Trend Following Strategies, Carry and Systematic Futures

Trend following strategies are among the oldest in systematic trading and among the most studied. Managed futures funds have run it for decades, and academic work has traced its returns back over a century of data. Its rules are simple; its results depend on how carefully the portfolio is put together.

How does a trend following system decide what to trade?

It measures whether each market has risen or fallen over a lookback period, using a moving average, a breakout or the sign of past returns, and takes a long or short position accordingly. Positions are scaled so that a quiet bond market and a volatile commodity market each contribute a similar amount of risk. The edge comes from holding many such positions across asset classes.

Why does trend following have long losing periods?

Because it needs sustained moves. In markets that move sideways or reverse sharply, signals flip and positions lose small amounts repeatedly. The strategy has tended to do well in prolonged moves, including some crises. You will measure its drawdowns and learn why parameters tuned to avoid them in the past rarely avoid them in the future.

What makes futures different from stocks for a systematic trader?

Futures trading is where many systematic strategies live. One account reaches stock indices, government bonds, currencies, energy, metals and crops, and every contract can be bought or sold short with equal ease. The mechanics are less forgiving than shares, and this course covers them in the order you will meet them.

Contracts expire, so a strategy must roll from one to the next and handle the price gap between them. Each contract has its own size and tick value, so positions must be sized by risk rather than by count. And the price of a future differs from the spot price by carry, which is both a cost and a source of return.

Why does carry earn a return at all?

The carry trade earns the gap between what one asset yields and what another costs to hold. It is one of the oldest and best-documented sources of return, found in currencies, bonds, equity indices and commodities alike. This course defines carry the same way in every market, builds a systematic carry portfolio, and measures the crashes that come with it.

Theory says the higher-yielding currency should fall by the interest gap, and in the data it does not, on average. The return is widely read as payment for bearing crash risk: carry loses when markets panic and money is needed most. The course tests that reading on decades of data.

Who is this course for?

Traders and investors interested in systematic macro and managed futures strategies.

What you will be able to do

• Build moving average, breakout and time-series momentum signals.
• Size positions by volatility and target a portfolio risk level.
• Construct a diversified trend following portfolio across futures markets.
• Explain the long-run evidence for trend following and its drawdowns.
• Read a futures contract specification and compute tick values, notional and margin.
• Define and measure carry in currencies, bonds, equity indices and commodity futures.

Syllabus, module by module

1. What trend following is

   Time-series versus cross-sectional momentum, and the managed futures industry.

2. Signals

   Moving average crossovers, breakouts and return-sign momentum; why they are closely related.

3. Volatility targeting

   Estimating volatility, scaling positions and setting a portfolio risk target.

4. Diversification

   Building across equity, bond, currency and commodity futures; correlation in crises.

5. How futures work

   Contracts, exchanges, clearing, daily settlement and delivery.

6. What carry is

   The return an asset earns if prices stay still, defined the same way across markets.

What every course contains

Every paid course comes with the first seven and the certificate, whichever level it sits at. The proctored exam and the credential come when the course is taken as part of a Certificate, Diploma or Fellowship. Everything is self-paced: the material is yours to study in any order, at any hour, for the whole of the license.

1. Workbooks. Written to train the thinking patterns and the important concepts of the course, with worked problems and the reasoning behind each answer, so that you learn to think the way the subject is thought.
2. Audio edition. Focused, well-presented recordings with explainers and examples of the material, made to be interesting, relevant and entertaining, so that the general subject can be learned away from the desk.
3. Notes. Pre-produced notes with every fact the course relies on, written out in full, so that nothing has to be transcribed from the films or the audio.
4. Cheat sheet. One sheet with every important learning concept of the course on it, to keep beside you during the work and to revise from before the exam.
5. Named sources. Every fact in the notes names its source, the paper, the book or the dataset, for anyone who wants to dig in further.
6. Explainer films. Focused films, in the style of the sample films on the catalog page, that walk through the most difficult concepts of the course with visual explanations of a high standard.
7. Transcript. A full transcript of every film and every audio recording, searchable and quotable.
8. Proctored exam. Taken as part of a Certificate, Diploma or Fellowship, the course ends in a proctored multiple-choice questionnaire, with a pass mark of 60% and three retakes included. A course taken on its own is assessed by its coursework and has no exam.
9. Verifiable certificate. A certificate of completion that a third party can verify: an employer sends the code on it to the credentials office and receives written confirmation of the course, the date and the result.
10. Credential of the program. The Certificate, Diploma or Fellowship of the program, track or path the course belongs to, awarded when every course in it is passed. Which one depends on the program you choose.

How the certificate is earned

An assessed project: you build a diversified trend following system on futures data, test it with costs and roll handling, and submit the code with a report. On a pass you receive the Course certificate in Trend Following Strategies, Carry and Systematic Futures, issued by the Institute with a verification code. A course taken as part of a Certificate, Diploma or Fellowship ends in a proctored online exam with a pass mark of 60%. The fee includes three retakes; each attempt after that carries a reduced proctored exam fee. A course taken on its own is assessed by its coursework and has no exam. Read how certification works.

Before you start

Working Python with pandas, and the material of Algorithmic Trading Foundations. Systematic Futures Trading is helpful but not required.

• Algorithmic Trading Foundations: From Idea to Paper to Live