Futures Trend Backtests

This page documents the research behind TradeAnon's futures trend-following signals. The futures trend module uses systematically validated approaches for trend identification and trade management.

Research Objective

The futures trend backtest research aimed to answer:

1. Do trend-following signals work? — Can systematic rules capture futures trends?
2. Which indicators work best? — What technical setup identifies trends reliably?
3. How should positions be sized? — What risk management maximizes risk-adjusted returns?
4. What is realistic performance? — What returns, volatility, and drawdowns to expect?

Validated Strategy Library

TradeAnon's futures trend system uses strategies validated through rigorous out-of-sample (OOS) testing. We tested 285 strategy/parameter combinations across 19 contracts and validated 11 strategies with positive OOS Sharpe ratios.

Tier 1: Proven Strategies (OOS Sharpe > 0.30)

Strategy	Best For	OOS Sharpe	Parameters
Long-Only Equity (50d)	NQ	0.65	50d entry, 25d exit, long-only
Slow Trend (120d)	ZF, ZN, ZT, GC	0.34-0.62	120d entry, 60d exit
TSMOM Vol-Scaled	NQ, ES	0.38-0.46	252d lookback, 15% vol target
Ultra-Slow (150d)	NQ	0.41	150d entry, 75d exit

Tier 2: Marginal Strategies (OOS Sharpe 0.20-0.30)

Strategy	Best For	OOS Sharpe	Parameters
Fast Breakout (20d)	CT	0.27	20d entry, 10d exit
Long-Only Equity (120d)	ES	0.21	120d entry, 60d exit, long-only

What Works

• ✅ Breakout strategies (8/11 validated)
• ✅ TSMOM with vol-scaling (3/11 validated)
• ✅ Long-only on equity indices (NQ, ES)
• ✅ Rates (ZF, ZN, ZT) with 120d slow breakout
• ✅ Gold with long-only bias

What Doesn't Work

• ❌ FX (6E, 6J, 6B) — All negative Sharpe
• ❌ Mean reversion strategies — Overfit badly
• ❌ RSI/momentum crossover — Negative OOS
• ❌ Natural Gas (NG) — Too volatile
• ❌ Platinum (PL) — No edge found

Markets Tested

Contract	Symbol	Description	Asset Class
E-mini S&P 500	ES	Equity index	Equities
E-mini Nasdaq 100	NQ	Tech-heavy equity	Equities
E-mini Russell 2000	RTY	Small cap equity	Equities
Gold	GC	Precious metals	Metals
Silver	SI	Precious metals	Metals
Crude Oil	CL	Energy	Energy
10-Year Treasury	ZN	Interest rates	Rates
5-Year Treasury	ZF	Interest rates	Rates
2-Year Treasury	ZT	Interest rates	Rates
Cotton	CT	Soft commodities	Softs

Micro Contract Support

Micro contracts (MES, MNQ, MGC, MCL) enable:

• Testing with realistic capital requirements
• Proper position sizing for smaller accounts
• Same price behavior as full-size contracts

Methodology

Donchian Channel Breakout

The core strategy uses Donchian channel breakouts — a classic trend-following approach used by the Turtle Traders.

Entry Signal:

• Long when price exceeds the N-day high (entry period)
• Short when price falls below the N-day low (entry period)

Exit Signal:

• Exit long when price falls below the M-day low (exit period)
• Exit short when price exceeds the M-day high (exit period)

Where N > M (e.g., 50-day entry, 25-day exit).

Strategy Variants

Breakout Strategies:

Variant	Entry Period	Exit Period	Best For
Fast (20d)	20 days	10 days	Volatile commodities (CT)
Standard (50d)	50 days	25 days	Equity indices (NQ, ES)
Slow (120d)	120 days	60 days	Rates, metals (ZF, ZN, GC)
Ultra-Slow (150d)	150 days	75 days	Low-turnover equity (NQ)

TSMOM (Time-Series Momentum):

• 252-day lookback for return calculation
• Position = sign(12-month return) × volatility scalar
• Monthly rebalancing
• Vol-scaled variant targets 15% annualized volatility

Position Sizing

ATR-based sizing ensures consistent risk per trade:

Contracts = Risk$ / (ATR × Contract Multiplier)

Example:

• Account: $50,000
• Risk per trade: 1% ($500)
• ATR: $25
• Multiplier: 5 (MES)
• Contracts: $500 / ($25 × 5) = 4 contracts

Risk Profiles

Each strategy supports three risk profiles:

Profile	Risk/Trade	Max Positions	Target Vol
Conservative	0.5%	3	10%
Moderate	1.0%	5	15%
Aggressive	2.0%	8	25%

Key Findings

Validated Strategy Results (Out-of-Sample)

