Commodity Trading & Trend Following

I am at a fantastic investment conference in Miami Beach this week, the Alphametrix. I am there to find and meet face to face commodity trading advisors I am interested in. I have been trend following my own programs for now 18 years however I feel it is important element to diversify with other commodity trading advisors in order to smooth out my returns.

I was shocked when I met fellow commodity trading advisors and was asked if I was a PHD. There are many PHDs at this conference. Not being too cynical I said yes, however not in the context they thought. I said I am Passionate, Hungry and Driven.

One does not need to be a math genius to be a trend follower. I surely am not. I have a robust methodology that is on par with many of the biggest CTAs here. There are years I have outperformed and years I have under performed. However over long periods of time our results are similar.

The anti thesis of a PHD is my role model the ” Dentist” who compounded $200,000 with a simple robust idea from 1979 to today approx $17,000,000. His defining attribute was that he had the correct mental framework to get through the inherent draw downs and long periods of non profitability. Contrary to a PHD who might be much smarter, if they do not have the mental fortitude to get through all of these rough periods they will not be able to compound money over time. It is more important being patient and disciplined.

It is a given you need a robust methodology and heavy risk management to deal with all the uncertainty. Trend following is not easy and is not for everyone.

You do not need to be a PHD in order to succeed in trend following or compounding money!
Be Passionate, Hungry and Driven!

I will be very shortly teaching students exactly how I trade for a living. It too is not the Holy Grail. You will learn how to think like a trend follower as well as will give you the exact ideas. There is nothing to hide. Richard Donchian’s trading was very simple and well known, yet very few have emulated his success. If you want to learn how to trade for a living, I invite you to be one of my students.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL.

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The Equity Curve of the Stock Market with a compound annual rate of return of 0.39% over 10 years does not seem to be a way to compound money over long periods of time.

Compare this with trend following. Trend followers and commodity trading advisors go through draw downs and long periods in which they do not make money as well. Trend following is not retirement in a box and is full of volatility.There are times in my own trading as well as with track records of even some of the well known commodity trading advisors that they have had 30% on average draw downs. I remember 2005 and 2006 and it was a very difficult period. There were 30% draw downs and it approx 2 years plus to recover.

However if one to look at an equity curve of some commodity trading advisors that understand risk & money management. They have compounded on average 15% over the years even with all the draw downs. Trend following is not for everyone and past performance is not indicative of future performance. No one knows the future. Bottom line is the future is uncertain and investing is a very difficult way to compound ones net worth.

Below are a short list of some exception trend followers who have been compounding money for decades.

Abraham trading Group CAR 18.86% from Jan 1988
Chesapeake Capital CAR 12.94% from Feb 1988
Eckhardt Trading Company CAR 15.19% from Aug 1991
Hawksbill CAR 22.08% from Nov 1988

The above is a short list and not representative of all commodity trading advisors. One can look at the complete list of commodity trading advisors on IASG.com website. Besides doing my own trend following I invest with other commodity trading advisors. Many commodity trading advisors do not have a full grasp on risk and money management. I invest with commodity trading advisors that think the way that I do about risk. Even with this said I go through periods of times that the managers I invest with have long and deep draw downs.

Trend following is a challenge. One must work and have the proper mindset. There is nothing easy about trend following. However for me it is a life time strategy. I have been able to compound money over time, it is liquid and transparent when having managed accounts.

I will be very shortly teaching students exactly how I trade for a living. It too is not the Holy Grail. You will learn how to think like a trend follower as well as will give you the exact ideas. There is nothing to hide. Richard Donchian’s trading was very simple and well known, yet very few have emulated his success. If you want to learn how to trade for a living, I invite you to be one of my students.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL.

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Stanley Haar gave a great interview on Fox news regarding the MF Global debacle. Want to thank Stanley for all of his great efforts!
It is more than about time the truth comes out and all clients of MF Global get our money back. This is a disgrace that this has been allowed to occur in the US.

Untitled from Evan Wolk on Vimeo.

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The only certainty in trend following is uncertainty. You never know which trades which work and the reality is that most trades do not work. Due to the fact that most trades do not work, you need to strongly focus on risk management. My goal is not to sugar coat or make you think it is easy to trend follow. Most people can not trend follow for a myriad of reasons. It is too slow…it is boring as well as the most common fact you need to be disciplined and patient.

