Estlander & Partners Alpha Trend Program
Alpha Trend’s investment philosophy is based on the following theses:
– All relevant information is reflected in historic price movements.
– Quantitative analysis is the most effective way of accessing information about future market price movements.
– Historic price movements repeat and provide investment opportunities.
– Diversification across a broad range of markets maximizes the investment opportunity.
– Alpha Trend capitalizes on market moves driven by investor behavior in a systematic and disciplined way.
The system tries to exploit profit opportunities based on market participant’s behaviors. There are psychological reasons behind the existence of trends and there are also economical reasons for some participants to reduce volatility. The philosophy of the system is to trade with the trend and take on volatility. That is achieved by selective short-term trading in line with the longer-term trend and having the risk management focused on drawdowns instead of volatility reduction.
The program takes selective breakouts in the direction of the trend by a unique combination of level identification and identification of market structure. The methodology leads to trades in varying holding periods with the average trade lasting 28 days but some positions can be held for 6 months and longer. The strategy is applied on a diversified futures portfolio of 74 markets but being selective in position taking holds full positions only in 29 markets on average. The model and its parameters are the same for all markets in the portfolio.
Our risk management is focused on drawdown control and worst case scenarios. The risk management is an integral part of the model and takes a bottom-up approach when evaluating portfolio risk. The sizing of new positions is dynamic and based on the volatility of the markets and the total risk in the portfolio at the time of entry. All position risks are accumulated to achieve a better estimate of a worst case scenario and to avoid an over-reliance on low or negative correlations.