Andreas Clenow’s new book takes the reader through creating a mechanical trend following system using momentum ranking for stocks in the S&P 500 index. This is an outstanding trading book because it shows the reader year by year performance, and explains the emotions that a trader goes through during drawdowns in trading capital. Mr. Clenow does an amazing job of explaining the realities of trading, including how an equity curve can cause traders to abandon long term winning systems due to short term losses.
I like that he emphasizes that you will only be profitable by focusing on your trading principles for risk management and capturing stocks that are moving with momentum, and not a magical optimization of a system with historical data, or finding the perfect indicators.
He uses a 200 day simple moving average on the S&P 500 index as his primary going to a cash position for his momentum stocks. This is the same one I use as my major trend indicator, and it can cut your drawdowns in half during corrections and bear markets, and his system proves this. He explains the difficulty of trend trading downtrends through selling short, because the stock market tends to be more volatile and often rallies during bear markets. This makes it more difficult to capture downside momentum and trends.
He illustrates the necessity of learning coding if you want to create thoroughly backtested mechanical trading systems at a professional level.
This book is a must have for every trading library. His concepts, warnings, advice, and systematic quantified trading approach are important for any trader. It is one of the best trading books I have read because it brings together all the important trading principles and concepts and explains how they can be implemented in the real world.
Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies