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Our 50k model portfolio trades options on various futures contracts. We add and remove contracts periodically depending on liquidity and other factors. We are always reviewing additional contracts for viability in our trading system to provide added diversification. Signals are posted each week on Friday and the trades can be taken any time that day. It is not important to try to match the fills we post. Those following the system only need to get the direction right (long or short) and enter the trade at delta indicated by the system. These are not time or price sensitive trades. Members can take the trades at any time on the day the signals are updated. In 2021, Steady Futures returned 21% versus 6.28% for our benchmark. We consider this to be an exceptional year for the system, especially when we consider that we typically only have around 20% of our trading capital at risk at any given time. Our system automatically adjusts the size of our trades for specific contracts based on the volatility of the underlying futures contract. The system is very low maintenance and very easy to follow. Here are the returns and win rate for the year by contract: A note on win rate: 67% win rate may not seem impressive to some but this is very high for trend following systems. Our win rate and overall performance were impacted by changes to system we made early in 2021. At the beginning of the year, we added a long term trend filter against the signal indicated by our system for a given contract. If the long term filter signaled a trend in our system's direction we expressed that signal with a long spread. If the long term filter signaled a longer term trend against our signal or a neutral market we began using a short spread instead to allow us to benefit from decay in choppy markets. We estimated this change would have improved 2020’s results somewhere in the range of 10%-15% and its impact was obvious in 2021. Adjustments for 2022: Beginning in 2022, we be increasing the size of the model portfolio to 100k. There are fixed costs associated with trading futures options and this change will reduce those fixed costs as a percentage of overall trading costs for those using the system. Conclusion: The Steady Futures trend following system had an exceptionally strong year. The system continues to produce high signal accuracy and get us into big moves in the underlying futures contracts. The changes made to take advantage of decay in choppy markets improved the system’s win rate but more importantly significantly reduced the number of outsized losses we experienced in 2020. The system displays no (or even negative at times) correlation to equity markets and our recommendation is that any trader have some exposure to trend following in their portfolio. The increase in portfolio size will allow us to gain more from large moves in the underlying contracts and should facilitate continued strong performance from the system. Steady Futures is offered as a standalone subscription or part of various bundles. Read More: Welcome to Steady Futures

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.

A principle of quantitative investing is that the more data you have, the better. Below is an example of trend following the S&P 500 with a combination of 6 to 12 month absolute momentum since 1930. Individuals interested in recreating this simulation on their own can contact me directly at jblom@lorintine.com. A hypothetical rules-based backtest this long includes the greatest crash we’ve ever seen in US stocks where the S&P declined 80% during the great depression. Some may get distracted by the discussion on how the markets were “different” then vs. now. The objective here is only to see how well a simple model holds up on as much historical data as possible. We’re looking for robustness. Portfolio 1: Momentum (Either in the S&P 500, bonds, or a combination of both based on absolute or "time series" momentum) IVV1930: This is a custom built dataset of S&P 500 total returns where index data is used prior to modern day investable products like the iShares ETF, IVV, which are used when they became available. Click on all images for greater clarity. Every statistic is improved, except best year, which is expected, because during positive outlier years the best a single asset trend system can really be expected to do is match the buy and hold return. The most notable improvement is the reduction in volatility and drawdown, which is a common trait of simple trend following systems like this. 35% is still a large and very uncomfortable maximum drawdown, which is why diversification is always recommended and how we actually implement these concepts in our firm for our clients. I find it interesting to actually zoom in on the great depression period because backtesting does a great job of simulating everything about past performance EXCEPT how it would have actually felt to live through it. Cliff Asness says it well in his description of what he calls time dilation: "Well the single biggest difference between the real world and academia is - this sounds overly scientific - time dilation. I’ll explain what I mean. This is not relativistic time dilation as the only time I move at speeds near light is when there is pizza involved. But to borrow the term, your sense of time does change when you are running real money. Suppose you look at a cumulative return of a strategy with a Sharpe ratio of 0.7 and see a three year period with poor performance. It does not phase you one drop. You go: “Oh, look, that happened in 1973, but it came back by 1976, and that’s what a 0.7 Sharpe ratio does.” But living through those periods takes — subjectively, and in wear and tear on your internal organs — many times the actual time it really lasts. If you have a three year period where something doesn’t work, it ages you a decade. You face an immense pressure to change your models, you have bosses and clients who lose faith, and I cannot explain the amount of discipline you need." Based on my decade of experience in working with investors, I can imagine the fear being so strong during this kind of period that investors would have bailed on the trend system even when it was doing its job of preserving capital. Certainly there was something else in the world that was making money during this period for investors to compare performance to and chase after the fact returns. When it comes to stocks, as prices go lower and therefore future expected returns increase…for some reason investors become less interested. Perhaps this would be different if stock prices were quoted in yields instead? I don't know, but behavioral biases are actually part of the academic explanation of why trend following has held up for so long, including well after its discovery. In more recent history, we saw a similar stretch in markets from 2000-2009, now referred to as “the lost decade” for the S&P 500. Trend following performed extremely well during this period, probably even better than should be expected during the next bear market due to how relatively stable both the up and down trends were during this period and also how strong the performance of US aggregate bonds was as a risk-off asset. Trend following does tend to under perform during strong bull markets like we've seen since 2010, so investors must manage expectations accordingly. The only way to get 100% of the upside is to accept 100% of the downside. Also, trend following is going to generate turnover that will make it less tax efficient than buy and hold and should therefore be favored in tax advantaged accounts for high income earners. All of these things are what we can assist clients with in designing a comprehensive asset allocation plan that suits your personalized situation and needs. Jesse Blom is a licensed investment advisor and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse has a Bachelor of Science in Finance from Oral Roberts University. Jesse oversees the LC Diversified forum and contributes to the Steady Condors newsletter.