Strategies · Library · Futures
§10.4Trend
Trend following (momentum)
Go long contracts with positive past returns and short those with negative, scaling each by inverse volatility. Variants demean against the market.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Futures
- Held for
- Months
- Data
- ARCANE has the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Sign of past return per future.
- Entry and exit
- Rebalance on a regular cycle.
- Sizing
- Inverse volatility, normalised.
How it fails
- Whipsaws
- Crowding
- Short leg
Data it needs
- futures daily closes
Front-month closes exist.
How ARCANE uses it
A Call could cite a trend state across futures.
Builds as a long-only proxy. Long-only: hold the strongest futures while they beat cash.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §10.4, p. 97 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.