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Trend following

Daily Futures Trend-Following Signals

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On our blog, we have a new page with daily futures trend-following signal updates. Access to this page is currently free.

We use continuous, back-adjusted data for 23 futures contracts. The trend-following strategy is based on our proprietary PSI5 algorithm in divergent mode, exit, and reverse with stop-loss. We update the backtest results every week. The backtest with the latest update is below.

Backtest range: 01/3/2000 –04/26/2024


Click below to visit the trend-following signals page:



The Risks of Trend-Following Strategies

Trend-following strategies attempt to capture long-term market trends, also known as outlier trades. The implementation of stop-losses results in a low win rate, as the strategies exit with a loss until the onset of a trend. This style of trading is hard and could lead to a loss of discipline.

Trends and trend-following are not the same thing, and many confuse the two. A trend-following strategy will not identify trends where there are none. From 2004 to 2016, or 13 years, the annualized return of the top 20 CTAs was 2.4%. However, the dispersion in CTA returns is high, and it is not reflected in the averages. There is a high specific risk in choosing a CTA or a trend-following strategy.

Furthermore, proper execution of trend-following strategies with many futures contracts requires sufficient capitalization. For about 20 contracts, the approximate initial capital is probably around a million dollars. Otherwise, due to insufficient capital, a strategy could miss a few profitable trends, negatively impacting the Sharpe and MAR ratios.

Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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