Trendfinder Trading Systems

I received a great question from a subscriber that I want to share with you. Below is the client’s question and my answer.

The question:

I have been wondering if it might be a good idea to buy another contract of ITV. The first half of 2019 has been tough for that system. However, it’s overall track record is quite good. Now may be the low point for the system as it goes on to return to it’s normal performance. Every system seems to have occasional losing streaks. The only reason it would not return to normal performance is if something in the markets it trades has fundamentally changed. This is something that you look at all the time and I don’t recall you mentioning anything along those lines.

I would be interested in your opinion. If you don’t want to give one, I understand. I am 70 years old and have been slapped around and kicked around enough by life to know that the outcomes are always my responsibility and not someone else’s.

My answer:

First of all, I would say that adding now versus adding when the portfolio hits new equity highs is the better choice in my opinion. One big frustration in this business is that clients start after a good run and then quit when there is a bad period. This is a virtually guaranteed way to lose money over the long run. It can be very hard to do but starting when there have been losses is much better with one caveat, that the strategies are still viable. I think you understand all of that and ask exactly the correct question. Kudos to you! It’s very refreshing to hear the right question being asked.

For swing trading, since Trump became President, it does seem something changed in the market. It may just be a coincidence though because the FOMC also became more hawkish around that time too. Either way (or because of both), the level of mean reversion in the stock market changed. The typical pullbacks weren’t the same amount or duration as before. This observation is what led me to make the swing systems dynamically adjust. I think this alteration greatly improves their robustness. The one caveat is that when Trump tweets, all bets are off. For instance, May would likely have been a profitable month if he hadn’t increased tariffs out of the blue. On the flip side, the FOMC has turned more dovish, which likely increases the likelihood of mean reversion trading improving.

For day trading, Trump and the FOMC were beneficial since they increased volatility. With trade wars likely to persist, the global economy not exactly booming, and Trump being unpredictable, volatility will probably remain higher than it was in 2013-2017. If that is the case, then day trading should continue to be profitable. Also, I am especially happy that I’ve been able to replace older underperforming systems with new ones that also provide more diversification. Spring ES has so far proven itself in live trading, and Bandwagon ES looks very promising based on testing and my personal live trading before releasing it.

Looking back, there have been fundamental changes in the market (FOMC and Trump). These changes were detrimental to performance for the swing systems the past couple of years and beneficial to the performance of the day trading systems. One change going forward (FOMC becoming dovish) should benefit the swing systems. Trump is likely not changing, so volatility should help the day trading systems. Although there is no way to say this with certainty, my view is that the foreseeable future looks like a good fit for these trading systems.

Thanks,

Gary