January 13, 2017

A Decade of Trend Following

Last year was not a good year for trend following, with many commenting that the performance for the strategy has been declining over the last few years. We decided to look at the performance of the Wisdom State of Trend Following index on a long timeframe, to let the results speak over the long term, rather than focusing on recent performance.

Here are the results over the last decade:

Performance Numbers (hypothetical – see disclaimer below)

Run Date Total Return CAGR Max DD MAR Sharpe Longest DD
2007-01-01 to 2016-12-31 +257.40% +13.09% 31.70% 0.41 0.32 45.4

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
2007 0.25% -1.35% 0.86% 8.99% 8.36% 2.78% 1.21% -1.58% 9.80% 5.98% -0.73% 5.79% 47.40%
2008 10.03% 20.00% -5.80% -1.63% -0.85% 7.07% -11.31% 1.93% 13.15% 25.37% 10.96% 0.72% 86.14%
2009 2.24% 1.18% -6.78% -0.61% 3.83% -3.61% 1.78% 1.40% -0.04% -4.72% 6.93% -5.44% -4.67%
2010 -3.84% -2.17% 4.32% 0.86% -4.14% 0.52% 1.44% 6.22% 3.47% 6.96% -2.70% 12.06% 24.01%
2011 3.04% 4.52% -4.59% 6.76% -10.88% -4.80% 3.35% 3.54% 3.41% -11.02% 1.11% 0.73% -6.66%
2012 -2.79% 3.29% -3.02% -0.66% 10.35% -7.84% 7.58% -0.53% -0.71% -3.52% -2.24% -1.22% -2.61%
2013 2.17% -2.26% -0.83% 2.78% -3.44% 3.11% -6.59% -3.71% -3.99% 0.20% 1.42% -0.67% -11.66%
2014 -1.62% 0.35% -2.11% 1.16% 1.10% 4.45% 3.92% 3.07% 8.42% 0.63% 10.31% 7.59% 43.18%
2015 11.72% -3.69% 2.02% -2.15% -2.71% -3.55% 6.89% 1.98% 4.82% -8.79% 5.86% -1.73% 9.27%
2016 5.47% 4.29% -2.76% -0.79% -7.10% 2.26% -1.34% -6.96% -4.72% -6.16% -2.23% 1.35% -18.02%

*Past performance is not necessarily indicative of future results

Despite the recent under-performance, our trend following index still managed to return a healthy 13% annualized over the last 10 years (+257% total return). Yes, this came with drawdowns — including last year nearing previous max levels — but this is a typical characteristic of trend following strategies: accepting the drawdowns to benefit from the performance the system generates.

Equity Curve and Drawdowns

Comparison is also a good tool, so here is the last decade of trend following charted against the performance over the previous decade:

The 2007-2016 decade actually returned a similar absolute performance to the previous decade. It was marked by larger swings in the equity curve and higher drawdowns. We can notice several big run-ups followed by longer periods of flat to downward sloping. It can be argued that these two phases are intricately related, based on the state of the markets, averaging themselves out in a positive performance.


As a result, the volatility was higher overall: 16.89% in 2007-2016 vs. 13.44% in 1997-2006. Below is the breakdown of volatility for the index in the last decade:

Follow Trend Following with the Report and Our Systems

2017 will be an interesting year to follow the performance of trend following. The last time the index had a double-digit negative year (2013), it was a precursor to a strong bounce, and a big run-up, leading to new highs.

As our previous study showed, the performance of trend following after drawdowns is often strong, supporting the idea that drawdowns generally represent a good opportunity to invest in trend following strategies.

You can track the performance of Trend Following by subscribing to the monthly updates of the Wisdom State of Trend Following or via our trading systems available as automated futures strategies — including trend following. Please find below their performance numbers (hypothetical – see disclaimer below):


*Past performance is not necessarily indicative of future results

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Index Methodology

For a complete description of the index methodology (material assumptions, platforms and systems, portfolio), please check the latest version of our monthly Wisdom State of Trend Following report.

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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