Summer breakout profits and autumn prognosis

Yesterday I was going through some Slack communication with my hedge fund team, when I stumbled upon an equity curve that one of my hedge fund team members posted on the 4th of July:

It’s a breakout e-mini DowJones strategy, trading on a 60 minute time-frame. And as you can see, this summer, it had some serious run-ups (just like other breakout index trading strategies in our portfolios).

In fact, we had days when we were closing with profits up to +6,000 USD per contract.

These are some VERY SERIOUS profits.

Just imagine trading strategies like this with smaller accounts, like 10-15 thousands USD. A single trade like this could easily create even a +50% return in a few days!

Yes, the summer of 2020 was exactly like that. A bit crazy, but for breakout strategies there were some EXTRAORDINARY opportunities.

But summer is over now and we’re slowly moving into Autumn. So, what’s my prognosis for the autumn months in the markets?

Well, here’s a few of my opinions:

1. We still will have a volatile environment.

The COVID craziness seems to be far from going away, and that means uncertainty in the markets. And uncertainty means volatility, which is a GOOD thing. Especially for breakout trading, which can make a serious killing in a volatile environment.

2. The bull-trend will be over soon.

It’s not logical or realistic to see consistently new highs in the economy (markets) where the GDP drops 20-30%. Such a drop in GDP is literally equal to a post World War II economy. The reason we do not see it in markets yet is that there is a delay. From my experience from 2008, somewhere between 6-9 months usually. So I’m pretty confident that a big turning point is just behind the corner. The party will be over soon. And it will be VERY serious.

3. We will see a lot of “linearity”.

By “linearity” I mean that usually lower-correlated markets will start correlating way more for a while. This was the case in the 2008 crisis too, once everything started falling, and the usual benefits of diversification were mitigated for a few months.

So, that’s my prognosis. Now, the important question is – how do you get ready for the times ahead?

Here’s a few tips:

1. Add breakout strategies to your portfolio – ASAP

I’ll repeat it again: High volatility environments can be EXTREMELY profitable for breakout trading strategies. You can potentially make profits in all of the years of economic uncertainty ahead, and do it in a pretty short period of time. So, if you haven’t got yourself ready yet, this is one of the fastest ways to implement a proven breakout trading framework.

2. Apply some serious protective mechanisms

The enormous financial potential in high volatility environments never comes for free. It does, of course, come with the price of higher risk.

But this risk can be significantly reduced if you know how to be one step ahead. How to read and interpret the proper information and be ready before the bad stuff happens. And also how to filter out potentially losing trades before they happen.

For this task, you definitely should check out the Market Internal techniques and the Smashing False Breakouts techniques.

3. Include a lot of SHORT trading strategies

Way too many traders trade on the long side only. But what happens when the bear market starts? I’ll tell you:

A) You will MISS OUT on the huge financial potential on the short side,
B) You will very likely lose a lot of your hard earned money.

That’s why NOW is the right time to include more SHORT trading strategies into your portfolio too. To get yourself ahead, to get yourself ready. (And of course, my own breakout trading strategies development framework DOES include short-side breakout trading and I can’t wait for it to happen!)

We’ve been developing more short strategies in our hedge fund over the last few months. You should start working on some short strategies too. Don’t hesitate, start today.

Good luck and happy trading!

Tomas