Stock Market Crash Alert (When ??)- Trend Following

There will be a nice crash at some point, that is what stock markets do. Maybe this will be next week…maybe next month…maybe next year. Stock Market crashes completely normal. However it will not likely be a problem for you if you are closely monitoring leading stocks, closely monitoring indexes, not using leverage, and have a good set of sell rules that you follow without hesitation. Learn these lessons and add them to your daily routine, and then a market correction becomes an opportunity you look forward to.

More money is made coming out of bear markets then bull markets!!!

Be Sociable, Share!

Multiple Entries On $BABA – Trend Following

Many times leading stocks give us multiple entries when trend following. Regarding BABA we had two such trend following entries.

The first entry was a double bottom break

The second entry was a traditional Cup and Handle with sloping trend line.
Studying charts on trend following sharpens your skills and helps you become better traders and trend followers.


Be Sociable, Share!

The Difference Between Trend Following & Traditional Investing

Systematic diversified and risk-managed trend following doesn’t produce crashes, just Draw downs that Grind.

We are in one of those grinding moments now….

Typical Trend Following!!!

Be Sociable, Share!

Time to Change the Trend Following Systematic Model?

I am presenting 2 charts. What is very interesting is that they are exactly the same model algometrically of managed futures. However the returns are vastly different….Some say it is due to the low volatility low interest rates. I have been trading this way since 1994. I have never seen a continuous period of non performance…However it is so true…Past performance is not indicative of future performance. Actually have one manager whom we have invested with, still down from 2012 almost 24% who was an original turtle looking to increase leverage due to the elections and all the global background. Will be interesting to see what happens.

Would like to hear thoughts…equity2



Be Sociable, Share!


It never gets easy trend following. There are lumpy returns. You have to go through tough times. The last couple years have been the toughest…Maybe all the low interest rates …whatever..who knows.

For trend following stocks, completely different story…very successful!!

I received this email and thought to share…


August was mostly one-sided, sliding down to a strong negative performance, and taking with it the Year-To-Date performance to a similar level. Interesting to note the shorter timeframes weighing on the index while the longer timeframes are still positive/neutral on a 12-month horizon (we do offer trading systems with long-term timeframes).

Note the drawdown level as well, getting a little bit closer to the Max Drawdown (since the start date of the index in Jan-2000). These occasions have historically proven a good time to start investing in a trend following strategy. It will be interesting to monitor the evolution of the index over the last few months.

Despite this recent performance, the index is still well positive (+35%) since launch in live monitoring in 2013, which interestingly was at similar levels of drawdown. The performance since the start of the backtest in 2000 is still well in positive territory at +1,279% (total return), or +16.53% (Compound Annual Growth Rate).

Below is the full State of Trend Following report as of last month.
Performance is hypothetical. Chart for August:

Wisdom State of Trend Following – August 2016

And the 12-month chart:

Wisdom State of Trend Following 12 months – August 2016

Last month -7.32% 10.31%
Year To Date -7.95% 15.74%
Last 12 months -8.47% 16.23%
Last calendar year (2015) 7.57% 16.88%
Since Index Launch (08-13) 34.47% 14.58%
Current DD -20.55%
MaxDD (since 2000) -31.94%
Individual System Contribution

The index is composed of several systems, each traded over different time horizons (short, medium and long) with a diversified portfolio of futures.

We can measure the contribution of each system variation by charting the evolution of their respective performance attribution over the last month:

System Attribution August 2016

And further below, the performance attribution of each system over the last 12 months, sorted by ranking.

System Attribution-12 months August 2016

BBB-S -1.87% -0.43%
BBB-M -0.39% -0.77%
BBB-L 0.24% -0.47%
DMA-S -1.67% -0.83%
DMA-M -1.13% -1.07%
DMA-L 0.21% -0.44%
DON-S -1.09% -0.22%
DON-M -0.59% -0.55%
DON-L -0.01% -0.36%
TMA-S -1.75% -1.17%
TMA-M -0.42% -0.81%
TMA-L 0.02% -0.2%
Index -8.47% -7.32%

The index performance is simulated using Trading Blox and CSI data (back-adjusted contracts rolling on Open Interest). The performance of the index is directly derived from the performance of a Trading Blox simulation suite composed of each system component as a system part of that suite.

