The Significance of Trading Frequency and Stop Loss in Trend Following Strategies

17 Pages Posted: 4 Nov 2013

See all articles by Farzine Hachemian

Farzine Hachemian

Modus Quantitative Advisors, LLC

Sébastien Tavernier

Modus Quantitative Advisors, LLC

Anne-Sophie Van Royen

Modus Quantitative Advisors, LLC

Date Written: October 14, 2013

Abstract

We investigate the impact of two practices generally leading to increased trading on a generic trend following model; the frequency of trading and stop loss rules. For generality, we use one of the most widely used indicators the moving average cross over and simulate portfolios comprised of liquid global futures markets. Firstly, we examine the return streams of daily vs. weekly traded portfolios. Contrary to the general expectation that a higher frequency of trading is more beneficial, we find that when applied to the same strategies, daily trading of portfolios does not significantly improve risk and return characteristics of the strategies. Secondly, we analyze the impact of implementing simple stop loss rules to both sets of portfolios. We find that these rules are the most effective in preventing severe losses but results are more ambiguous when the losses are within expected limits.

Keywords: Trading Frequency, Stop Loss, Trend Following, Futures

JEL Classification: G10, G11, G12

Suggested Citation

Hachemian, Farzine and Tavernier, Sébastien and Van Royen, Anne-Sophie, The Significance of Trading Frequency and Stop Loss in Trend Following Strategies (October 14, 2013). Available at SSRN: https://ssrn.com/abstract=2349848 or http://dx.doi.org/10.2139/ssrn.2349848

Farzine Hachemian (Contact Author)

Modus Quantitative Advisors, LLC ( email )

520 Madison Ave.
26th Floor
New York, NY 10022
United States

Sébastien Tavernier

Modus Quantitative Advisors, LLC ( email )

520 Madison Ave.
26th Floor
New York, NY 10022
United States

Anne-Sophie Van Royen

Modus Quantitative Advisors, LLC ( email )

520 Madison Ave.
26th Floor
New York, NY 10022
United States

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