Dear Investor,
We hope that this message finds you all well, as we ease into the holiday season and begin to wrap up 2010. We are pleased to announce that although we did not set any records this month; we still did come out positive overall. Two of our core accounts (PFX and MFX) were basically “break even” on the month, while the Chrome system was the leader this month. November was rather tough for all of our systems, and many traders we personally know really struggled this month as well. There was a lot of clearly evident “manipulation” going on in the markets, and very little “natural movement”. It’s very disappointing to see this happen as much as it did last month, but it’s a reality we must deal with (and trade through). After the first 2 weeks of this, we switched gears solely to preservation of capital and toned down our risk considerably. During certain periods throughout the year protecting what you have is much more important than trying to achieve growth. If this is the case that we have to deal with some months, we have no qualms doing so. We have made some major adjustments to our systems as well which will be explained further in this update. A more detailed analysis of trading is broken down below by each system which further depicts some of the advantages and challenges each system specifically encountered for the month
This is a rather important newsletter (more than usual) and as always, we encourage both our current and prospective clients to read through our update in its entirety so that everyone is up-to-date on our latest developments (new plans and ideas and suggestions). As always we report the good, bad, and the ugly, we don’t hold back on anything, and we pride ourselves in explaining things as openly and honestly and clearly as we can to our clients.
Our returns for the month of November are as follows…
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NOVEMBER 2010 PERFORMANCE (Primary Broker)
Precision FX: +0.05%
Chrome FX: +5.60% (Average of Chrome A: +13.53% and Chrome B: -2.33%)
Mclaren FX: -0.35%
November Average: +1.77%
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Secondary Broker
Precision FX: -6.97%
McLaren FX: +8.30%
- Details are provided below about the difference in performances between this brokerage and our primary brokerage, and our plan of attack to standardize it.
McLaren FX: +8.30%
- Details are provided below about the difference in performances between this brokerage and our primary brokerage, and our plan of attack to standardize it.
* Synergi FX: +14.53%
-We will not include this in our monthly average until we officially open it up (more details below).
* Account Discrepancies – Once again, please remember that if your returns for a given month do not match our posted returns take note that our numbers are from the 1st of each calendar month, to the last trading day of the calendar month. If you have invested in the middle of the month, your numbers may not match ours and could vary significantly. In addition to this, if we have open trades at month-end, we calculate our return on the current balance that day at midnight server time, NOT the floating equity. So open trades which have not realized their PnLs yet will be carried into the next month.
* Please keep in mind that we are now trading some of our systems at two different brokers. We will always have discrepancies between different brokers (much more on this below). For certain systems we have also noticed small discrepancies between larger investor’s accounts (100K+) and very smaller investor’s accounts (<5K). This often has to do with the broker’s min position sizes and how smaller trades are distributed with the allocation software in our MAM/PAMM.
* TWO YEAR ANNIVERSARY – December 2010 marks our two year anniversary for managing 3rd party client funds. Although we have been trading for ourselves and family and friends for longer than this, we have officially been trading our MAM/PAM structure for client accounts for two years now! We realize that this is not a huge amount of time in the grand scheme of things, but we are quite proud of this - and it IS a long life in terms of FX trading! We literally know of some fund managers who have come and gone in less than a month. We know very few who remain profitable long-term. This 2 year period has not been without its challenges and tough periods, but it was a huge learning curve for us and we are happy to still be around. Longevity is our most important asset in which we place with very high merit. We prefer the steady long-term approach instead of living the short life in the fast lane approach, and we are happy to share this with our clients who have the same ambition.
