimes.

Tailor portfolio adjustments based on market states for enhanced performance.

Leverage AI in trend following for predictive insights and portfolio optimization.

Deep dives

Markov Process and Optimal Trend Following Models

Markov processes are utilized to optimize trend following portfolios, determining the best models for market regimes. An in-depth analysis of simple moving average and exponential moving average models reveals varying optimal settings. The mathematical formulas derived through Markov processes offer predictive insights for adjusting models and allocations based on market transitions and states. These processes highlight the importance of adapting trend following strategies to evolving market conditions for enhanced performance.

Intro

2min

Insights on European football, Elon Musk's paycheck, market unpredictability, and trend following challenges

4min

Indices Updates and Trading Costs Discussion

8min

Optimizing Trend Following Rules with Mathematical Models

32min

Skepticism and Strategies in Fund Performance

6min

Exploring Trend Barometers, Trend Updates, and Future Episodes

4min

Together with Richard Brennan, we discuss the optimal way of doing trend following and how to find the optimal set of rules to use in different market regimes, how to examine market states through Markov models and how artificial intelligence will impact trend following and make short-term trading incredibly competitive. Lastly, we ask ChatGPT what the optimal way of doing trend following is.

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50 YEARS OF TREND FOLLOWING BOOK AND BEHIND-THE-SCENES VIDEO FOR ACCREDITED INVESTORS - CLICK HERE

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IT’s TRUE ? – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written here.

And you can get a free copy of my latest book “Ten Reasons to Add Trend Following to Your Portfolio” here.

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Episode TimeStamps:

01:04 - What has been on our radar recently?

04:03 - Industry performance update

07:50 - Q1, Dennis: Given the nature of lengthy hold periods, do you recommend trading cash CFD's accounting for the overnight costs?

11:40 - Q2, Ramki: Using ATR for position sizing when backtesting a trend following system

14:47 - Optimal rules to use in different kinds of market regimes

18:46 - How to use Markov models and mathematical algorithms to optimize trend following strategies

41:17 - Is trend following threatened by AI?

51:39 - "ChatGPT, what is the optimal way of doing trend following?"

Resources discussed in this Episode:

SI300: Optimal Trend Following Rules Paper

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PLUS: Whenever you're ready... here are 3 ways I can help you in your investment Journey:

1. eBooks that cover key topics that you need to know about

In my eBooks, I put together some key discoveries and things I have learnt during the more than 3 decades I have worked in the Trend Following industry, which I hope you will find useful. Click Here

2. Daily Trend Barometer and Market Score

One of the things I’m really proud of, is the fact that I have managed to published the Trend Barometer and Market Score each day for more than a decade...as these tools are really good at describing the environment for trend following managers as well as giving insights into the general positioning of a trend following strategy! Click Here

3. Other Resources that can help you

And if you are hungry for more useful resources from the trend following world...check out some precious resources that I have found over the years to be really valuable. Click Here

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