Saturday, September 01, 2007

August 2007 Comments

Managed Account Report.

August was unusually active. One week of this month was an anomaly due to the shocks in the sub prime motgage sector and it’s good to see an interesting August (a month usually devoid of strong trends due to trader holidays)

At a time when many were losing money hand over fist the small trader had an advantage. A hedge fund or bank cannot just dump a position in which they have been building for many months. It’s not easy to drop some billions into the market without it dropping like a lead baloon.

Smaller traders have the advantage in these moves as they can get in and out at will without the disadvantage of having to unwind large positions. Remember, when banks and hedge funds are losing money someone is always on the other side of those trades.

The turmoil in week 2 resulted in a drawdown bigger than expected along with a profit bigger than expected – rather strange to have both inside a week. Please note though that the figures for drawdown are misleading this month as when I was in drawdown on closed trades I had open trades of twice the drawdown level in positive. Therefore my system shutdown level of 45% was not initiated.

The longer term trend following aspect of the programme had great gains followed by a significant drawdown, whilst the shorter term trend aspect had massive gains previously unseen.

All my previous personal records were broken this month:

  • Biggest ever single trade – 1287 pips AUDJPY
  • biggest day 3531 pips on closed trades,
  • biggest week 4480 pips on closed trades 13-17 aug 2007

Clearly I do not expect this kind of performance every month, but once every three years or so this kind of situation presents itself. The last time this kind of action happened was in December of 2004. And I was ready for it then too making my previous records of 485 pips in a day and 1856 in a week. Now smashed.

The Coming Month:

I see September as continuing the volatility and with increased risk. To cope with this my leverage will be reduced to protect assets from large swings into drawdown.

I have also initiated a new limit on exposure. For this month I may have a maximum of three positions on any single currency – so for example three yen trades, three usd trades etc – think about this – what this means is that usdjpy is 1 usd trade AND 1 jpy trade – this will limit my exposure to risk.

as for the fundamentals, well think of it this way - the fed providing liquidity and cheap loans will not in any way change the fact that hedge funds and banks aroiund the world are overexposed to debt from the sub prime sector. it may be just a temporary repreive.

On saying that all this debt exposure could just be rumour - and we know what rumour can do - sell the rumour and buy the fact.

In reality I don't give a toss about news items or alerts. If the market moves I will be moving with it in whatever direction it goes. If i am the wrong way around then i will soon be shaken out of the trade and going the other way. Thats what we trend followers do, we don't predict or make the trend we just follow it.

August Results

Increase Percentage: 128%

Individual accounts may vary based on client’s comfort level of risk

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