Richard Brennan joins us this week to discuss how to spot potential outlier trades before they occur, the power of simple trading rules over complexity, why endogenous events move markets 90% of the time and news events are behind only 10% of large market moves, how Trend Following models safely reduce risk exposure automatically as drawdowns increase, how to approach correlated markets in your portfolio, how to achieve diversification with limited capital, the Efficient Market Hypothesis versus Adaptive Market Hypothesis, and the differences between Trend Following and ‘Trend Trading’.
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In this episode, we discuss:
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00:00 – Intro
01:19 – A big thank you to listeners of the show for leaving your 5-star reviews on iTunes, and feel free to share this link with 3 of your like-minded friends:
02:41 – Macro recap from Niels
04:13 – Weekly review of performance
11:14 – Q1; Jonathan: What are the parameters that indicate a high chance of an outlier trade?
17:22 – Q2; James: Do you treat correlated markets as individual markets or group them together?
21:24 – Q3; Adam: One system has a better average performance when looking at the backtest, and another system has a worse average performance in its backtest while having a large outlier, making its overall returns higher. Which system is better?
24:14 – Q4; Irving: How can I trade a 100 markets as an individual investor with capital limitations?
29:07 – Q5; James: How do you approach correlation risk management?
32:39 – The differences between Trend Following and the more common term ‘Trend Trading’
38:24 – Expanding on the theme of hunting for outliers, and how Jean Phillipe Bouchard’s research was useful in understanding the nature of outliers
01:01:53 – Efficient market hypothesis versus adaptive market hypothesis
01:22:03 – What importance does it have that we’re changing the narrative around Trend Following?
01:25:32 – Benchmark performance update
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PLUS: Whenever you're ready... here are 3 ways I can help you in your investment Journey:
1. eBooks that cover key topics that you need to know about
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2. Daily Trend Barometer and Market Score
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3. Other Resources that can help you
And if you are hungry for more useful resources from the trend following world...check out some precious resources that I have found over the years to be really valuable. Click Here