TRADETHINK ARTICLES : Where Have All the Trends Gone and Are They Coming Back?

May 20, 2009

Where Have All the Trends Gone and Are They Coming Back?

By Chris Morse

Every year trend traders around the world will ask them self's "Where have all the trends gone and will they be back?" This usually happens after a big run up has come to an end and the markets have consolidated, resulting in a series of losing trades. It is well documented that the markets are in full-blown trend mode about 33% of the time. The rest of the time the markets are choppy and moving sideways.

The greater the trends we will have in a year, the greater the consolidations (sideways market/drawdown) that will follow. From the 2nd half of 2007 all the way through to early 2008 many markets; Grains, Fuels and Metals were just screaming to the upside. Many traders that were long could have made a ton of money. Once the markets topped out everything just stopped and became super choppy from spring through summer. Once the choppiness slowed the markets were ready for their next trend. Boy was the next trend a big one and all of the markets that had gone up from before the summer of 2008 were ready to come down.

My trading system (TradeThink) was able to ride crude oil up to over $130 from an entry at $115.50 And when crude came down my systems signaled to go short at $113 on September 1, 2008 (we exited at around $43 at the end of December 2008). Those two moves alone made a combined $84.50 or $84,500 per Brent Crude Oil contract. To receive a complementary evaluation of our recent Crude Oil and other market signals go here. There were four losing trades in between the trend change from long to short for -$1350 each (yes there are losing trades). However the $84,500 combined winners more than made up for the combined $5,400 losers with a net of $79,100 per contract.
In the midst of consolidation in the markets, many traders begin to second-guess their trading systems or the market's ability to trend. What happens is that after a period of making a lot of money (draw up) there will be a period of losing money (drawdown). Many traders get real emotional during drawdown and some will stop trading or worse they will second-guess their approach to the markets.

After the last down move in the markets, it inevitably was the time once again for the markets to consolidate and become choppy. Typically the bigger the previous move to the upside or downside, the greater the consolidation that will follow is. From December 2008 through April 2009 we have seen major consolidation in the commodities markets (similar to the consolidation we saw last summer after the big up move). Many traders just gave up or worse and lost more money than they could stomach. Please remember "the greater the draw up, the greater the drawdown" if someone chooses to enter the markets at the top after a big run up and did not participate in the previous draw up, then any pursuing drawdown could have adversely effected that trader.

I am happy to say that it looks like the trends are beginning to come back. Look at the charts bellow and see how we are getting in some good moves.

Currently TradeThink ST is shown to be long (bought) the British Pound futures contract. TradeThink ST signaled to go long (buy) BP on 5/4/2009 at 1.4953. Please see the chart below:

As you can see TradeThink ST went long (bought) BP and is currently long with an open profit of $2,268 per contract.

Currently TradeThink ST is also shown to be long (bought) the Soybeans futures contract. TradeThink ST signaled to go long (buy) Soybeans on 5/1/2009 at 1063. Please see the chart below:

As you can see TradeThink ST went long (bought) and is currently long with an open profit of $4,175 per contract. Go here to receive complementary trade signals for soybeans.

Currently TradeThink ST is shown to be long (bought) the Sugar futures contract. TradeThink ST signaled to go long (buy) Sugar on 5/4/2009 at 13.85. Please see the chart below:

TradeThink ST went long (bought) Sugar and is currently long with an open profit of $1,971 per contract.

Currently TradeThink ST is shown to be long (bought) the Cotton futures contract. TradeThink ST signaled to go long (buy) Cotton on 4/22/2009 at 51.90. Please see the chart below:

TradeThink ST went long (bought) Cotton and is currently long with an open profit of $2,830 per contract. Go here to get complementary trade signals of markets like cotton.

Currently TradeThink ST is shown to be long (bought) the Silver futures contract. TradeThink ST signaled to go long (buy) Silver on 5/5/2009 at 1325. Please see the chart below:

TradeThink ST went long (bought) Silver and is currently long with an open profit of $2,900 per contract.

Currently TradeThink is showing to be short (sell) the Lean Hogs futures contract. TradeThink signaled to go short LH on 4/20/2009 at 73.7. Please see the chart below:

TradeThink went short Lean Hogs and is currently short with an open profit of $2,060 per contract.

From the charts above it definitely looks like trends are starting to move again. Trade Think follows a very diversified portfolio of markets simultaneously in order to participate in the big moves. The grains, metals, fuels and currencies are all starting nice moves to the upside.

About the Author

Chris Morse is the Developer of the TradeThink trading system. He has been involved in the development of trading strategies for nearly ten years. Mr. Morse developed a very robust system which is now in private use at one of the largest FCM's and has earned sizable returns for the last 3 years. Mr. Morse now focuses his time exclusively on developing and managing his systems.

Disclosure: Commodity trading has large potential rewards, but also large potential risks. You must be aware of the risks and be willing to accept them in order to invest in the futures markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell commodity interests.

Notice: Returns are hypothetical. Hypothetical or simulated performance returns have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since 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.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. INVESTMENTS IN FUTURES INVOLVES HIGH RISKS AND YOU CAN LOSE A LOT OF MONEY.

FUTURES TRADING HAS LARGE RISKS. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES MARKETS. DON'T TRADE WITH MONEY YOU CAN'T AFFORD TO LOSE. YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN THE FUTURES INDUSTRY. IN SO DOING, YOU SHOULD BE AWARE THAT TRADING FUTURES AND OPTIONS ON FUTURES CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE VALUE OF YOUR ACCOUNT. THIS IS NEITHER A SOLICITATION NOR AN OFFER TO BUY OR SELL FUTURES INTERESTS.

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ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

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