The simulation uses realistic trading friction parameters (slippage, commissions, interest as detailed aside).

The portfolio used in the simulation is a sample of the 300+ global markets accessible to Wisdom Trading clients. The portfolio selected for the index represents a diversified mix of over 40 global futures balanced across all sectors (check the exact portfolio here).

Please check the post on the blog (and subscribe if you haven’t yet) to check details on simulation assumptions (slippage, commissions) and more info on the systems used and their parameters.


Material Assumptions

The test is set-up with an arbitrary starting capital of 1B, starting in 2000. As the test is intended to represent an hypothetical index, no liquidity/volume constraints are enforced, making the results less dependent on actual simulation capital.
Profits are compounded (assumed to be reinvested).
The purchase or sale price for each trade that generated the hypothetical results is based either on 1) open price, the day after the Buy or Sell signal for the Moving Average-based systems or 2) stop level set by the relevant indicator for the Bollinger or Donchian systems. The actual simulated fill price is obtained by calculating a slippage factor, which is added to (or subtracted from) the theoretical entry price. For a long entry, the slippage factor is calculated by measuring the range from the theoretical entry price to the day’s highest price, and multiplying that amount by the Slippage Percent. (For short entries, the slippage factor is calculated by measuring the range from the theoretical entry price to the low). The slippage factor is then added to, or subtracted from the theoretical entry price, to obtain the simulated fill price.

Risk Disclosures

Commodity Trading involves high risks and you can lose a significant amount of money. Commodity trading is not suitable for many investors. Any performance results listed in all marketing materials represents simulated computer results over past historical data, and not the results of an actual account. All opinions expressed anywhere on this website are only opinions of the author. The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. Different testing platforms can produce slightly different results. Our systems are only recommended for well capitalized and experienced futures traders.

CFTC-required risk disclosure for hypothetical results:

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.

One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Be Sociable, Share!

WB Trend Following Cup and Handle

Weibo is a classic example of a GREAT Trade. First off Weibo was fundamentally strong


You can see the classic cup and handle breakout on WB

Furthermore depending on what type of trend following investor you could have added to your position. When pyramiding is only important to be prudent. Would not suggest adding more than 10% or possibly 20% on pullbacks…or return to test 50 day moving averages…or break out to new highs….

Patterns like WB happen all the time. We need to study charts in order to better learn trend following.

Be Sociable, Share!

EU economy and gold trend

EU economy and gold trend

Since the Brexit vote, the European Union has remained fragile economically with fears of possible future exits. After a successful Brexit vote countries such as Denmark, France and the Netherlands are feared that they may also initiate exit processes from the EU. This definitely puts the EU at a very uncertain situation economically, leading to many investors also shifting their wealth into commodities and trading in precious metals such as gold. The price of gold has shot up by about 45% since the year began with much of the gains in value made post Brexit due to the uncertainty in the EU economy.

First Chart

During periods of economic volatility, investors always prefer putting their money in safe havens; and commodities provide the store of wealth that the investors look for during such times. Among the most preferred commodity for value preservation when markets are in turmoil is gold. Depending on the risk appetite of the investor, they may buy gold at the earliest sign of market instability or wait until the actual volatility begins in order to run to safety. The two scenarios have played out in the gold market this year whereby, the uncertainty at the beginning of the year buoyed up gold prices; while the Brexit sparked the rise in the prices even higher.

EU financial markets affected by Brexit

Since the Brexit, the sterling pound has a lost about 10% of its value to the euro. With this currency depreciation, exports from the United Kingdom are expected to be relatively cheaper and hence boost the exporting sectors and inbound tourism to the UK. The Bank of England is however very cautious on every economic decision it is making currently in order to prevent a plunge into a recession. In its recent monetary policy statement, the BOE cut its interest rate to 0.25% in a move to encourage commercial banks to increase their lending into the economy. The expected result is that with increased money supply, demand will rise and prevent any deflationary outcome across the region as a result of the Brexit. The stability in the UK is then expected to translate to a stable EU during the transition period.

