Trading Systems Performance for January 2022
Below is a performance summary for our trading strategies for the month of January 2022. To learn more about the strategies and to follow along in real-time with their signals, please visit the Trading Systems page.
System performance for January
|Strategy||January||Year to Date|
|Trade Risk Index||-9.82%||-9.82%|
See Performance Disclosures: Monthly Performance.
Trading system commentary
Where did all of the easy money and uptrends from 2021 go?
Stocks have had a rough start to the year and by that I mean the average stock. The market-cap weighted indices are still holding up well, meanwhile many pockets of the market are down 40% or more from their 52-week highs.
The Trade Risk Index finished down 9.82% in January versus our 60/40 benchmark down 4.01% and it was really the Merlin Trading System that underperformed and dragged us lower. Merlin finished the month down a painful 16.38%.
Is the system broken? Should we stop trading it? Let’s look at some history.
We already know the largest drawdown for Merlin historically is around 23% (you can find that stat on our performance page), so this magnitude decline is not unusual. In fact, we can look back to February and March of 2020 and see back to back -8.25% and -7.38% monthly declines.
Let’s also reflect on how Merlin trades. Merlin is an intermediate (or long-term depending on your definition) trading system that primarily trades growth/momentum stocks. Here’s what growth looked like this month using the ARK Next Generation Internet ETF (ARKW):
This isn’t a perfect proxy for the types of stocks Merlin trades, but it gives us a good indication of the environment we were dealing with, which was growth/high beta stocks in a steep downtrend.
- Drawdowns aren’t fun but every system goes through them
- The current system drawdown is in line with historical expectations
- The current market environment matches the exact type of environment Merlin should underperform in
Fortunately, we allocate to multiple trading systems and our Lamorak trading system held in there much better in January, and at the time of writing this, is trying to move positive on the year throughout the month of February.
If you’re looking for professional evidence-based strategies to help you trade individual stocks and ETFs, sign up for a $1 Trial today to see if Merlin and Lamorak are right for you.