How many people do you know that are on perpetual diets. What I noticed the other day while at the gym was there was alot of rather big people. Really dieting is based on simply eating right or reducing what you eat and exercise. However there are always countless new fads and books promising to lose the weight. It is the same in trading. There are all of those courses from supposed traders who are not traders as well as those not successful. We need to keep it simple- KISS!

My story about trend following is very simple. It is hard work. It can be very frustrating ( if you let it). I am chucking as I am writing this as I sold my US Dollar position as it hit my stop yesterday as well as my Lean Hogs only to turn around today.

Welcome to the world of trend following.

However if you can overcome the challenges you stand the potential to compound your way to wealth. I was told the most successful client of a brokerage in which I started with was a dentist. He compounded $200,000 from 1979 to over approx $17 million dollars plus accounts that he setup for his children & grandchildren. He went through both long and steep draw downs at times. He did not have any Holy Grail system. It was a basic and simple robust trend following idea with risk management. His success can be attributed to his trading mentality. He never gave up as ugly as it got. He did not quit or start looking for a new method or trading system.

There are many of you out there dreaming to be able to trade for a living. Trading for a living is doable ….it requires a great deal of work and effort. Do not expect to be successful right away. Would you want to go to a dentist who just finished school? I doubt it!

I will be very shortly teaching students exactly how I trade for a living. It too is not the Holy Grail. You will learn how to think like a trend follower as well as will give you the exact ideas. There is nothing to hide. Richard Donchian’s trading was very simple and well known, yet very few have emulated his success. If you want to learn how to trade for a living, I invite you to be one of my students.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL.

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Welcome to the reality of trend following. I had an email from an aspiring money manager this morning ( He will probably read this post as well). It was interesting for me to read his email.

Quoting him “I enjoy checking in on your blog posts. These choppy markets make me want to jump out a window! Any takers on your mentor program?

The reality is when we trend follow these choppy markets are to be expected. No one ever promised us year over year profitable returns. My goal is not to have surprises. I anticipate these choppy periods and know that nothing has to happen. This is why I speak about patience all the time. We must stay in the marathon and not give up. In my opinion as I know I will go through these non directional ugly periods I under trade. I do not risk more than 1% of my account size on any position. More so I assume most of my trades will not work. This is OK as I know that I will make money at one point however I never know in which market or when.

What sets me apart from other traders is that I am not only concerned about the return on investment but how much risk I will have to tolerate to achieve my goals. There is a draw down out there that will make one stop trading, this is why I attempt to play the defense. As trend following is my passion and lifetime strategy to invest, I do not want to imperil it.

This last Summer in particular there was a manager who had a great track record with 30% CAR however he was a counter trend trader. He blew up on the Swiss Franc this Summer. The Swiss kept on rising and he kept on fighting it until he was down 80%.

I will soon be teaching a course on trend following. My goal is present the realities of trend following. It is not sugar coated or get rich quick nonsense. The basis is when we go through periods like this, you will not be surprised ( or should not be). It will be almost expected. I will try to teach you how to mentally get through these periods as well as not become euphoric or reckless when you go through periods in which you make money.

The hardest part of trend following is us. It is not the trading system or algorithms. We either succeed or fail due to our fears and greed or lack of following the trading plan.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL.

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One of the biggest misnomers of trend following is that you need up to the minute information and speed. Supposedly, the faster the better.

Well the reality is, No…Forget about having the fastest computer or up to the millisecond of information. In my personal experience this is not what is needed as well as you can cancel your subscription to many newspapers or magazines that you search for tips or ideas.

Good trend following boils down to having a well thought out robust plan that you can follow. A robust plan is simple in nature with money management and risk management built in. The irony in most cases the weakest link for the sought out success of trend following boils down to the trader himself.

Fear and Greed destroy more traders than anything else.

I will soon be teaching a course on how I trend follow & approach the markets. It is not the Holy Grail rather my simple robust way to trade. It is not rocket science nor magical but over the years it has enabled me to compound money all the while of having draw downs and periods that I do not make money.

Trend Following needs to fit your personality otherwise it will not work. I approach the markets with an extreme of awe and respect. I know I will have many trades that do not work and very few that will work. I manage the risks when trend following. My course and webinars will teach you the same.

My Vision & Goal
My goal is to help traders like you to achieve your trading goals,
so that you, too, can live the lifestyle you want, afford to buy the things you want to have, be more relaxed and have more time for the things you enjoy doing, and that are important to you.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL.

