Has commodity trend following finally made a comeback ?


Well the question on many people’s lips the last year or so is has long-term trend following finally made its long-awaited comeback.


 A typical long term trend following system



Long-term trend following has got one of the longest real-time track records of working in the markets with real money of any of the trading methodologies. Some of the richest traders in the world have made their money using long-term trend following techniques to trade primarily the commodities markets. We all know the Turtles story. But there are many many other traders who have made significant sums of money from long-term trend following.

I started as a long-term trend follower nearly 30 years ago and whilst it most certainly was not instant riches it was a relatively consistent and “safe” way of making money. That all changed around 2010 when the techniques most definitely stopped working. If you were lucky you were trading method that still just about broke even. If you were unlucky you lost a lot of money.  Several of the large trend following funds closed down and as on previous occasions there was much talk in the media of long-term trend following “not working” any more and of “paradigm shifts” taking place in the markets implying that trend following would never work again.

Well I’m nearly 60 years old now and I have heard that three or four times in my trading career. And as usual to mis-quote an old phrase  “rumors of my death have been much exaggerated”. What we do know is that long-term trend following will start working again when sufficient people believe it is finished and switch to other trading methods. This may well now have taken place.

If you look at the attached equity curve going back to 1991 for a pretty standard commodity trading system you can see exactly what I mean. A beautiful 45° curve starting in 1991 and going all the way up to around 2010  and then a sudden flattening off for the next three or four years. At this stage most traders (including myself) would have switched funds into other types of trading. As more and more traders got off the trend following carousel and started to take the opposite side of those trades this then allowed trend following to start working again.

We can see from the equity curve above that since around the start of 2014 we have had good consistent results for trend following and that may well now continue. Trend following is one of the most researched forms of trading ever and these results  are corroborated by many other long-term trend following methods.

Over the coming months I will most definitely be getting back into commodity trading and will add a couple of simple long-term trend following systems to the systems that I already sell for day trading and swing trading.

For those with a little capital commodity trading is well worth looking at not least because it has low correlation to other asset classes and requires very little effort as we may be  trading just a few times a year in each commodity.