SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Value of Trend Following During Periods of Market Volatility

Our trend following system looks at two things when planning a position. The first piece is obviously the direction of the trend.  Does the system signal up or down?  The second piece of a position plan is how much risk we are going to take. 

We look at the historical volatility of the underlying asset to get an idea of how much it usually moves in any given week and try to get the same risk across all positions.  So if an asset is really volatile our position size is smaller.  If it is trending smoothly our position size is larger.


Over the last year one of the best performing, smoothest trends has been the S&P futures trend.  Every week it moved up, with very little volatility.  Consequently, our position in the ES was long and grew in size as the volatility decreased.


Of course, this all came to an end in February when the S&P 500 dropped 10% in just days.  We weren't exempt.  The position we had on in the S&P futures contracts took a big hit.  And yet, we had one of our best performing months to date, with the system delivering a positive 8.2%.


See, while our position in the S&P took a hit we also had positions in treasuries, oil, natural gas, precious metals and many others.  All of those trades followed the same exact process as the S&P trade.  What direction is the contract moving and what is its volatility?  Place a trade; follow the process.  And last month when the S&P crashed we had big winning positions in oil, gold, treasuries and cattle that made far more than we lost on the one S&P trade. In fact, February was one of our best months to date.  Our other similar month?  August of 2019 when the S&P dropped as well and our system made 13%. 


This behavior in trend following systems is one of the great reasons to allocate to the strategy.  These systems often (not always) out-perform in periods of market turbulence.  This isn't an idea we discovered.  Michael Covel's classic "Trend Following" has the tagline "How to Make a Fortune in Bull, Bear, and Black Swan Markets".  In his book Covel describes the performance of some of the great trend-followers.  Their performance is amazingly consistent with examples dating back to David Ricardo in the 19th century through multi-billion hedge fund managers today.  These traders performed well over the long-term in part because they are employing a strategy that doesn't just survive when the unexpected happens, it thrives.


There's always a trade-off though.  If trend following is great why don't more people do it?  I think you can get some hints from how the system performs week to week and month to month.  If there are no trends the system usually generates a small loss.  This can happen for months in a row interspersed with moderate returns.  Then you have a month with great returns.  This is a characteristic of these trading systems.  They tend to have periods of many small losses followed by large spikes in returns.  That can make it tough for people to follow it.  But if you can stick with it, you will not only get great long term returns, you often get those returns at a time when the rest of your portfolio is taking a hit.


Lumpy, non-smooth returns, can make it tough to follow a trend system.  One of the ways we mitigate that is standardizing the trade entry and calculations.  Every Thursday night our system runs and kicks out the new positions long or short, and what the size of the position should be.  If the signal is the same week over week we just check to make sure our long options haven't moved too far into the money.  If they haven't we let them ride.  If they have we roll them up to ATM.  If the signal switches we close our open position and go the other way.  This simple process allows us to maintain the trend portfolio on a large number of contracts with just a few minutes of work every Friday.  We don't have to analyze charts to find the right set-up.  We just follow the system.


Trend-following has a long-term performance that makes it attractive on its own.  The fact that it often performs better during bad periods for other strategies makes it attractive as part of a larger portfolio of strategies.  And automating the system allows you to trade it on a large number of contracts while having a very predictable trade schedule.  There’s no guess work, no struggling to get fills; this system could be traded just as effectively on a 7 figure account as it has been in our 50k portfolio.  We strongly suggest any trader allocate at least a small percentage of their portfolio to trend following. February was a perfect example of the value our system provides and unlike most CTA, you don’t need 500k-1MM to get access to managed futures system with a strong track record.

You can join our Steady Futures service for only $59/month. The subscription rates will go up once we have a longer track record. Similar systems usually cost few times more.


What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles


  • Human Nature and Option Risk

    Traders may tend to think of risk in purely mathematical terms. It can be quantified by analysis and by a deep understanding of probability. But there is more to this than just the math, and for options traders, some of the intangible considerations might have more impact on trading decisions than the formulas.

    By Michael C. Thomsett,

  • Anchor Analysis and Options

    Anyone who has been trading the Anchor Strategy over the past few months should be extremely happy with its performance.  Now that many have realized how well it performs in down markets, one of the most common questions is “what should I do now?”

    By cwelsh,

  • Discount Stock Shopping In High Volatility Markets

    The COVID-19 pandemic has rocked markets over the past month. The fear of the virus, the fear of the impact on global economics from the mitigation taken on by governments, and, finally, the fear of "what’s next" has propelled the VIX.

    By Drew Hilleshiem,

  • The Fallacy of Market Timing

    The headlines say it all. "The worst day since the financial crisis". "Markets in turmoil". And today was "Stock markets post best day in years as governments fight coronavirus with cash". Could anyone predict the crash? And can anyone tell us where we are headed next week/month/year? Is it possible to call the tops and the bottoms?

    By Kim,

  • Long Option Risks

    Among all options, the most easily calculated payoffs are those for long options. But there remains a great misunderstanding, even among experienced option traders. This must be clarified before moving forward. The misunderstanding is often seen expressed online and in the literature: “75% of long options expire worthless.”

    By Michael C. Thomsett,

  • Option Payoff Probability

    Many options analyses focus on profit, loss and breakeven. These show what occurs on expiration day, assuming the option remains open to that point. But this is not realistic. Most options are closed or exercised before expiration, is calculation of how probable a payoff is going to be, how likely the loss, or the exact neutral outcome (breakeven), are all unrealistic.

    By Michael C. Thomsett,

  • Value of Trend Following During Periods of Market Volatility

    Our trend following system looks at two things when planning a position. The first piece is obviously the direction of the trend.  Does the system signal up or down?  The second piece of a position plan is how much risk we are going to take. 

    By RapperT,

    • 1 comment
  • Intrinsic vs. Extrinsic Value

    A lot is written about intrinsic value, but how does it work and what does it mean? The fact is, intrinsic value is an estimate of how future premium levels will change. It is base don current volatility and a set of assumptions. In dividing premium into its component parts, most descriptions deal with intrinsic and time value.

    By Michael C. Thomsett,

  • McDonald's, Not A Shelter in the Coming Storm

    The amount of time and effort that investors spend assessing the risks versus the potential returns of their portfolio should shift as the economy and markets cycle over time. For example, when an economic recovery finally breaks the grip of a recession, and asset prices and valuations have fallen to average or below-average levels, price and economic risks are greatly diminished.

    By Michael Lebowitz,

  • Risk Depends On Your Time Horizon

    Those who are nearing retirement and those who have recently retired represent the majority of my financial planning and investment advisory client base. One of the most common mistakes I hear from these types of individuals is something similar to “I no longer have enough time for the market to come back.”

    By Jesse,


  Report Article

We want to hear from you!

As a follow up to this article, the Steady Futures system returned just under 8% this week alone in wild week; one that saw trading halted and massive draw downs in the equity markets.  Happy trading!

Share this comment

Link to comment
Share on other sites

Your content will need to be approved by a moderator

You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


Options Trading Blogs Expertido