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Yesterday was an interesting day for trend followers. Many CTAs as well as myself have been long corn for quite some time. Without warning as gaps occur corn fell approx 40 points or a loss of $2,000 a contract. This is the reality when trend following. The unexpected needs to be expected. Always trade with stops in place. You never know what will happen in the future. There will always be situations that trades go against you. It is easy to sugar coat and say that trend following is blah…blah…the reality it is a marathon full of unexpected draw downs and losses( as well as the rare times of unexpected profits).

Watch this video to see more.

SOLELY EDUCATIONAL AND ARE NOT PERSONALIZED OR TAILORED IN ANY MANNER TO ANY CUSTOMERS. COMMODITY FUTURES TRADING INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. TESTIMONIALS ALSO ARE NOT INDICATIVE OF FUTURE SUCCESS AND HAVE NOT BEEN INDEPENDENTLY VERIFIED. HYPOTHETICAL RESULTS HAVE MANY INHERENT LIMITATIONS

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL.

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“Trend following seems simple at the outset, but in his new trend following course, Andrew Abraham avoids the hype and doesn’t sugar coat the difficulties that traders face. Rather, he shares the important lessons he has learned over 18 years of trading with the help of his mentors. While appropriate for beginners looking to become acquainted with a time tested trading method, advanced traders alike would be served well by reviewing the course for its emphasis on the psychological aspects of trading.”

Best,

Bob

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL.

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I’m very impressed! Everything you have written is dead on the money. It’s refreshing to see someone telling it like it is and doing so in such a clear and concise manner. It’s great that you are actually giving your students some specific methods instead of vague generalities too. Your articles on risk management and proper mindset are simply outstanding.

I don’t have anything other than positive comments as noted above. I wish you the greatest success with your Trend Following course. To whom will it be offered? Whoever they are they can count themselves as fortunate.

All the best,
Dave

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This is in lieu of the CTFC withholding information to as where client funds are located. It is shocking a Government organization can let monies be stolen in the USA in today’s times and make a statement as Commissioner Bart Chilton has made. Jill Sommers from the CFTC made a statement to Reuters that the CFTC knows where the money is. This is absolute double talk and not acceptable.

It is time the CFTC, Commissioner Bart Chilton as well President Obama listen…

Our money was stolen…and you know where it is…We demand it be returned to us immediately!!!!

Has the USA lost all integrity?

Has the USA become a third world country?

Does the USA care that the client assets can be stolen?

Statement, Open Meeting of the Commodity Futures Trading Commission, Washington, DC

Commissioner Bart Chilton

January 11, 2012

When Things Go Wrong

My mother used to say sometimes you need to see what things look like when they go really wrong, in order to appreciate how good you had it when things were going right. Well, we’ve had a few things go really, really wrong in the past couple of months, and it’s made us think about how good we had it.

I’m talking, of course, about MF Global, and how, for so many years, we had the confidence that customer funds were so very well protected by the federal commodities segregated account statutes and regulations. But MFG was a stone-cold, Sumatra-bold, no-holds barred wake-up call—this was a hit to the very heart of who we are as regulators and who we are as an industry. Most importantly, it is now a constant, clanging bell alerting us that we have to change in order to ensure that customer funds—taxpayers’ money—are taken care of, first and foremost, before anything else.

You all know we’re in the middle of that path—we’re tracking down the money, and we’re pursuing, along with other civil and criminal authorities, all available enforcement avenues. At the same time, we need to look at what we can do to change our oversight system to make sure this doesn’t happen again (or, at the very least, to make sure that we’re not making it easier for customers to get ripped off).

In that vein, I’ve got several suggestions I’d like to propose, to further protect American investors and consumers. Specifically, they are:

Institute an insurance fund in the derivatives space, similar to what is now in place in the securities and banking industries
Revise our Regulation 1.25, to pull back on the types of investments that brokers can use to invest customer funds
Institute a policy of “customer choice,” to allow individual customers to opt out of any type of investment whatsoever using segregated funds
Develop a “guaranteed customer account” which would in essence provide another alternative for customers to keep segregated funds safe
Explore the concept of regularizing treatment of futures and swaps segregated funds to more fully protect customers
Lastly, I don’t think we have any time to waste on moving on these ideas. Although we are moving today to consider institution of a more protective “LSOC” regime—which I support—I believe that the lessons of MF Global teach us that we don’t have the luxury of time in making additional progress to protect customers. We need to do more. And we need to do it now.

We had a lot going right for us, for a very long time. But when it went wrong, it went wrong in a big way, and now we have to fix it. My mom’s a smart woman—we should listen to her.

Please listen to us Commissioner Chilton…We Want our Money Back NOW!!!!

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