Correlations between Commodity Trading Advisors & Trend Follwers

Commodities / Commodities Trading Jul 20, 2009 - 02:50 AM GMT

A question I encounter often is, what are the correlations between your trading and other commodity trading advisors. More so…what makes you different.. Both are great questions..First in my opinion out of the thousands of commodity trading advisors, I would only consider diversified trend followers. This cuts out the options strategies that I have seen too often blow up.

Next in all of my years… I have only seen one short term who can consistently grind out a positive return..( and I have invested with her). Most short term traders have not held up over the years. The next most important issue is risk.. How does the commodity trading advisor or trend follower define and manage risk. This cuts the playing field tremendously. Even some commodity trading advisors don’t understand the golden rule of risk per trade..risk per sector…open trade equity risk. It is not the return on investment.. it is the amount of risk needed to tolerate those returns.

So I would only compare us to other trend following diversified ( large basket of potential markets) that understand risk. More so… I would compare us to commodity trading advisors who trade multiple systems as there is no magic system. Even with all of this said…how are we comparable in our niche.. What is interesting is that in our niche, commodity trading advisors have similiar but different results. Put it this way..why do commodity trading advisors throughout the world in different offices seem to have similiar good periods and lackluster returns.

For example last year was a great year for commodity trading advisors in our niche…and this year… nothing.. absolutely nothing is happening..The answer is quite simple… we are like fishermen.. if the fish don’t come..it does not matter how good our fishing poles are. Trend following can only be successful when there are trends. The reason there are correlations between commodity trading advisors is that the markets are open to those who are aware to take advantage of the trends.

Even with all of this said.. how does one explain the difference in the degrees of returns in the good times..and the drawdowns in the choppy periods…Very simple.. going back to basis… RISK. How much risk does a commodity trading advisor look to take on. Very simply..the bigger the risk per trade.. or sector allocation..or open trade equity allowable..the greater the return…but more importantly..the greater the draw down.

If you really want to succeed in commodity trading & futures trading. You have a choice…you can take the arduous path of learning for yourself or you can allocate to a professional commodity trading advisor in which you understand exactly how he/she trades…how he/she manages the risks inherent in trading and have the patience and discipline to stay with them at 4-5 years. More so I would suggest allocating no more than 5% ( even less) of your net worth to any idea…If you seek to compound your way to wealth… these are the tenants of potential success..

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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