If you would like to purchase the rules of the futures trend-following strategy, click here.
Update (weekly) after the close of Friday, February 14, 2025 (backtest):
- The strategy is down 2.3% year-to-date.
- The drawdown from equity highs is 7%.
- There are 14 open positions, 13 long and 1 short.
Trend-Following Subscription
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Details of the strategy used in these daily reports
Timeframe: Daily
Data: 23 continuous, back-adjusted futures contracts.
Strategy Type: trend-following based on breakouts, exit long, and reverse to short with stop-loss.
Maximum positions: 23, long or short.
Position size: Based on stop-loss and maximum risk per position.
Trade entry: All trades are executed at the opening of the next bar.
Stop-losses: All stop-losses are executed intraday.
Backtest results are updated weekly after the close of the market. Backtest range: 01/02/1990–02/14/2025
The Risks of Trend-Following Strategies
Trend-following strategies attempt to capture long-term market trends, also known as outlier trades. The implementation of stop-losses results in a low win rate as the strategies exit with a loss until the onset of a trend. This style of trading can be extremely rewarding over the long term, but it is hard and could lead to a loss of discipline in the short term.
Trends and trend following are not the same thing, and many confuse the two. A trend-following strategy will not identify trends where there are none. From 2004 to 2016, or 13 years, the annualized return of the top 20 CTAs was 2.4%. However, the dispersion in CTA returns is high, and it is not reflected in the averages. There is a high specific risk in choosing a CTA or a trend-following strategy due to the huge optimization space.
Furthermore, proper execution of trend-following strategies with many futures contracts requires sufficient capitalization. For about 20 contracts, the approximate initial capital is probably around a million dollars. Otherwise, due to insufficient capital, a strategy could miss a few profitable trends, negatively impacting the Sharpe and MAR ratios.
Trend following is a volatile style of trading with large equity swings. This style of trading is not for everyone.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
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