Trend Following with Managed Futures: The Search for Crisis Alpha

This is more than a just book concerning futures trading. It is relevant to anyone interested in trend following regardless of the markets that one trades. The book does an admirable job of defining the basis of trend following as divergent risk taking in contrast to convergent strategies such as buy-and-hold. Trend following is a risk-minimizing way of dealing with uncertainty, as well as a way to capture crisis alpha.

The authors show convincingly that non-optimized trend following can dramatically improve performance, and they do so over the longest back test I have ever seen covering 800 years of data. To me, that alone was worth the price of the book.

Greyserman and Kaminski looked at 84 markets covering equities, fixed income, foreign exchange, and commodities as they became available from 1223 to 2013. They established long and short positions that were rebalanced monthly based on the trend over the preceding 12 months. They point out that moving averages, in contrast to their approach, may change signs often which can lead to unwanted trading and associated trading costs.

Trend following showed an average annual return of 13% with an annual volatility of 11% and Sharpe ratio of 1.16, versus a return of 4.8%, volatility of 10.3%, and Sharpe ratio of 0.47 for buy-and-hold. Trend following also had positive skewness, while most asset classes without trend following have negative skewness. Positive skewness means less chance of large drawdowns.

The largest drawdowns with trend following were approximately 25% lower than with buy-and-hold, and the duration of those drawdowns was 90% shorter. Trend following also showed positive performance during periods of market turmoil. It also had a low correlation with traditional asset classes, interest rate regimes, and inflation.

I use a similar, long-only trend following method myself with stocks and bonds as described in my book, “Dual Momentum Investing”. I was therefore grateful to the authors for providing this impressive validation of trend following based on 800 years of data.

Great book.

I recommend the readers of this book also read my book Profit from bull, bear and sideway markets . Its main strategy is a simple but profitable trend following. It is price-based concentrating on price movements and ignoring fundamentals. It shows you ‘HOW’ with step-by-step instructions starting with simplest SMA-50 with no charting – a free site calculates it for you. Then it includes SMA-200 and optionally other technical indicators such as RSI(14), MACD, Bollinger Band and Double Tops. All are available free from the internet.

My other short-term strategies, strategy based on relative strengths, Sector Rotation and Momentum Investing, are also included in this book. Sector Rotation has 12 strategies from simple market timing, rotation of several sectors to top-down investing. Momentum strategies include contrarian, headline, earnings, short squeeze, year end, turnaround…

It has over 400 pages. Check out the extensive Table of Contents. All chapters are practical and useful. Hence it is harder to read and you need to try out some techniques discussed. It has been the updated with the current market events and today’s available tools. It represents my many decades in investing and hundreds of books on trading. I only include those strategies that would most likely work in today’s market. This book is for both beginners and experts.

Timeless guide for serious researchers in the Trend Following space.

A very good overview and in-depth guide to a modern trend system. Highly recommended for practitioners.

I’ve read a ton of trading books and within that genre, trend following, but if I were you I would look elsewhere. It’s a long book chock full of important looking charts but I could not wait to finish it and I’m not sure there was much useful. Sorry, look elsewhere.

This is the worse book ever on trend following, can I give it a negative -5 stars. He goes into incredible academic analysis of trend following, yet he never defines what trend following he is using. So all the analysis is worthless. Is it TSMOM? Is it a moving average? Which one? Academic research that you can’t later validate is worthless. Quantitative Momentum by Wes Grey is a good book.

I found it more of a brochure on the merits of trend following as opposed to a substantive look into actual trend following trading methods and strategies. If you need to convince yourself that trend following might be a good strategy then perhaps you might find this useful. Otherwise it is a dreary read with page after page of graphs recutting the same data and standard insights with lots of nearly useless statistical measures. Note as well that some of the glowing reviews come from interested parties who are, well, trend following publicists.

This is an excellent and compelling academic “proof” of Trend Following. The authors dig into the record of trend following for the last 800 years using a non optimized systematic approach and find that the returns are persistent. Good thing, since billions are traded in the trend following space.
Though the book has a ton of economic formulas, you do not need to deconstruct them to understand the basic idea of what is being shown.
The sections of the book deconstruct methods; risk management types and time frames; high and low interest rate environments etc.
Very interesting is the discussion of divergent versus convergent risk taking, and the research showing that divergent risk taking is stable over time.
If you are interested in actual system building and the other aspects of managing a fund, read “Following the Trend: Diversified Managed Futures Trading” by Andreas Clenow, but for foundation information, exploring variations and academic research proving the method you need to read this book as well.