Joe Perry,CMT

A robust backtest is not designed to optimize every trade and period. It is designed to test whether a defined set of rules could have produced acceptable results over time, across many trades, markets, and environments. That is very different from trying to optimize the outcome of each individual trade. Some trades may build large open profits and then give most, or even all, of them back before the trailing exit is reached. That is one of the hardest parts of Trend Following. The natural reaction is to change the rules to attempt to improve uncomfortable trades and lock in profits that are rightfully yours. Exit earlier. Add a filter. Run a new backtest. Try to keep the long-term benefits while removing the painful individual outcomes. But that can become a trap. The more we try to prevent discomfort on each trade, the more we risk weakening the discipline that made the overall process testable in the first place. Trend Following requires accepting that individual trades can be uncomfortable, imperfect, and unpredictable. The objective is not to make every trade look good. The objective is to follow a consistent, risk-managed process across many trades, knowing that the edge, if it exists, is expected to show up at the portfolio level over time. Past performance, including backtested results, does not guarantee future results. Investing involves risk, including possible loss of principal. This is for educational purposes only and is not investment advice.