It depends how you combine them!
Hey traders!
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With that out of the way, I spoke to Brent Penfold this week and was pleasantly surprised to hear about how his very old and very robust strategies continue to perform so well, with so little effort. This is encouraging for all! I mean, if simple can do it, why complicate!? Doesn’t mean it’s ‘easy’, but nothing worthwhile is.
In the age of machine learning, high-frequency trading, AI, untold data options and black box models, it’s easy to believe that only the most sophisticated strategies have any edge left. Yet Brent Penfold, veteran Australian trader and author of The Universal Principles of Successful Trading and The Universal Tactics of Successful Trend Trading, has spent decades proving the opposite. Yes, he has the track record to prove it.
His conclusion? Old, simple rules — the kind that could be written on a napkin — still work. They work not because markets are static, but because they are built on timeless principles of human behaviour, risk, and trend. Penfold calls these the “universal principles,” and they are the scaffolding behind every robust trading approach.
The magic is not in finding a perfect formula. It’s in building a disciplined process around a handful of simple, durable ideas that generate robustness. Let’s explore those six principles, with Penfold’s insights — and see how caveman-simple rules still stand tall in a modern quantitative portfolio.
Principle One: Preparation — Build Your Scaffolding Before You Trade
Every building stands or falls on its foundations. Trading is no different. Preparation means designing your rules for survival before you place a single trade.
Expect “maximum adversity and randomness.” Your job is not to avoid losses, but to become the “best loser” in the room — the one who takes small, controlled losses and lives to fight another day.
Brent urges traders to set boundaries before they start:
- A maximum amount they are willing to lose over their career.
- A risk management framework (position sizing, capital at risk).
- A partner or accountability mechanism to enforce discipline.
That last one we all tend to overlook right? Think we’ve got it covered. If I could go back and find a way to do this earlier, I’d do it in a heartbeat. These basics are easy to overlook, but this isn’t ‘fluff’, this is wisdom looking back and giving good advice.
Principle Two: Enlightenment — Survival First, Edge Second
The second principle is all about perspective. Enlightenment in trading means realizing that the first goal is survival, not riches. Be a blue-collar trader! The risk of ruin — the chance of blowing up — must be driven down to negligible levels before you worry about performance.
Once survival is locked in, the next step is to understand expectancy. Expectancy is the simple math that describes your edge:
(Average Win × Win Rate) – (Average Loss × Loss Rate)
Now I don’t believe a positive expectancy is some kind of holy grail – it’s still just a statistic you pulled from a back-test, but the principle is that you should set some clear thinking about your position sizing and hoped-for expectancy because combined, they will give you a pretty good idea of your ‘risk of ruin’. You want a 0% chance of ruin.
Penfold has shown that strategies dating back nearly a century — Gartley’s 3/6-week crossover from 1935, Donchian’s Four-Week Rule from 1960, and the Dreyfus 52-Week Rule — still generate profits across diverse markets when applied with discipline. What makes them powerful is not their elegance, but their robustness. He tested them across a 24-market futures portfolio with the same parameters, and they still delivered.
That robustness builds belief. And belief matters, because when your system inevitably hits a drawdown, only deep conviction in its expectancy will stop you from abandoning it at the worst possible time.
Survival, then expectancy. Enlightenment is seeing the hierarchy clearly.
Principle Three: Trading Style — Find Your Mode
Once you’ve secured survival and built belief, the next principle is choosing your style. Penfold makes the point that trading is a business and you have to do ‘what works’, not just what you feel like. However, you’ll still find your niche. When it comes to strategy construction, you’ve got to know the style and attributes of the model you are building in order to set the right expectations and judge it properly.
Trend following strategies follow different rules, have different needs, will perform at different times than mean reversion strategies. You’ll concentrate on different ratios and principles in the back-tests, and you’ll focus on avoiding the risks specific to each in different ways.
Principle Four: Markets — Fish Where the Risk is Lowest
Many traders obsess about finding the right pattern. Penfold insists you first choose the right waters to fish in.
Markets differ not just in opportunity but in risk. The best hunting grounds share these traits:
- Deep liquidity
- Transparency and fair regulation
- Low transaction costs
- The ability to short easily
- Round-the-clock pricing
Index futures and currency futures tick most of those boxes, which is why they form the backbone of Penfold’s preferred portfolio.
But the real insight here is portfolio thinking again. Penfold built a “P24” portfolio of 24 global futures contracts across sectors: equity indices, interest rates, currencies, energies, metals, grains, and meats. He applies the same simple rules across all of them.
By doing so, he transforms simplicity into power. Portfolio diversification is not an afterthought; it is the multiplier that makes simple work.
Principle Five: The Three Pillars — Money, Method, Mind
If there’s a heartbeat in Penfold’s framework, it’s this:
- Money management comes first. Without capital, you can’t play the game. Position sizing is more important than entry logic. Fixed-fractional risk rules (say, risking 0.25–0.5% of equity per trade) are a trader’s lifeline.
