Wisdom Trading Newsletter: Trends, Systems and CTAs

This is the first release of our monthly newsletter where we’ll provide updates on CTA performance, Commodity Trends, and Commodity Strategies. If you have any questions, comments, or feedback on the format please feel free to email us directly at info@wisdomtrading.com.

Commodity Trends

The Commodity markets have been trending nicely in the first quarter of 2014. We’ve seen some major moves in Agriculture and Soft Commodities especially.

Class III Milk

Class III milk futures touched a record $24.15 per 100 pounds on the CME on March 24 for the spot contract. Milk has been a strong performing market for trend followers this year and CTAs like Schindler, Dairy Advantage.

Milk Class IIII futures chart

Lean Hogs

Unless you’re involved in Livestock, you probably haven’t heard of the PED virus (Porcine Epidemic Diarrhea). In the farming world, however, this disease has caused mass panic in the Lean Hog supply chain. As a result, Lean Hog Futures have rallied from $90 in mid Jan to over 125.00 today. This market may have seen the highs as choppy volatile trade seems to be in force now.

Lean Hogs futures chart

Coffee

Coffee Futures have surged 70% on drought concerns and potential crop damage in Brazil. The market has corrected sharply through March as traders pay close attention to weather reports and are trying to assess crop damage.

Coffee futures chart

Commodity Strategies and Systems

We’re always looking for new strategies and systems that perform well and offer diversification to our core trend following programs. This month we’re highlighting a shorter-term approach based around the Relative Strength Index (RSI).

CTX System

Larry Connors popularized a similar strategy in Short Term Trading Systems that work and through a collaborative effort we’ve turned this into a trading system we’ve named CTX.

CTX is a short term strategy that trades in the direction of the long term trend (as identified by a very long Moving Average). CTX will only take long signals when the market is above the Long Term MA and it will only take short trades when the market is below the Long Term MA.

CTX is always buying weakness and selling strength (for longs and vice versa for shorts). For a Long Trade we’re looking for an oversold condition in an uptrending market to buy. When the RSI gets into oversold territory, CTX is ready to issue a buy signal. Once we get into the market, CTX is looking for the market to resume its long term trend and we’ll exit the trade once the RSI gets back into an overbought condition, typically in just a few days. With this strategy, we’ll always leave something on the table, but we’re typically in and out in a short period of time.

CTX Performance

CTX has a high win/loss ratio with 67% of the trades showing profitability on a broad based 130 market portfolio test. We tested the system over diversified portfolios of various sizes and the performance obtained with CTX is generally very strong and robust over time. As an example, here is a sample performance report of CTX over a diversified portfolio on a medium size portfolio of 28 markets:

CTX performance numbers

CTX Performance equity curve

Sample trades

Here is an example of CTX in action:

CTX trade sample #1

CTX trade sample #2

If you would like more information on CTX, including detailed test results on various portfolios, portfolio recommendations, or blending with your current strategies please email shane@wisdomtrading.com.

CTAs

Wisdom Trading provides access to a wide range of Managed Futures products to help you diversify your portfolio. In our CTA Database, you can find and research results on professional traders that manage a wide range of strategies. Below is a list of the top performing CTAs in our database for last month and for the year. If you have any questions about CTA’s or Managed Futures strategies please contact Angela Wisdom at angela@wisdomtrading.com.

 

Disclaimer

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.