I have been using the test portfolio to test a new trend following system. I call this system Trend Following With Ranking. The system uses three criteria to select trades. First, a trend following algorithm is used to identify the trend direction. A preliminary trade direction and a ranking algorithm, both taking into account volatility, are used to select assets from a basket of futures contracts. Finally, those futures for which the trend and preliminary directions agree and which have a certain ranking are selected for trading. Position sizing is based on volatility and a maximum fraction of account size.
Each position has an initial stop which will be computed when the order is filled. The stop is fixed until a target is reached. When the target is reached, the stop will be recomputed and converted into a trailing stop.
Positions are held for four calendar weeks, assuming that a stop has not been activated, at which time, the algorithm is rerun for the entire basket of futures contracts.
Initial positions are:
long: crude oil, 2 year t-note, 5 year t-note
short: cocoa, natural gas, rice, lean hogs
Note that I have changed the name of the artificial intelligence 1 + trend following system to Trend Following With Ranking.