Trend-Following Risks and The Top CTA Performance

Michael Harris
3 min readOct 10, 2023
Photo by Burak the Weekender

Although it is presented as a simple trading style that “lets profits run and cuts losses short”, in reality, trend-following has a huge optimization space. The result is high dispersion in the returns of various managers, periods of high performance, but also periods of extended underperformance.


Trend-following is a dynamic trading style that offers the potential of absolute returns but also suffers from low-risk-adjusted returns. I have studied trend-following for many years. I started trading in the early 1990s in currency futures with a trend-following strategy my partner and I developed. The strategy was strictly systematic, and in the first year, we realized a large gain on a six-figure account in which we had invested. My partner became excited and started selling the idea to a few wealthy people he knew. They also got excited. I was not excited at all.

The problem was that after I ran some statistical simulations, I concluded that there was a high probability that our choice of parameters for the moving averages we were using was random but suitable for the current environment. The risk of a large drawdown in the future was higher than 50%. I decided I did not want to get involved, took my share of profits, taught my partner and his new assistant how to use the strategy, and started looking for a job.

After about two years, I found out that my ex-partner had raised a few million but terminated the fund after a drawdown of about 50%. I continued researching trend-following, but I had a hard time differentiating between marketing and real analysis in the space. Yes, there is huge potential, but risks are high, and luck also plays an important role.

The Top CTA

After a lost decade from 2009 to 2018 with the SG CTA index ending flat, due to random events in 2020, trends developed in markets, and trend-following has delivered large returns in the last three years.

One of the top CTA programs, if not the top in the last three years, is the Mulvaney Global Markets Fund, with a return of about 429% (data as of the end of September 2023). Below is a yearly return chart I compiled from data available on the web.

The annualized return (CAGR) is about 16%, the maximum drawdown is 45.08%, and the Sharpe ratio is 0.58.

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Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Original article



Michael Harris

Ex-fixed income and ex-hedge fund quant, blogger, book author, and developer of DLPAL machine learning software. No investment advice.