Volatility across all markets increased on Wednesday, September 28, 2022, due to instability in U.K. financial markets. Our trend-following strategy lost about 2.7% on the day but the loss was within normal levels.
The unprecedented swings in the U.K. fixed-income and currency markets and talks of a return to quantitative easing in an inflation regime caused wide swings in all markets on Wednesday, September 28, 2022. Trend-following performance was affected naturally. As a general rule, wide swings in the markets hurt performance, although some strategies may benefit due to lucky positioning.
Our PSI5 trend-following strategy that trades 25 future contracts was down about 2.7% for the day, but this loss is within normal levels, as shown below (backtest.)
The return for the day was -2.65%, while the standard deviation of daily returns since 2000 is 1.22%. Therefore, the loss was a little higher than two standard deviations. Note that on March 9, 2022, the daily loss was 7.3%.
As a result of the one-day loss, the year-to-date performance of the PSI5 strategy fell from 35.1% to 31.5%.
We expect the performance to fall towards the end of the year but remain positive and possibly above 20%, due to higher volatility from economic and geopolitical uncertainty.
The strategy is currently short 14 futures contracts and long 3 futures contracts.
The PSI trend-following strategy is for sale to qualified buyers because we are raising money to trade it next year. Contact us for details.
Note that the PSI5 algo can be used in both divergent and convergent modes. Click here for more details.
Trend-following edges cannot be easily arbitraged out of the market because discipline and consistency are required to trade them due to long holding periods. Therefore, we do not worry that the edge will disappear due to use by other traders.
Disclaimer: The strategies and premium content are provided for informational purposes only and do not constitute investment advice. We do not warrant the accuracy, completeness, fitness, or timeliness of any particular purposes of any strategy. Under no circumstances the strategies or premium content should be treated as financial advice. Please read our Disclaimer and Terms and Conditions.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.