Trend Following Performance
A common misunderstanding is that a trend following system does not work or that it cannot be used successfully as an investment strategy. At Investment Warrior we believe only in mechanical, empirical and systematic approaches to trading. We agree that attempts to trade the market using emotional or subjective techniques are futile. However, as the table shows, systematic trend following can add significant returns to investment performance and reduce risk as a result of being out of the market up to 33% of the time.
Here we show the results of a very simple trend following system. This system uses the 100-day moving average as the trading trigger. If the index or fund moves above the 100-day average of its own price, then it would be considered to be a buy signal. If it falls below the 100-day average of its own price, then it would be considered a sell signal.
The systems used here at Investment Warrior and with our managed accounts at Lussenheide Capital Management Inc., uses this basic system, along with a mechanical, proprietary trading filter. Although our returns are comparable or better with those shown below, our system has more desirable characteristics, including fewer trades and less whipsaws amongst others. Our complete systems and components are kept private for proprietary and legal reasons.
|
100-Day Simple Moving Average System Trading Results (Returns in Percentages) |
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|
Year |
NASDAQ Composite |
Year |
NASDAQ Composite |
Year |
NASDAQ Composite |
|||
|
Buy & Hold |
Trend Following |
Buy & Hold |
Trend Following |
Buy & Hold |
Trend Following |
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|
1963 |
5.2 |
3.8 |
1978 |
12.3 |
22.4 |
1993 |
14.7 |
11.5 |
|
1964 |
23.1 |
23.1 |
1979 |
28.1 |
20.0 |
1994 |
-3.2 |
3.0 |
|
1965 |
30.1 |
28.6 |
1980 |
33.9 |
37.2 |
1995 |
39.9 |
35.7 |
|
1966 |
-1.5 |
6.9 |
1981 |
-3.2 |
3.3 |
1996 |
22.7 |
20.4 |
|
1967 |
54.0 |
52.4 |
1982 |
18.7 |
38.1 |
1997 |
21.6 |
9.1 |
|
1968 |
20.6 |
20.9 |
1983 |
19.9 |
31.5 |
1998 |
39.6 |
32.4 |
|
1969 |
-0.8 |
7.9 |
1984 |
-11.2 |
5.0 |
1999 |
85.6 |
55.5 |
|
1970 |
-13.7 |
15.5 |
1985 |
31.4 |
30.2 |
2000 |
-39.3 |
-2.0 |
|
1971 |
27.7 |
24.7 |
1986 |
7.4 |
19.4 |
2001 |
-21.1 |
-8.0 |
|
1972 |
17.2 |
17.9 |
1987 |
-5.3 |
19.2 |
2002 |
-31.5 |
-11.0 |
|
1973 |
-31.1 |
0.8 |
1988 |
15.4 |
10.5 |
2003 |
50.0 |
31.5 |
|
1974 |
-35.1 |
6.4 |
1989 |
19.3 |
22.7 |
2004 |
8.7 |
0.2 |
|
1975 |
29.8 |
32.8 |
1990 |
-17.8 |
6.8 |
2005 |
1.2 |
-2.0 |
|
1976 |
26.1 |
22.0 |
1991 |
56.8 |
47.9 |
2006 |
9.5 |
15.9 |
|
1977 |
7.3 |
4.1 |
1992 |
15.5 |
12.9 |
2007 |
9.8 |
-7.1 |
|
2008** |
-18.2 |
0.7 |
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|
Annual Compounded Rate Of Return from 1963-2008** |
9.7 |
16.4 |
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|
**2008 thru 3/10/2008 Assumptions: 1. Nasdaq Composite Index used from 1963 thru 3/10/08 2. Same-DayTrading 3.Commercial Paper Rates are used to simulate Money Market Yields |
4. Advisory Management Fees are neglected. 5. Fund Expenses are neglected for the NASDAQ 6. Past performance no guarantee of future results. 7. Data source/ verification is financial database leader Ultra Financial Systems Inc., Breckinridge Colorado. 8.Information source is completely independent of LCM Inc. |