The Clenow Plunger – Finding the Pain Threshold for Trend Followers

• 06/24/2018 at 9:50 PM #74269
  Bard

  The Clenow Plunger

  “Trend Followers buy on 50 day breakout with the trend using a 3 ATR trailing stop. Position volatility is adjusted using ATR, targeting 20 basis points impact.

  So when do trend followers suffer? On sharp trend pullbacks of course. Whether that happens right after breakout or later in the trend, it’s these pullbacks that cause the problem. In particular when there’s a pullback far enough to trigger a stop loss and then turns back into the trending direction. This happens all the time and it’s highly frustrating.

  But what if we could quantify and measure trend following pain? Perhaps we can find a way to enter trades just as many trend followers are forced out?

  Let’s start with the trading model presented in my book and make an indicator to measure pain level. Quick recap: The model had a trend filter using 50/100 day EMA, entered on 50 day extremes and took stops at 3 ATR units against the trend. And that’s the one sentence summary of my 300 page book. Sorry for the spoiler.

  The stop logic is key here. What if we made an indicator that measures how many ATR units we are from the recent peak? Yep, that’s exactly what The Clenow Plunger does.

  The input numbers can of course be changed:

  • Check the trend filter, using a 50/100 EMA.
  • Check the last 20 day extreme price, in the direction of the trend
  • Check current price.
  • Calculate the difference between current price and 20 day trend extreme.
  • Normalize this difference by dividing it by a 50 day ATR.

   

  Now you’ve got an interesting indicator. When the reading is around 3, many medium term trend followers are exiting. If you do some simulations, you’ll also find that this is a pretty good entry point.

  This indicator can be used for entries into both counter trend and trend models, depending on how you want to handle your exit strategy.

  Note in these charts how the Plunger spikes up during pullbacks (downtrend), just as it should. It measures the extent of the pullback on a normalized basis. 

  In essence, it measures trend following pain levels. This can be traded in a few different ways of course. Having a good entry point is only part of making a complete trading model.” —
  Andreas F. Clenow, Chief Investment Officer of ACIES Asset Management AG.

  http://www.followingthetrend.com/2014/06/a-counter-trend-indicator/

  Andreas Clenlow Code:

  Clenlows Code:

  if (trend() ==1) _plunger.Current = (_top.Current - Close.Current) / _atr.Current; else _plunger.Current = (Close.Current - _bottom.Current) / _atr.Current;

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  if (trend() ==1) _plunger.Current = (_top.Current - Close.Current) / _atr.Current; else _plunger.Current = (Close.Current - _bottom.Current) / _atr.Current;

  Amibroker Formula for the ClenowPlunger:
  http://backtestwizard.com/the-clenowplunger-amibroker-afl/

  The Clenlow Plunger

  Trendup = EMA(C,50) > EMA(C,100);                 //Change the (50) to as you please. TrendDown = EMA(C,50) < EMA(C,100);             //Change the (100) to as you please. TwentydayHigh = ValueWhen(C > Ref(HHV(C,20),-1),C,1); //Change the C to H if you prefer. TwentydayLow = ValueWhen(C < Ref(LLV(C,20),-1),C,1);  //Change the C to L if you prefer. CurrentATR = ATR(50);                 //Change the (50) to as you please. CurrentClose = C; PlungeUp = (TwentyDayHigh – CurrentClose) / CurrentATR; PlungeDwn = (CurrentClose – TwentyDayLow) / CurrentATR; ClenowPlunger = IIf(trendup,PlungeUp,PlungeDwn); Plot(abs(ClenowPlunger),”ClenowPlunger”,IIf(Clenowplunger >= 3        AND Trendup,colorBrightGreen,IIf(ClenowPlunger >= 3 AND TrendDown,colorRed,colorBlack)),0,0,0,0,0,2);  //Change the 3 to as you please.

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  Trendup = EMA(C,50) > EMA(C,100);                 //Change the (50) to as you please. TrendDown = EMA(C,50) < EMA(C,100);             //Change the (100) to as you please.   TwentydayHigh = ValueWhen(C > Ref(HHV(C,20),-1),C,1); //Change the C to H if you prefer. TwentydayLow = ValueWhen(C < Ref(LLV(C,20),-1),C,1);  //Change the C to L if you prefer.   CurrentATR = ATR(50);                 //Change the (50) to as you please. CurrentClose = C;   PlungeUp = (TwentyDayHigh – CurrentClose) / CurrentATR; PlungeDwn = (CurrentClose – TwentyDayLow) / CurrentATR; ClenowPlunger = IIf(trendup,PlungeUp,PlungeDwn);     Plot(abs(ClenowPlunger),”ClenowPlunger”,IIf(Clenowplunger >= 3        AND Trendup,colorBrightGreen,IIf(ClenowPlunger >= 3 AND TrendDown,colorRed,colorBlack)),0,0,0,0,0,2);  //Change the 3 to as you please.

