If you would like to purchase the rules of the futures trend-following strategy, click here.
Update after the close of Friday, December 20, 2024:
- The strategy ended the week with a gain of 0.5%.
- The strategy has 0% drawdown (new highs). YTD: +72.6% (backtest)
- There are 14 open positions, 10 long and 4 short.
Trend-Following Subscription
Access trend-following premium articles and the rules of a futures trend-following strategy with a Trend-Following subscription. The strategy trades the same markets with the same parameters.
Details of the strategy used in these daily reports
Timeframe: Daily
Data: We use continuous, back-adjusted futures contracts. We do not announce contract rollovers here.
Markets: 23 futures contracts: Brent Crude oil (BRN), Crude oil (CL), Cocoa (CC), E-Mini S&P 500 (ES), Euro-BTP Long-term (FBTP), Dax (FDAX), Euro STOXX 50 (FESX), Euro-Bund (FGBL), Gold (GC), Feeder Cattle (GF), Lean Hogs (HE), Copper (HG), Coffee (KC), Live Cattle (LE), Frozen Concentrated Orange Juice Grade A (OJ), Palladium (PA), Platinum (PL), Silver (SI), Corn (ZC), 10-Year U.S. T-Note (ZN), Chicago SWR Wheat (ZW), Euro-Buxl (FGBX), US Dollar Index (DX).
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: 01/2/1990 –12/20/2024
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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