To achieve long term success with a diversified trend following futures strategy you must cover multiple markets and multiple instruments per market at any time. Running a standard trend following strategy on a single instrument or a small group of instruments will likely result in periods of extreme gains and periods of extreme loss. More importantly, it will likely result in very long periods without gains and long recovery periods from drawdowns.
Most of the time any given instrument simply has no profitable trend and if you don’t cover multiple market areas and instruments you have nothing to generate profit and cover the losses in the non-trending markets.
There are many ways of categorizing asset classes although I have settled on a simple and pragmatic scheme which works well in the context of managed futures. The asset classes, or markets if you will, that I use are Agricultural Commodities, Currencies, Equities, Non-Agricultural Commodities and Rates.
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