Dennis taught his students a mechanical Trend Following system and let them trade with his own capital. After being kept secret for more than a decade, the rules were revealed and floated on the internet for a while. Now that the rules have been made public, it is possible to backtest them and see how they would have performed on the recent markets. Such test forex trading for a living course 1on1fx pdf can be found on the Trading Blox forum.
Here is a snapshot of the memo that Dennis sent to all traders asking them to cut their position size in half. Turtle system under-performance is an illustration of that. Some might also say that market conditions are changing, and systems need to adapt to these changing conditions. Although, some also say that this argument is specious, citing Bill Dunn as an example of a CTA claiming to use the same rules as when he started in the 70’s. I thought it might be more interesting to expand and spend more time on the possible interpretations above in a post of its own. Part 2 will take this discussion further.
Obviously if such an experiment were run today the system would have to be appropriate for the way markets behave today. I just finished read Covel’s Trend Following and The Complete Turtle Trader and found that it is possible to trading for a true living trhough trend following. Well, I’m happy to say that I will wait for another article you write and learn from it as well. Agree with the debate between Eckhardt and Dennis as the main point for the Turtle experiment. Trend Following system performance can break down.
I have not run into the trend following is dead crowd myself. Sounds to me they may be a little ignorant of how trading actually works. By nature trading models will go through periods of ups and downs, unless you’ve got a perfect arb. Given that trend following is long term draw down periods may also be longer than other short duration models. I’d be curious to know where you ran upon this crowd that believes if something is not working it is dead? Constructive criticism here so don’t take it personally, but perhaps you should distance yourself from those who make such silly claims about how markets work. It sounds to be to not only be an arrogant statement but also an uniformed statement.
One cannot say if something is dead or not until it actually is. This is especially true of trading models. It should also be noted that I am not much of a trend follower so I am not biased to it one way or the other, but I do have a pretty firm understanding of speculative trading models. I can pretty confidently say that between three systems I follow, one would do very well over the next 5 years. What I can’t tell is which one. Now assume there are three hedge funds or CTAs, and each one adopts one of the three systems.
One of them is likely to be lucky. My general feel of trend following systems is that the shorter-term ones have been losing their edge, but the longer-term ones are still holding their ground. It would be interesting if you could post up a chart comparing the turtle equity curve and an equity curve based on a simple 12 month momentum that AQR talks about in this paper. I have been trading self-made automated systems since early 2009.