Thread by @technovestor

Trend-Following combined with Non-Directional Options trading is perhaps the best of discoveries we have found over the last few years in systematic trading. Notice how, when Trend Following loses, Options makes money. It's probably a bit early in the day, but my sixth

sense tells me this is going to give us the big boost we have been looking for. There have always been some of the Arguments against Trend-Following and critics of Trend Following are rather more judge-mental and who live less in the present moment.

a) Recovery Period: The longer recovery periods from draw-down are reduced because as they say- approximately 70% of the time markets are side-ways. I am not interested in any debate here whether this is 60% or 80% or 73.7%. Since Debating has never earned me any brownie points

in trading

b) Reduced Draw-down: The absolute draw-down levels of Trend-Following can test the patience of best of the best. Everybody has a tipping point. And there are very few Ed Seykota's (I mean, Ed, there is probably only one), Bill Dunn and the likes who have stomached

multiple draw-downs in their trading life and been able to net net, stick to the plan trade successfully

c) Higher Sharpe / Gain To Pain Ratio: As the overall portfolio may have lesser losing months and increased returns, the reward to risk ratios improve when we combine

Directional and Non-Directional Strategies

d) Optimum utilisation of Capital: There are periods where money allocated on a Trend System is idle or less deployed. This money can be used, virtually freely, to run non-directional strategies with defined risk and relatively lower

draw-downs.

e) Scalability: Since Trend-Following algos have a limit to the capital they can absorb, by adding Non-Directional strategies, the overall Capital the portfolio can handle goes up. This is because of the complementary nature, as draw-downs are overall lower, one

may be able to afford higher slippages in Trend-Following. Especially I have seen periods like 2013 December and 2019 July-August where there was reduced liquidity in Single Stock Futures, and in these choppy periods, draw-downs increase significantly, and we are at the risk of

hitting the "Uncle Point" (Max Draw-down- as Ed calls it). So the chance of the venture failing, where either client or fund manager or both lose their nerve, is high. With the non-directional strategies actually tending to work well in choppy markets, these strategies could

absorb the otherwise higher draw-downs of Trend-Following. Scalability, I feel, is one of the biggest edges.

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