The Core Principles of Systematic Trend Following Part 1 of 2

In this first instalment of a two-part series on "The Algorithmic Advantage," we embarked on an insightful journey into the realm of systematic trading with their guests and friends, Moritz Seibert and Moritz Heiden from Takahe Capital. This episode, rich in content and depth, served as a prelude to an in-depth exploration of the nuanced world of quantitative trading.

The episode began with a warm introduction, as Seibert and Heiden shared the winding paths that led them to their current positions. Seibert, with a hint of nostalgia, recounted his early aspirations in tennis and how this dream pivoted towards a dynamic and fulfilling career in investment banking. Heiden, contrasting yet complementing Seibert's narrative, discussed his academic journey, culminating in a PhD in statistics and finance. He emphasized the critical importance of simplicity in trading models, a principle that had significantly shaped his approach to trading.

As the conversation unfolded, it became evident that both Seibert and Heiden viewed the financial markets through a lens of complexity and adaptability. They painted a picture of these markets as intricate systems, where keeping trading models straightforward was not just a preference but a necessity. They cautioned against the dangers of overfitting data and expounded on their commitment to systematic trend following, supplemented by a strategy that emphasized diversification across a spectrum of markets.

Risk management was a central theme of the discussion. The duo delved into the importance of minimizing significant losses while allowing profits to run their course. They explored the concept of positive skew in trade distributions, elucidating how this approach had become a cornerstone of their trading philosophy.

The narrative then shifted to the more technical aspects of trading, such as volatility targeting and position sizing. Seibert and Heiden shared their scepticism about volatility targeting, articulating their concerns about its potential to introduce negative skew into portfolios and thereby disrupt the intended distribution of returns.

An enlightening segment of the episode was dedicated to the importance of diversification and strategic market selection. The guests pondered the inclusion of non-standard CTA markets in their strategies, a decision they noted would hinge on the growth of their assets under management. This part of the discussion highlighted the importance of flexibility and adaptation in their approach to market selection.

As the episode progressed, Seibert and Heiden addressed the challenges inherent in systematic trading. They emphasized the need for constant adaptation to varying market conditions and underscored the importance of evolving trading strategies to stay relevant and successful.

Interwoven with the technical discussions were practical insights and personal anecdotes, which added a layer of relatability and depth to the conversation. These stories provided listeners with a glimpse into the real-world implications and applications of systematic trading strategies.

This episode set the stage for a comprehensive exploration of systematic trend following and risk management, eagerly paving the way for the forthcoming second instalment in this insightful two-part series on quantitative trading.

Getting in touch with Takahe:

w: www.takahe.capital

x: https://twitter.com/moritzseibert

x: https://twitter.com/moritzheiden

li: https://www.linkedin.com/in/mseibert/

li: https://www.linkedin.com/in/moritz-heiden-45a90548/