Trend Trading Stock Index or Currency Futures?

[Jeff65 10]

This is a little study I did back in January of 2010 when I was interested in demonstrating which popular futures markets exhibit more trending behavior. To do this I devised a simple trend following strategy that consisted of a single 50-period simple moving average on a daily chart. The system only takes long signals. It enters a new trade when price crosses above the moving average and closes that position when a daily bar closes below the MA. I'm not attempting to create a trading system per say, but creating indicator that measures a market's trending characteristics.

 

The rules are below:

Buy close of bar when Close > SMA(50)

Sell close of bar when Close < SMA(50)

 

Because this is a trend following system, it should perform better on markets that exhibit trending behavior. I tested this system on some popular stock index futures markets and currency futures markets. The chart below is organized from left to right with the best producing market. Notice which markets are grouped to the left and which markets are grouped to the right.

 

 

2000 - 2009

Daily Bars – No Commissions – No Slippage

 

I think this provides some evidence that the stock index markets do not have nearly the trending characteristics of the currency futures markets. More specifically, the Euro really shines as a trending market. I know from personal experience that I generate consistently better results when I trade my trend following strategies on the Euro currency futures as apposed to S&P Emini. In fact, I no longer trade S&P Emini with my trend following setups.

 

If you have a trend following system and trade the stock index markets maybe you will want to take a look at the currency futures.

[SIUYA 11]

trend trading is more about money management, participation and having a diversified portfolio. You never know when stocks will trend more than currencies.

Just because stocks have not trended as much over the last ten years means little. Look at 1982-2000. Looking backwards to find the right combination of trending instruments is curve fitting and just that - looking backward.

[Jeff65 10]

trend trading is more about money management, participation and having a diversified portfolio. You never know when stocks will trend more than currencies.

Just because stocks have not trended as much over the last ten years means little. Look at 1982-2000. Looking backwards to find the right combination of trending instruments is curve fitting and just that - looking backward.

 

I don't trade in the 1980's. I can only trade what the numbers tell me today. For day trading futures in the current market environment, EC has been much more kind to me than YM or ES. My trades last from several minutes to several hours and trends in EC are much more pronounced than ES.

 

This is just my meaningless opinion.

 

As for longer term swing trading, that is a different game were diversification in non correlated markets does play more a role.

[SIUYA 11]

True - I completely understood, but backtesting either for the 1980's or the last 6 months is still backward looking. You dont want to fall into the trap of using numbers to justify a viewpoint....such as currencies trend less than equities. thats all.

For short term trend trading models, I have always wondered if the context of what is hot right now is a great way to look at it - ie; a volatility measure - however even a short term volatility measure is not necessarily a great indicator of what is trending.

If you are really interested in a guy who does a lot of interesting number crunching for trend following (although its for long term stuff, so maybe not your bag) check out Au.Tra.Sy blog - Automated Trading System by Jez Liberty

[Jeff65 10]

True - I completely understood, but backtesting either for the 1980's or the last 6 months is still backward looking. You dont want to fall into the trap of using numbers to justify a viewpoint....such as currencies trend less than equities. thats all.

For short term trend trading models, I have always wondered if the context of what is hot right now is a great way to look at it - ie; a volatility measure - however even a short term volatility measure is not necessarily a great indicator of what is trending.

If you are really interested in a guy who does a lot of interesting number crunching for trend following (although its for long term stuff, so maybe not your bag) check out Au.Tra.Sy blog - Automated Trading System by Jez Liberty

 

Thanks. I do check in on that site on occasion. Take my studies for what they are. For me EC trend better and for you, that may not be true.

 

I have many more studies I'll post over the next few weeks when I get some time.