- Methodology comes second. Your system is important, but position sizing and discipline will be the factors that make or break you.
- Psychology comes third. Even robust systems will test your patience. Hope, fear, greed, and pain are managed not by willpower but by systems: equity-curve stops, monthly reviews, and pre-planned rules.
Penfold makes clear that risk management sits at the portfolio level, not just the system level. His sizing logic ensures that correlated positions don’t sneak in disguised as diversification. This keeps his capital spread across truly independent bets.
The lesson is simple but severe: if you’re risking too much, or risking on correlated ideas, you’re breaking the first pillar — and no clever method can save you.
Principle Six: Trading — Execute, Then Get Out of the Way
Finally comes the act of trading itself. Penfold treats execution as a ritual. It sounds mechanical because it should be. Execution is not the time for creativity or improvisation.
By the time a signal appears, all the heavy lifting has already been done — in preparation, in risk management, in system design. Trading, ironically, is the least glamorous part of trading. It is simply pressing the button and moving on.
Robustness Testing
Here’s where Penfold stands apart from most shorter-term futures traders although he is in line with the likes of our classic trend following friends like Moritz Seibert and Jerry Parker: he only trades strategies which apply across all (or many) futures markets. That is, he isn’t interested in trading strategies that only work on the S&P for example. Unless a strategy is essentially universal enough to work on almost any market he throws it at, he discards it. Side-note: to be fair, Brent isn’t trading intra-day bars like other traders I’ve spoken to who prefer to build per-market strategies.
Think of the advantages here:
- The evidence of robustness is basically as obvious as a slap in the face.
- You get way more data to work on – you can build the strategy on all the data for a particular contract, and every other market is all out-of-sample data ready for testing.
- You get a robustness-test that is highly significant: “if it works on other markets, it’s robust, if not, it isn’t”.
Portfolio Level Thinking — The Curious Non-Standard Edge
To master systematic trading it’s incredibly important to build individual strategies with the portfolio in mind. There will be rules for the strategy and rules for the portfolio.
One curious, non-standard portfolio rule Brent has is that if two systems generate a signal on the same day for the same market, he only takes one trade. This runs counter to conventional thinking in that he’s manipulating the individual model by potentially skipping trades. The catch is that he already knows this is how he’ll run his portfolio, so he’s building strategies highly unlikely to trade on the same day in the first place.
This subtle twist has big implications. It means that when designing individual strategies, you must consider how they will behave together. It forces you to ask: “What happens when these signals overlap? Am I truly diversified, or am I just rephrasing the same idea?”
It also leads to robustness testing at the portfolio level, not just at the strategy level. A system that looks good in isolation may add no value — or even add risk — when combined with others. Portfolio-level robustness testing ensures the mix of systems is stronger than the sum of its parts.
This way of thinking demands more of the trader, but it produces a sturdier framework. It is one of the quiet hallmarks of Penfold’s design process.
Have Markets Changed?
The natural objection to running these ‘old simple strategies’ is that markets are different now.
However, Penfold reminds us that the principles of markets have not changed. Human behaviours — fear, greed, herding, confirmation bias, etc— are as old as the markets themselves. The earliest trend followers, from David Ricardo in the 1800s to Richard Donchian in the 1960s, all leaned on the same maxims: cut losses, let profits run, follow the flow.
Markets evolve, but the universal attributes endure. That is why simple rules continue to work when applied across many markets with discipline. What fails is curve-fitting — the urge to mine the last five years of data for a pattern that will vanish tomorrow.
In other words, the future is uncertain, but the universal principles are timeless.
Diversify, Diversify, Diversify
Another aspect of Penfold’s portfolio level thinking is that traders should seek to add new markets and new models, not simply increase size on existing ones.
The temptation when a strategy is working is to scale it up aggressively. But this concentrates risk instead of spreading it. A far safer path is to add genuinely uncorrelated markets (currencies, rates, commodities, indices) or to add different styles (trend and mean reversion) that dance to different rhythms.
Diversification is the only “free lunch” in trading. And as Penfold shows with his P24 portfolio, it transforms simple rules into durable performers. One system on one market is a curiosity. That same system, applied across a global portfolio, becomes a resilient edge.
Diversification by market and method is how traders survive the long run.
Five Takeaways for Traders
- Simple still works. Don’t dismiss an old breakout rule because it looks primitive. Simplicity often equals robustness.
- Portfolio thinking matters. A lot happens at the portfolio level. Risks change, capital allocation rules are needed, diversification becomes real.
- Diversify by method as well as market. Blend models, markets, time-frames to reduce correlation.
- Robustness beats cleverness. Try multi-market testing as a robustness-test. How much are you prepared to bank on the idiosyncrasies of a specific market?
- Principles don’t age. Risk management, good process, disciplined execution and right expectations probably matter more than any indicator.
Get in touch with Brent