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. As demonstrated below, mathematical non-subjective trend following is a valid strategy. 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. We have managed money for the public, in real time since 2002, and those results are available at Timertrac.com for a nominal fee.

100-Day Simple Moving Average System Trading Results

(Returns in Percentages)

Year

NASDAQ INDEX*

Year

NASDAQ INDEX*

Year

NASDAQ INDEX*

Buy & Hold

Trend  Following

Buy & Hold

Trend  Following

Buy & Hold

Trend  Following

 

1963

5.2

3.8

1986

7.4

19.4

2009

43.9

46.2

 

1964

23.1

23.1

1987

-5.3

19.2

2010

16.9

10.7

 

1965

30.1

28.6

1988

15.4

10.5

2011

-1.8

-10.9

 

1966

-1.5

6.9

1989

19.3

22.7

2012

2.2

-6.1

 

1967

54.0

52.4

1990

-17.8

6.8

2013

26.0

26.0

 

1968

20.6

20.9

1991

56.8

47.9

 

1969

-0.8

7.9

1992

15.5

12.9

 

1970

-13.7

15.5

1993

14.7

11.5

 

1971

27.7

24.7

1994

-3.2

3.0

 

1972

17.2

17.9

1995

39.9

35.7

 

1973

-31.1

0.8

1996

22.7

20.4

 

1974

-35.1

6.4

1997

21.6

9.1

 

1975

29.8

32.8

1998

39.6

32.4

 

1976

26.1

22.0

1999

85.6

55.5

 

1977

7.3

4.1

2000

-39.3

-2.0

 

1978

12.3

22.4

2001

-21.1

-8.0

 

1979

28.1

20.0

2002

-31.5

-11.0

 

1980

33.9

37.2

2003

50.0

31.5

 

1981

-3.2

3.3

2004

8.7

0.2

 

1982

18.7

38.1

2005

1.2

-2.0

 

1983

19.9

31.5

2006

9.5

15.9

 

1984

-11.2

5.0

2007

9.8

 -7.1

 

1985

31.4

30.2

2008

-40.5

-9.4

 

Annual Compounded Rate Of  Return from 1963-2013

 9.5

 15.4

Assumptions: 

1. *Nasdaq Composite Index used from 1963 thru 2011. Nasdaq100/QQQ used from 2012 forward.

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 data thru 2011,but are included in data from 2012 forward for the Nasdaq100/QQQ

6. Past performance no guarantee of future results.

7. Data source/ verification is the financial database of Ultra Financial Systems Inc., Breckinridge Colorado thru 2011. Data for Nasdaq 100/QQQ for 2012 forward is ETFReplay.com

8.All information sources are completely independent of LCM Inc.