Strategy

 To be clear, we are not investors. We are traders, endeavoring to capture short term price moves. Positions are generally held from a few hours to a few weeks, depending upon the markets.

As traders, we know the only constant is that markets are perpetually changing. Most traders must constantly find or develop new strategies as the markets change, or fail. In truth, most fail. 1,000 hedge funds failed last year. And the year before. The average life of a hedge fund is only 4 years- again, due to their inability to adapt to the constantly evolving markets. Most fund managers have 1 idea or strategy, and when that fails, they fail. It is not uncommon, at all, for a fund to be up 40% one year, then down 40% the next 2 years. Clearly, this not a model we view as a success.

 When this venture began, we felt we had that “eternal” strategy, and were not subject to the whims of the market gods. Not so. Within months, the technical trading strategy we’d been using for years, stopped working. Time revealed that large numbers of institutional funds had begun entering massive trades prior to the open each day, creating large opening gaps in price, which eliminated the short-term edge we had previously enjoyed.

This led to several years of trying to find a consistent edge. An adaptive strategy that we, as a team, were comfortable working with, long term. Something that was simple, easy to explain and understand, and consistently profitable, in multiple time frames. We weren’t going to try to raise money until we knew we had something that worked, regardless of market condition. In the end, we came up with a true edge-focused strategy, that we feel confident will stand the test of time. This edge can be applied to any tradeable instrument, and goes by the name of Trend Following.

Here’s how it works:

Traditional trend following evolved from the regularly trending commodity and currency markets of the 1970’s. Many traders made fortunes by following these trends. One spectacularly successful trader hired a group of in-house novices as traders, whom he called Turtles. They followed very specific rules for entering, adding to and exiting trades, and enjoyed much success. Many Turtles eventually left to form their own hedge funds or CTA’s.

The problem with traditional trend following is that markets became much more volatile in the early 1990’s, and have remained so, since. The longer-term traditional trend following does not do nearly as well when markets are volatile over short periods of time. The trader that created The Turtles retired (as a wealthy man, I might add), as did many others like him. He was asked in an interview if he thought his trend-following Turtle system would work in today’s markets. He responded that the system might very well work, but only in a shorter time frame, given the increased volatility of today’s markets versus those of the 70’s and 80’s.

Therein lies our strategy. We took elements of the famous trend following Turtle strategy, shortened the time frame, added our own entry trigger, and tightened the exit rules.

The beauty of trend following, in it’s most simplistic form, is that you try to buy what is going up, and sell what is going down.

Trading from both the long side and the short side, as we do, offers the ultimate non-correlation to literally any other type of investment. Exactly what most limited partners seek (along with outstanding returns).