Trend Following 2005- 2006
Trend following in 2005 and 2006 had to be one of the hardest and challenging periods for trend followers. Not just my trend following was terrible but the majority of the CTAs that I had invested hit what I would call 6th sigma draw downs in the 30% range. Even worse than the 30% draw downs was that nothing happened for more than 2 years. Yes, reality..No profits and aggravating losses for 2 years plus. Many called that Trend following was dead.
Why am I writing about 2005 & 2006? It seems this year 2011 ( so far yet anything can & will happen) is as tough as those years. There has not been the terrible draw downs but the volatility is immense. Trends start and immediately turn the opposite direction. News rules the markets. This is reality when one trend follows or invests with commodity trading advisors who trend follow. Not retirement in a box. Sometimes we get spoiled with good returns over years but there is always the reality of periods we are going through now. When I speak to the commodity trading advisors whom I have invested with, you hear it in their voice the aggravation of trying to trade these markets. At best the goal is to tread water and not lose too much money until some trend appears.
As there is darkness there is light. There was tremendous light in 2007 & 2008. These were great times for trend followers. Double digit returns were generated. This is why I always say that trend following is a marathon. You go through ugly terrible periods and when most people quit then you enter periods that you look at and just say ” Wow”, can you believe that?
Crude oil running to the $140 dollar range only to implode to the $30 dollar range. Trend followers road that up and down without an opinion. The same with the grains. If you plan to invest in trend following & commodities, it is not for the faint of heart nor for everyone. It is not easy however trend following does offer the potential for compounding money over time at least in my personal opinion.
Trading futures and options involves substantial risk of loss no matter who is managing your money and is not suitable for all investors. Past performance is not indicative of future results
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