Difficult Profits

Dec. 22, 2021

This year has been problematic in many ways.

We have Bears calling for historic meltdowns while Bulls just keep buying dips. The Bulls have been right all year but the Bears are looking smart recently as the Fed winds down its unconditional support for buy trades.

We have crypto getting hammered lately but profitable for the year if you can take the swings.

Breakouts in stocks have been the worst they’ve been in recent memory, yet, in short bursts, surges are still happening.

In Forex, the GBPJPY (the granddaddy of them all), has been moving this year–but its volatility is reminiscent of a sugared up toddler.

Just last week, for example, the GJPY did this:

So the Fed comes out with tapering news and traders from the biggest institutions in the world start buying on huge volume…only to violently reverse their positions on big volume?

The biggest traders in the world screamed, “BUY NOW, BUY IT ALL!” and then switched to, “OUT NOW! SELL EVERYTHING!” a few hours later.  Are you kidding me? This sort of ridiculousness has been happening all year. And it’s made this a very tough trading year.

Need more proof? Here are the returns from 40in20out.com from this year. This is a free site that tracks a futures portfolio taking real trend following trades taken via breakouts.

If you had to guess first, though, how do you think a breakout methodology would work in a market environment traded by inebriated gibbons?

If your answer was “not very well”, you’d be right.

Keep in mind, 40in20out was up way over 50% last year.

In May, 40in20out was cruising along up 34%:

Then the drunkenness really started to hit. Now, in December, the same portfolio is only up 11%:

Incoherent volatility can cause havoc to the ability to follow trends.

But nutty volatility doesn’t mean things can’t be profitable.

Back in May, we talked about one of my older robots trading my oldest system. This was based on the Turtles and was created several years back.

It trades breakouts the GBPJPY on the 4-hour chart. Like last week, there’s no way this robot could have been optimized for the type of year we’ve had in 2021. So, how did it do?

It’s made over $7800 (trading 1 lot each time) and would be up 39% on a hypothetical $20k account.

That seems kind of strange. How could a breakout strategy do well this year?

Well, the answer is that it would have been VERY difficult to achieve profit with this strategy this year.

Take a look at the Equity Curve:

A trader would have been underwater for the first 9 months. Who could keep trading a strategy that clearly didn’t work or wasn’t going to work this year?

Probably no one. But if a trader stuck with it, the recent volatile trends produced some big wins and that trader would be nicely profitable sitting at home in December.

The takeaways? The market can be outrageous and nonsensical. It can wreak havoc for anyone trying to follow trends. Trend trading will lose during these periods.

But guess what? The trends will come back.

The key is to be there, still trading, when they do.

We’ll look at more strategies in the upcoming Newsletters this holiday week.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.