  The above formula uses extreme Closing prices. Andreas Clenlow may prefer to use extreme High or Low prices.

  The above formula also turns the indicator Red where possible shorts might be considered, or Green where possible longs might be considered.

  This looks interesting, an indicator written by a hedge fund manager that  measures how many ATR units the price spikes within a trend.

  The trade logic is that you enter in the direction of the trend (or you can use it for counter trends) on sudden wide moves in a trending price series  – this is the point when Trend Following systems can fail as positions are stopped out but the trend then resumes. To reiterate:

  “So when do trend followers suffer? On sharp trend pullbacks of course. Whether that happens right after breakout or later in the trend, it’s these pullbacks that cause the problem. In particular when there’s a pullback far enough to trigger a stop loss and then turns back into the trending direction. This happens all the time and it’s highly frustrating.”

  Would anyone be interested in coding this?

  Cheers,
  Bard

  

  Bard

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  06/24/2018 at 11:31 PM #74275
  JohnScher

  Sounds good.
  Who can code that?

  

  JohnScher

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  09/23/2018 at 3:07 PM #81122
  Bard

  Is there anyone who can code this Hedge Fund Managers strategy?
  Obviously Exits and Money Mgt. considerations need to be taken into account.
  Cheers, Bard.

  

  Bard

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  09/24/2018 at 9:16 AM #81157
  Nicolas

  Here is the code that translate the Amibroker indicator above into PRT:

  Trendup = average[50,1] > average[100,1]//Change the (50) to as you please. TrendDown = average[50,1] < average[100,1]//Change the (100) to as you please. TwentydayHigh = highest[20](close)[1]//Change the C to H if you prefer. TwentydayLow = lowest[20](close)[1]//Change the C to L if you prefer. CurrentATR = AverageTrueRange[50]//Change the (50) to as you please. CurrentClose = Close PlungeUp = (TwentyDayHigh - CurrentClose) / CurrentATR PlungeDwn = (CurrentClose - TwentyDayLow) / CurrentATR if trendup then ClenowPlunger=PlungeUp else ClenowPlunger=PlungeDwn endif r=169 g=169 b=169 if clenowplunger>3 then if trendup then r=0 g=200 b=0 elsif trenddown then r=200 g=0 b=0 endif endif return ClenowPlunger coloured(r,g,b)

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  Trendup = average[50,1] > average[100,1]//Change the (50) to as you please. TrendDown = average[50,1] < average[100,1]//Change the (100) to as you please.   TwentydayHigh = highest[20](close)[1]//Change the C to H if you prefer. TwentydayLow = lowest[20](close)[1]//Change the C to L if you prefer.   CurrentATR = AverageTrueRange[50]//Change the (50) to as you please. CurrentClose = Close   PlungeUp = (TwentyDayHigh - CurrentClose) / CurrentATR PlungeDwn = (CurrentClose - TwentyDayLow) / CurrentATR if trendup then ClenowPlunger=PlungeUp else ClenowPlunger=PlungeDwn endif   r=169 g=169 b=169 if clenowplunger>3 then if trendup then r=0 g=200 b=0 elsif trenddown then r=200 g=0 b=0 endif endif   return ClenowPlunger coloured(r,g,b)

   

   

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  Nicolas

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  09/26/2018 at 12:25 AM #81312
  Bard

  Excellent @nicolas, thanks for taking the time to code this interesting concept. I will run some backtests this week/weekend and let you know what I discover. Looking at the indicator graph now on the Dow DJI, it certainly does get in – in the majority of cases – at some good retrace points, My first thought is might because as easier to trade manually (for trend confirmation) and I also wonder if the trend definition (EMA crossovers) could be improved with a Kase Peak Oscillator (or Ehler’s Oscillator, or Linear Regression) confirmation to avoid getting in on the wrong side of the trend.

  

  Bard

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