The Handbook of Commodity Investing

CHAPTER 16

Commodity Trading Strategies: Examples of Trading Rules and Signals from the CTA Sector

François-Serge Lhabitant, Ph.D.

Chief Investment Officer

Kedge Capital

Professor of Finance

HEC Lausanne and EDHEC Business School

Professional asset managers, whose activity primarily focuses on trading futures on behalf of their clients, are known under the name of commodity trading advisors (CTAs). Some run managed accounts where they act as consultants while others operate through a fund. Collectively, commodity trading advisors manage more than $140 billion of assets and comprise the alternative investment area called managed futures. Unlike hedge funds, they are not regulated by the Securities and Exchange Commission (SEC), but are registered with the Commodity Futures Trading Commission (CFTC) through membership in the National Futures Association.

Today, commodity trading advisors pursue hundreds of different strategies and substrategies. Although each commodity trading advisor claims to be unique, the reality is that three major categories span the universe: systematic traders, discretionary traders, and hybrids. Systematic traders develop computer-based mathematical models to analyze historical data. Their goal is to identify patterns created by inefficient markets that can be used to forecast market movements and generate market-trading decisions. By contrast, discretionary traders rely on fundamental analysis of market conditions to determine their trading strategies. ...