Our Performance Table has also been updated with the following statistics of interest:
MONTH | AVERAGE | ||||
Dec-08 | 32.30% | 72.73% | 52.52% | ||
Jan-09 | 18.70% | -4.19% | 7.26% | ||
Feb-09 | 27.50% | 160.30% | 93.90% | ||
Mar-09 | 29.50% | 21.97% | 25.74% | ||
Apr-09 | -34.40% | 61.33% | 13.47% | ||
May-09 | 53.30% | 33.35% | 3.52% | 9.43% | 24.90% |
Jun-09 | 23.60% | 25.77% | 4.69% | 30.46% | 21.13% |
Jul-09 | 10.10% | 20.69% | 4.13% | 28.02% | 15.74% |
Aug-09 | 26.92% | 10.77% | 4.86% | 26.94% | 17.37% |
Sep-09 | -0.32% | 5.44% | 5.79% | 7.83% | 4.69% |
Oct-09 | -4.26% | 20.36% | 6.55% | 11.94% | 8.65% |
Nov-09 | 10.76% | -20.98% | 30.98% | 29.39% | 12.54% |
Dec-09 | 9.37% | 15.94% | 10.39% | 7.78% | 10.87% |
Jan-10 | 33.63% | 27.91% | 16.02% | 4.30% | 20.46% |
Feb-10 | 15.31% | 14.93% | 22.63% | 2.33% | 13.80% |
Mar-10 | 15.43% | -5.08% | 3.23% | 6.75% | 5.08% |
Apr-10 | -8.11% | -9.43% | -0.05% | 2.99% | -3.65% |
May-10 | 0.70% | -7.66% | 27.30% | 21.07% | 10.35% |
Jun-10 | 20.86% | 10.56% | 4.83% | 9.68% | 11.48% |
Jul-10 | 10.80% | 14.57% | 6.60% | 0.15% | 8.03% |
Aug-10 | 5.46% | 2.34% | 7.35% | 5.05% | |
Sep-10 | 14.91% | 6.13% | 1.37% | 7.47% | |
Oct-10 | 10.36% | 0.02% | 28.55% | 12.98% | |
Nov-10 | 0.05% | 5.60% | -0.35% | 1.77% | |
TOTAL COMP'D RETURN: | 1430.33% | 3643.43% | 302.76% | 749.53% | |
MONTHLY AVERAGE: | 13.44% | 20.14% | 10.10% | 12.42% | 16.73% |
MONTH-END TRADING RECAP
1. Precision FX – To be straight forward - scalping conditions were rather terrible at the start of the month and did not improve too much throughout the month. It was a classic case of making some gains, and then loosing them – repeat! We are chalking this up to two main factors. 1. November was a terrible month in terms of manipulation and unnatural movement in the markets (some of the worst we have seen in 2010). This was clearly evident during the quiet scalping hours, but also since PFX is diversified ALL of our sub-strategies struggled this month, which was another factor pointing towards market manipulation. 2. Daylight Savings Time (DST) seems to have an impact on our systems, when the clocks are changed by 1 hour. It could be that this directly affects our standard trading times, or it could be that it is because Europe changes 1 week before North America does and we are “out of sync” for a week. Or perhaps a combination of the above. We still have no conclusive evidence to support this, but we have noticed trends where November and April historically tend to be the more difficult most for us.
On December 1st we have implemented some very nice changes to the PFX system which are coming out of the shop after testing for the past 4-5 months, and the result has been quite fantastic during the first two days of this month (we are already up over 5% in December). This is obviously a short amount of time to make any assumptions, but we have adjusted our scalping hours, added a few pairs, and also increased the frequency of trading on some pairs. We have an EURAUD strategy in the works (in testing mode right now) which shows very nice promise as well, and could be added as early as January 1st. From these small changes we are expecting higher upside with less drawdown. Unfortunately our second brokerage encountered significantly different performance than our primary brokerage, and we will discuss this below.
2. Chrome FX – Our Chrome system (both A and B) performed decent for us this month, and the combination of the sub-accounts banked our highest return this month. Although this system struggled a little this month as well, Chrome A banked a lofty +13% this month! *IMPORTANT: the Chrome developers have been hard at work for the last few months, and it looks like we may be able to soon merge the sub-strategies back into one single account again (i.e,. Chrome A and Chrome B, will just become “Chrome” again). Its looking as though the issues regarding the changing equity with one strategy can be remedied, and if so, we will merge the two sub-accounts back into one. This is still not for 100% sure, but we are fairly certain we will be able to do this eventually. This will be much easier for everyone if we implement this change. It will also be very seamless for clients too. What will likely happen is your Chrome B account’s balance will be moved over to Chrome A, and that will be the sole account for Chrome. We will of course provide a private update to all Chrome investors before any changes take place.
3. McLaren FX – McLaren FX was the same story as PFX this month with a bit of a yo-yo-show. Up and down. It basically broke even this month as well. This is also a system which is reliant on typical trend movement, patterns and indicators to capture gains. We know the story with this account – it goes through slower months, and then has very nice explosive months. This definitely makes this a long-term system to take advantage of and capture all the good months with the slower months. This system is also heavily dependant on data received from one broker to another, and varied results will reflect this. For instance, our MAM at our primary brokerage was break even. A second MAM at our same brokerage was -4%. A demo at our primary brokers was up +9%, and the live account at our secondary broker was up 8%. So we can also see a variance with this system from one broker to another, and even within the same broker. Our job is to try to standardize these as much as possible (more below).
