Commodity trading advisors that utilize trend following have long known there is no Holy Grail. When trend following, commodity trading advisors know that anything can happen. Bearing in mind that anything can happen, commodity trading advisors have abandoned concepts such as fundamental analysis or simply Buy & Hold ( hope).Many successful trend followers and commodity trading advisors have developed trend following systems many times based on multiple systems and multiple time frames. The idea of multiple time frames is to attempt to diminish some of the inherent draw downs and make their equity curve smoother. In trend following systems such ideas are quantified and tested.
Risk per trade
Risk per sector
Open Trade equity risk
Margin to Equity needed
When analyzing and quantifying these attributes commodity trading advisors balance risk & reward. They analyze in order to generate x% returns that in some point of their trading they will go through x % draw down. Trend followers and commodity trading advisors know they do not know the future ( this is their strength of discipline). When trend following commodity trading advisors accept the risk of trading the odds are on their side. They know can not control the future. Trading is like life. In life we can not avoid risks. Life is uncertain. Everytime we get into a car who knows what can occur. That is why we have seat belts. Every thought has potential issues. This year proved how much we can not control or predict anything. Where were all the experts predicting the economic meltdown ( except Roubini & a few others). This year all rules seem to have been broken. Real estate a bastion of safety imploded. Bond holders ( GM) had their rights taken away from them. Currencies imploded and even leaving cash in the bank was not safe any more.
Conclusion -possibly one way to protect your long term wealth might be to consider trend following and trend following systems. There is nothing that gives investors liquidity and transparency other than commodity trading. Once a commodity trading advisor has a strong understanding of risk & money management & utilizes a quantitative trading system the odds can be possibly on your side. More so I never invest more than 2-3% in any commodity trading advisor or any trend following futures system. Again anything can happen, even long term commodity trading advisors or trend following system can have serious issues or draw downs. Compare this to mutual funds who hope the market has to go up and have really made no money over the last years.
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF THE PRINCIPAL RISK FACTORS AND EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR (”CTA”).