Clenow’s algorithm is definitely an indicator for the current State of Trend Following (SOTF). However, the 3 X ATR trailing stop mechanism actually dampens the profit/draw down ratio. Take a look at this chart.
All Trend Following mechanisms have a very common thread in their entry mechanisms. The thing that separates them is the preemptive exit. Do you allow the the algorithm to exit on a purely market defined method or do you overlay trade management? Here the best approach was to let the Bollinger Band system run unfettered; even though it seems somewhat illogical. Many times trade management actually increases draw down. Is there a solution? What about this – keep risk down by trading a small, yet diverse portfolio of high volume markets and overlay it with a stock index mean reversion algo. Take a look.
Should’ve, Would’ve , Could’ve.
This could be scaled up. The mean reversion helped lift the chart out of the flat and draw down periods of late. However, the smaller portfolio did OK during this time period too! Can four or five high volume markets replicate a much larger portfolio? All tests were carried out with TradingSimula18 – the software that comes with my latest book.