INFORMATION AND NEW DEVELOPMENTS
1. Broker Discrepancies (Important) – This is probably one of the most important issues we would like to discuss, as it has such a significant impact on the performance of our system from one broker to another. As you can see, our Precision FX account was over 6% lower at Inovatrade (our second broker) than at Sparen (our primary broker), and McLaren FX was actually more profitable at Inovatrade, where it was 8% less profitable at Sparen FX (the opposite of Precision FX). This definitely raises some concerns and begs some major questions from clients such as which broker produces the best returns? Where should I put my funds? This is a hard question to answer. Let us first explain a few things. For starters, no two brokers (using different technology in any form) will produce identical returns when doing automated trading. Especially for higher frequency trading systems such as scalping which can place upwards of 50 trades per day, and is reliant on fast price action and data. While both brokers have some similarities and both are light years ahead of the majority of bucket shops out there, there are still some significant differences. Mainly in the “data” which each broker gets to feed their charts. Sparen uses a 3rd party (eSignal) and Inova uses their own “in house” ECN. While both have their pros and cons, the difference often has a large impact on how our systems read various forms of chart data and execute their trades. If one broker misses even just a handful of trades it could have a large impact on the overall performance for the month (especially if the missed trades hit full stop losses). There were a few other factors which also had an impact on the discrepancies this month. Inovatrade’s servers were locked up due to a safety breach (by a predatorial trader) early in the month. This caused us to miss quite a few profitable trades which took place at Sparen on the PFX system. Also, the CADCHF chart was disabled at Inovatrade all month, until just last night. This also caused a few missed trades too. So it was not as cut n dry as a straight up even comparison this month.
- Standardization: Moving forward into December we have sorted as many things out with our brokers in an attempt to achieve as accurate of a comparison as possible. We have a day of lag on this, but if we feel we can achieve a relatively close comparison (within a few percent) this month, we will continue on how we are. However if the discrepancies are huge, we will look to implement a “trade copier” solution. This will take the exact trades from one broker and apply them to the other. This is not without some troubles on its own (i.e., there will be a strict no money in or out of all the accounts policy while live trades are open), but it may be a viable solution for us should this month prove to be significantly different in performance. We already use a copier of sorts internally at our broker to trade the same MAMs however this would need to be structured a little differently. We will update everyone in the New Year on our progress with this and any final decisions.
2. Synergi FX (new system) – Our Synergi FX system continues to show some decent potential. It made the bulk of November’s gains during the first 2 weeks of the month, and then leveled out. This system is still undergoing some tweaking as it has lost most of November’s profit in the first few days of December unfortunately. While we are allowing clients to come on board early, please understand that this is still in the early stages and not nearly as “fine tuned” as our other systems. This one is getting close though.
3. Trading Over the Holidays – We have been asked by many about our trading plan during the holiday season. As most of us are aware, the markets can be rather abnormal during the holidays. Many large institutions close out HUGE positions, as they close up shop for the holiday. There is less volume, and markets are often susceptible to being moved by speculators more than institutions. This can also mean that markets are very quiet and sometimes easy to trade. We have seen both sides. Historically speaking we have traded right through the holidays and have never had any problems in December. However, that doesn’t necessarily mean that that will be the case this year. This may vary from one system to another on when/if we shut down, however please be assured we will be keeping a close eye on all of the systems and the markets and will proceed with caution in whichever decisions are made. Our team works hard and a break will be warranted by many of us this year.
4. Calculation of Performance Fees (changes) – Please take note that our monthly returns are always calculated from the 1st to the last day of the month (midnight server time). However our performance fees shall now be calculated from NFP (non-farm payroll) to NFP. NFP is typically the 1st Friday of every month. So while our return is calculated from the 1st until the last day. The period for calculating our performance fees is the first Friday of the month to the first Friday of the second month (i.e., November’s period for calculating the performance fee is from the first Friday in November (Nov. 5th) to the first Friday in December (Dec 3rd). This is not to intentionally confuse things, but it is because of recommendations from both of our brokers to standardize this with what most financial firms trading futures and currencies do as it is an industry standard.
SUMMARY
We are happy to once again report a positive and profitable update this month to our clients. In the meantime we are looking forward to heading into an already profitable December. As always we will do our best to communicate with our investor base whether in the form of monthly updates, or on a “per needed” basis as we go through the month on any issues which may present themselves. Please visit our website and blog for frequent updates and newsletters (note: we are always adding new content to our website) and do not hesitate to contact us at any time should you have any inquires or concerns you would like to discuss with us.
Thank you to all our current investors for your trust once again in trading with us and in particular to those who have been with us for the past 2 full years! We sure hope to be writing an update like this in another 2 years from now, and feel we have the “know how” to achieve this. We are looking forward to wrapping up the final month in 2010 and making it a good one for all!
We wish you all a safe and happy holiday season to you and your family and friends.
Cayo Flow Team
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