Strategy	Symbol	OOS Sharpe	Type
LongOnly_50d	NQ	0.65	Breakout
Slow_120d	ZF	0.62	Breakout
TSMOMVolScaled	NQ	0.46	Momentum
UltraSlow_150d	NQ	0.41	Breakout
TSMOMFixed	NQ	0.42	Momentum
Slow_120d	ZN	0.39	Breakout
TSMOMVolScaled	ES	0.38	Momentum
LongOnly_120d	GC	0.34	Breakout
Slow_120d	ZT	0.31	Breakout
Fast_20d	CT	0.27	Breakout
LongOnly_120d	ES	0.21	Breakout

By Asset Class

Asset Class	Best Strategy	OOS Sharpe	Notes
Equity Indices	Long-Only 50d	0.65	NQ outperforms ES
Interest Rates	Slow 120d	0.31-0.62	ZF best, ZT marginal
Precious Metals	Long-Only 120d	0.34	Gold works, silver untested
Soft Commodities	Fast 20d	0.27	Cotton only validated
Energy	—	—	CL not validated
FX	—	Negative	All pairs failed OOS

Strategy Type Comparison

Type	Validated	Failed	Success Rate
Breakout	8	12	40%
TSMOM	3	2	60%
Mean Reversion	0	8	0%
RSI Crossover	0	5	0%

Conclusion: Breakout and TSMOM strategies work; mean reversion and oscillator-based strategies fail out-of-sample.

Sample Trade Analysis

Winning Trade Example

Setup: MES long

• Entry: 50-day breakout at 4,520
• ATR: 45 points
• Initial stop: 4,430 (2× ATR below)
• Position: 3 contracts

Trade Progression:

1. Day 1: Entry at 4,520
2. Day 5: Price at 4,580, trail stop to 4,490
3. Day 12: Price at 4,650, trail stop to 4,560
4. Day 15: Stopped out at 4,600

Result:

• Return: 80 points × 3 contracts × $5 = $1,200
• R-Multiple: 1.8R (risked $675, made $1,200)

Losing Trade Example

Setup: MCL long

• Entry: Pullback to 21 EMA at 78.50
• ATR: 2.00
• Initial stop: 74.50 (2× ATR below)
• Position: 1 contract

Trade Progression:

1. Day 1: Entry at 78.50
2. Day 3: Price drops to 75.00
3. Day 4: Stopped out at 74.50

Result:

• Loss: 4.00 points × 1 contract × $100 = -$400
• R-Multiple: -1.0R (risked $400, lost $400)

Portfolio Construction

Diversification Benefits

Running signals across uncorrelated markets:

Approach	Ann. Return	Sharpe	Max DD
Single market (best)	14.8%	0.71	24.3%
All markets equal	11.8%	0.82	15.7%
Risk parity	10.5%	0.89	12.4%

Conclusion: Diversification improves risk-adjusted returns significantly.

Correlation Matrix

Markets show low to moderate correlation:

	MES	MNQ	MCL	MGC
MES	1.0	0.85	0.35	0.15
MNQ	0.85	1.0	0.30	0.10
MCL	0.35	0.30	1.0	0.25
MGC	0.15	0.10	0.25	1.0

Equity indices correlated with each other, but commodities add diversification.

Risk Management Findings

Optimal Position Sizing

Risk %	Ann. Return	Max DD	Sharpe
0.5%	8.2%	11.4%	0.85
1.0%	12.4%	22.1%	0.68
2.0%	18.7%	38.5%	0.58

Conclusion: 1% risk per trade balances returns and drawdown.

Maximum Positions

Max Positions	Impact
3	Lower returns, lower drawdown
5	Good balance
10	Higher returns, higher correlation risk

Recommendation: Limit to 5-6 concurrent positions.

Limitations

Backtest Limitations

Transaction Costs:

• Included estimated costs
• Actual costs may vary

Slippage:

• Assumed moderate slippage
• Fast markets may have more

Contract Rolls:

• Roll costs not explicitly modeled
• Could affect actual returns

Strategy Limitations

Trend Dependency:

• Struggles in choppy markets
• Extended sideways periods hurt returns

Drawdowns:

• 20%+ drawdowns are possible
• Requires psychological resilience

Correlation in Crisis:

• Markets correlate during stress
• Diversification benefits diminish

Implementation Notes

For Users

1. Understand the strategy — Know what you're trading
2. Size appropriately — Don't exceed 1% risk
3. Diversify — Trade multiple markets
4. Be patient — Trends take time to develop
5. Accept losses — 40% win rate means many losers

Realistic Expectations

What to Expect:

• Extended periods of small losses
• Occasional large winners
• Equity curve volatility
• Periods of underperformance

What NOT to Expect:

• Monthly positive returns
• Every trade to profit
• Consistent returns every quarter
• No drawdowns

Related Topics

• Trend Following Strategy
• Technical Indicators
• Backtesting Methodology