DIYQuant Trend Following. Keep Winners Big and Losers Small

Last week I shared about my experience with trend following and one of the characteristics of trend following strategy is to let profit run (to keep winners big) and cut losses quick (to keep losers small). For this week's sharing, I will use a few concrete examples of some of the trades I made back in 2016 and 2017 to show you in general how my system's trend following works. Just to recap, trend following attempts to capture gains through the analysis of an asset's momentum in a particular direction. One of the criteria used to detect trending stock is to enter after 100 days breakout and exit after 50 days break down



800 Super Holdings Limited (5TG.SI)

On 12th Oct 2016, the system confirmed the stock's uptrend and entered a position at 0.815. The rise was quite smooth sailing. The position was held for 9 months until 14th Jul 2017 when the trend started to reverse and was sold at 1.235 for a profit of 55.83% (incl dividend). From then onwards, the stock did not go back to the selling price anymore even until now. For trend following, not only you need to be able to catch the trend, you also need to adhere strictly to the exit rule to prevent holding on to a downtrending stock for too long

Health Management International Ltd (588.SI)

On 23rd Aug 2016, the system confirmed the uptrend and entered at 0.42. The stock rose rapidly but started to whipsaw in Dec 2016. After holding for 6 months, the system got out on 13th Feb 2017 at 0.625 for 49.40% profit (incl dividend) after having confirmed that the stock is not trending anymore. Since then the stock has been whipsawing until now. By exiting once the trend reversed, the system was able to deploy the capital to other potential up-trending candidates.

Above are the success stories. Below let's look at the losing trades that were kept small.

Jadason Enterprises Ltd (J03.SI)

This is my worst performing stock so far. The system entered a position on 17th Jul 2017 at 0.122 after having confirmed an uptrend. However the uptrend did not materialise and the stock started to down trend immediately. After a month, the system sold off the position on 18th Aug 2017 at 0.102 for a loss of 16.39%. The price did not make back to the selling price until now. If the system did not cut loss quick, I would end up holding a loss until now and missed an opportunity to invest in another upcoming trending candidate.

Ellipsiz Ltd (BIX.SI)

Here is a more recent example. The system entered the stock on 21st Sept 2017 at 0.80. It trended for a while only to reverse sharply in late Oct. The system decided to cut loss on 30th Oct 2017 at 0.795 for a loss of 0.63%. The price whipsawed until early December where it dropped further and since then the price did not go back up to the selling price.

Although these are just a few examples of trades I used to illustrate, it clearly shows how trend following can be done systematically. You can see how a few big wins can cover the many small losses and in the end bring back a huge profit in the long run (by the way, I haven't brought out my multi bagger yet =p) By systematically trade using trend-following strategy in this way, the possibility of having an edge in your trading is not unachievable.

Visit https://diyquantfund.blogspot.com to check out my system's latest performance.

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