2013′s over… Time for some reflection.
Last year, I started producing the Wisdom State of Trend Following report. The concept is very similar to the State of Trend Following report, which I’ve been running on this blog for a few years: take a diversified portfolio of futures markets, and run it through a mix of classic trend following systems over different timeframes to obtain a trend following composite index.
I worked with Shane at Wisdom Trading to make sure that the new index was closer to “real trading” than the index on this blog. In effect, we added trade friction parameters (slippage and commissions) and made sure that all products could be traded by US citizens/entities (Wisdom cover a very good range of markets but CFTC regulations prevent trading of markets such as Turkish Lira or OMX Helsinki 25).
In terms of sector balancing, my initial pick for the State of TF report was more “random”, so I made sure to have a more even split in the list of around 40 markets selected (details of individual markets and sectors can be found on Wisdom State of TF report posts, like the latest one from December and on the State of TF reports like this one for the AuTraSy version).
The end result was an index that reflected historical trend following performance fairly well in comparison to well-known benchmark indexes, but also to the actual real-life trading performance of trend following systems traded/executed by Wisdom Trading for their clients over the last one or two decades.
The Wisdom report was launched in August, but one thing puzzled me (along with some readers): despite applying very similar concepts, the YTD performance for both “State of TF” indexes showed a substantial difference. That difference lasted until the end of the year, as shown by these two charts: