December 13, 2015

Crude Oil and Trend Following

Crude oil has been in the news a lot recently. Just last week, after the OPEC meeting, its price declined by over 10%. With a lot of volatility, we wanted to test how a trend following strategy would have performed on the futures contract in recent history.

Here is a quick post showing our benchmark Wisdom State of Trend Following system and the performance it would have produced on a single-instrument portfolio with Crude Oil.

Here is the chart of trend following performance on crude oil in 2014-12015:


Total Return 128.3%
Annualized Return 53.0%
Max Drawdown 14.4%

It might not be a big surprise that trend following performed so well on a market like Crude Oil over the last two years, since it exhibited such large directional movements. As a reminder. Here is the chart of Crude Oil’s price action:


But this highlights one of the advantages of a trend following strategy: its readiness to position itself and follow along large trends, which eventually occur in the markets. By trading a diversified global portfolio of markets, within a trend following system, you increase your chances of catching and riding these trends.

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Risk Disclosures

Commodity Trading involves substantial risk of loss and is not suitable for all 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.

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