Trading events vs. following trends

Key Markets report for Wednesday, 25 Jun 2025

In Monday’s report I mentioned the risk of trading on the basis of daily news flow. When a significant news story breaks, it may seem obvious that it should impact the markets in some predictable way. If Iran closes off the Strait of Hormuz, oil prices should go up. Well, they may, but by the time you place a trade, it is far from certain that you’ll actually be able to profit from it.

This is one of the reasons why 4 out of 5 individual traders lose money. A large-scale study conducted by the British market regulator, the FSA (now renamed FCA) found that 81% of retail investors lose money. That figure is corroborated by many retail brokers that disclose the percentage of their clients who lose money. In all cases, the figures range from low 70s to low 80s:

The recent US-Iran military conflict

After last Friday’s US attack, Iran’s government indicated that they would close Hormuz in retaliation and their parliament actually voted for the measure. It may seem obvious that oil prices should soar on the back of this development, but as we saw, after an initial spike, the price of Brent crude contract rapidly declined, from Monday’s pre-open peak at $81.60/bbl to the current level at about $68.50/bbl, a potentially crushing 16% decline in only two trading sessions. For anyone who thought this was an easy opportunity to earn a windfall from an easy trade, especially if they used leverage, they would have sustained a devastating loss.

Russian 2022 attack on Ukraine

A similar scenario played out in the immediate aftermath of the launch of Russia’s military operation in Ukraine in February of 2022. The day after the event, on 25 February 2022 I wrote in TrendCompass newsletter that,

Yesterday… Russia attacked Ukraine and the obvious thing was that Crude Oil and Gold (among others) would vault much higher. And indeed, while Brent crude oil futures (May 2022 contract) opened at $95.37 in the pre-opening hours, it quickly vaulted toward the day's high at $102.65 as the events in Ukraine unfolded. However, by the end of the day the price retreated and closed at $95.42, up only $0.18 for the day). Anyone who jumped in during the early hours of trading would have ended up with significant losses. This experience underscores yet another important example of why it is important to adhere to a well-formulated strategy of trading with discipline.

In only a few days’ time, Brent soared to $112/bbl and then higher, to $120, but this would have been too late for those who got wiped out by putting on leveraged long positions at the wrong time. In general, timing the trades and trying to catch the big moves during volatile intervals of commotion and uncertainty is a good way to get wiped out. The alternative is formulating a strategy and adhering to it with iron discipline.

An event that occurred in 2019 gave us the perfect illustration of the contrast between the price impact of an unforeseen (and unforeseeable) event and the performance impact of a disciplined adherence to an investment strategy. For longer-term subscribers to this newsletter, it will be a familiar story, but it’s a story worth remembering all the same.

Houthi attack on Saudi oil production facilities

On Saturday, 14 September 2019, a Houthi missile attack from Yemen caused substantial damage to Saudi Aramco’s oil production facilities in Abqaiq (Buqayq).

The following Monday, Brent crude oil experienced the largest-ever one-day price jump and closed $8.42/bbl above previous Friday’s price. Such an event can’t be predicted (unless you’re in the know, of course) and they caught the markets off guard, including trend followers. At that time we were on the wrong side of this development and held short exposure in crude oil. Evidently, this was quite painful:

The experience can easily induce traders to react emotionally to try and avoid or recover losses, or if possible, to profit from the move. But impulsive trading around on-going events tends to make things worse. By contrast, disciplined adherence to predefined and tested decision-making rules enable traders to resist getting caught up in the commotion of the moment. In this sense, sticking with predetermined trading strategies is not a weakness: over longer time-horizons, the consistency of systematic trading strategies in the face of uncertainty pays off, as the next chart clearly illustrates:

Of course, the time scale of these events is uncomfortable and positive performance demands not only discipline but also a great deal of patience. These attributes, however, largely defines the difference between the 80% of traders who lose money and the 20% who don’t. While this newsletter provides the buy and sell signals based on I-System trading strategies, I’m afraid that the discipline and patience part must come from the individual trader him/herself.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio: