How Long Will the Managed Futures Draw Down Continue?
I guess this is the million dollar question. More so, no one really knows. Draw downs can continue much longer than many of us expect. In my personal experience this is definitely one of the longest since my trading in 1994. Some blame Govt and Central Bank interference. There really is no answer. The fact however is there has been an extreme contraction of volatility. Managed futures and trend followers make their money from those rare trades that are outsiders while attempting to keep losses small. An example this year was coffee due to the droughts. No one can predict floods or droughts and they and do effect commodity prices.
Something to ponder…is it possible for the last 30 years we simply had a good run? As much as anything is possible and past performance is not indicative of future performance this might be an answer. Stocks go through extremely good periods as well as decades of not making money. It took 12 years from the bottom of 1974 to get back to break even with stocks. More so with the Great Depression. This took 25 years.
So why continue when so many commodity trading advisors are quitting or countless clients of managed futures throwing in the towel? Can not answer for others, however personally I believe I do not know the future, anything can happen and still with all the printing of money through out the world, I still find it hard to understand we have not had rampant inflation. I believe in this extremely tough environment one should not abandon ones trading strategy rather use this time for research. In my testing contrary to many pundits of shortening time frames, my testing has shown expanding them. I have one program in particular who has held up relatively well in this very tough environment.
Another encouraging idea that keeps me going is the book Viewpoints of a Commodity Trader from the 1950s. There was a segment in there that spoke about 3 years in a row that were VERY difficult and countless traders quit. This resonates with what is happening currently….however again…Past performance is not indicative of future performance….When no one expected, the grain markets took off. No bells signaled the move. The unexpected happened and traders were compensated for their patience and discipline.
Who knows when this will happen again…however I doubt very strongly that Managed futures are dead as so many claim…
Past performance is not indicative of future performance