Second Chart

The BOE intervention into the UK economy through a rate cut had a positive effect on the stock market and a negative impact to the bond markets across the EU. After the Brexit vote, the FTSE 100 dropped by about 3.15% due to the referendum outcome shocks. However, after the Bank of England cut its interest rate, the FTSE 100 index went up by about 1.6%. This is an expected result since when the interest rates are lower; the bond market becomes less attractive due to lower returns. Investors that have a high risk appetite then shift their money into the stock market, which is riskier but has potential for higher returns beyond the low interest income from in the bond markets.
The long term effect if the Brexit may not be very clear at the moment. However, in the short-run we expect the gold market, stock market and commodity markets to continue gaining; as the bond markets lose and the sterling pound depreciates against other major global currencies.

Be Sociable, Share!

The Presidential Election & Volatility & Trend Following

A colleague sent me his update on his trading and included his views on the potential volatility with it’s impact on Trend following due to the US Elections…

This is probably the most interesting and unpredictable presidential election in our lifetime. It will come down to who will win Florida, Ohio, N. Carolina, & Pennsylvania.

Regardless of who wins – they’ll inherit a huge mess:

Unemployment of 9.7% (U6)
Over 45 million Americans now in Poverty
43 million American on food stamps
94 million who have dropped out of the labor force and no longer look for a job. This is why unemployment has dropped, it doesn’t count those who have stopped looking for work.
A 50 year low on the Labor Force participation rate of only 62.8%
Record low home ownership rate
Riots in the streets
Systemic Poverty. We have spent over $22 TRILLION on the ‘War on Poverty’. Apparently we’ve lost.
National debt has doubled in the last 8 years and is at $19 to $20 Trillion dollars. Much of this debt is short term and costs the Gov’t over $200 billion/yr of the budget. A spike in interest rates could easily double or triple the payment. Hence the Gov’t pressure to keep rates low into eternity.

What does all this mean for Alternative Investments & trend following? Stocks will eventually run low on buy backs and cost cutting, therefore the returns will shrink. Should Mr. Trump win, the 15% Corp tax rate he proposes would be a huge winner for the economy and could be a game changer. Hillary has said she’ll raise taxes including raising them on the middle class and continue with most of the current policies in place. Regardless of who wins volatility like we haven’t seen for years could manifest in a dramatic fashion.

What do you think?

Be Sociable, Share!

Trend Following Leading Stocks AHS

In this recent example of a leading stock AHS for Trend Following

You will notice there are two entries at two occasions. The two entries are a W pattern and a Livermore shake out plus 3. The W pattern is a low and a lower low and look to buy the high of the first low as demonstrated. The Livermore Shakeout Plus 3.


Be Sociable, Share!

Hitting New Equity Highs and Then…. Trend Following

August has not bee overly kind to trend following CTAs, myself included.I finally after a long struggle was hitting new highs in equity. I told one of my potential investors, it does not mean anything as this is a long struggle and similar to a marathon. Trend following takes a very strong mindset based on determination and the will to continue regardless how tough it gets. As David Druz wrote in my book
The Bible of Trend Following

Trend Following is getting knocked down and getting back up…Sounds easy right, nope…After getting back up…getting knock down again, and guess what, Having it happen once again, getting knocked down!

This simple statement accentuates trend following. This is why when I teach, I stress the emotional aspect. Trend following in itself is rather simplistic. Prices go up and we buy…prices go down and we sell….however there are so many aspects such as risk per trade…correlation etc….

Bottom line of my ranting…Trend following takes a great deal of emotional fortitude as well as humbleness. The markets are unforgiving. Once you think you are getting out of a draw down…boom…your equity curve swings….

This is the reality of trend following. More so the last several years have been the toughest I have ever seen. No one rings a bell…however with all of this money printing at some point I personally believe we will see rampant inflation that most are not expecting.

Be Sociable, Share!