The Thin Line Between Success and Failure


Trading through the Global Financial Crisis has been an incredibly tough experience for the vast majority of Forex and Commodity traders with many incurring significant losses.

A number of strategies that historically performed well going into the crisis broke down post 2009 following increased government and central bank involvement in the markets.

Below is the equity and underwater equity curves produced by Donchian Channel 4 Week Rule Channel  which we use as a benchmark for trend following performance on EUR.USD, 1 lot per trade. Note the significant degradation in performance 2011-2012 as market price action becomes increasingly choppy and distorted.

Donchian 4 Week Rule EUR.USD

Donchian 4 Week Rule EUR.USD

Donchian 4 Week Rule Underwater Equity EUR.USD

Donchian 4 Week Rule Underwater Equity EUR.USD

Just recently Wall Street Journal ran an editorial entitled ‘Currency Funds Face Diminishing Returns’ in which John Taylor states “the increasingly erratic nature of market swings has made it difficult to spot new trends”, adding that “Currencies have been driven less by economic fundamentals than by policy decisions taken by lawmakers and central bankers.”

Trend followers depend on trend continuation in order to profit. When momentum starts to expand traditional trend following funds are forced to enter into the market. If the move fails to continue those same traders are forced out of their trades at a loss: their risk management protocol dictates this.

The problem in recent years has been the increased number of false breaks across many currencies and commodities as governments and central banks around the world have attempted to contain prices.

At Forex Trading-Pips we continue to incorporate Trend Following and Shorter Term Volatility Breakout Systems in our Trading Signals Program, however we also utilize a number of powerful trend filters and counter trend systems which help minimize the effects of market whipsaw while ensuring that we benefit from breakouts in the direction of the long term trend when they occur.

We don’t believe the current situation will continue indefinitely, indeed just recently trend momentum has returned to a number of markets, most notably in the Japanese yen. Market intervention has a number unforeseen consequences which we believe will produce truly INCREDIBLE opportunities for momentum traders in the Forex and Commodity markets in the years ahead.

Stay tuned for our next update where we reveal to you an amazing strategy that has continued to reap HUGE returns in the euro currency, performing just as well in choppy markets as it has in powerfully trending ones.