Tactical Trend Trading: Strategies for Surviving and Thriving in Turbulent Markets by Robert Robbins

Author:Robert Robbins [Robbins, Robert]
Language: eng
Format: epub
Tags: General, Business & Economics, Investing, Investments & Securities, Personal Finance
ISBN: 9781430244790
Publisher: Apress
Published: 2012-11-07T05:00:00+00:00

Not a Black Box

There are three classes of people: those who see, those who see when they are shown, those who do not see.

—Leonardo da Vinci

Systematic trend following is not a black box to the trader who creates and uses the system. Despite the common misconception that systematic trend following is mysterious, risky, and unproven to the average investor, nothing could be further from the truth. These misconceptions persevere, however, owing to the large quantity of advertising thrown at the investing public by mutual fund companies. In an effort to convince potential clients that they are both risk averse and disciplined in following investment rules, mutual funds hold themselves up as prudent stewards of capital. None of the aforementioned is true. Mutual funds employ no risk control, fully capturing the downside of every bear market, and they underperform consistently through each investment cycle. In addition, they don’t employ systematic rules that offer any edge. If they did, they would outperform with less risk, but the opposite is clearly true. For the mutual fund investor, research has shown that it would be far better to invest with index funds via a conservative, low-cost company like Vanguard than it is to chase the marketing, asset-gathering machines of the mutual fund world.1

In truth, systematic trading has been generating solid risk/reward results for investors since the 1970s. It not only captures the upside of bull markets, but it produces good returns and provides alpha-generating performance in bear markets as well. In addition, systematic trading diversifies traditional investment portfolios by adding markets like commodities and currencies that are not typically offered in most investment vehicles. It also offers global diversification, as bonds, currencies, equities, and commodities from numerous global regions and countries can all be added to a systematic trading investment portfolio. Table 6-1 shows the historical performance of the BTOP50, which is an index of the 50 largest managed futures commodity trading advisors (CTAs). The index performed impressively, providing positive returns through the worst bear market periods of 1987, 2002, and 2008 and highlighting the BTOP50’s ability to generate profits in good times and bad.

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1 Christopher B. Philips, “The Case for Indexing,” Vanguard, February 2011, https://institutional.vanguard.com/iwe/pdf/ICRPI.pdf.

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