We hope that this message finds you all well as we enter into the month of September. Our apologies for the delay, as mentioned previously we will shorten our updates down significantly on the monthly updates and get into more details on the quarterly updates.
In the last month we were positive across the board, well unfortunately in August we were negative across the board, in what ended as being a “month from hell”. They say history sometimes repeats itself; well we are here to tell you that the month of August was like October 2008 all over again. This whole year seemed to lead up to August as grand slam of financial anarchy. Aside from the meltdown in the markets in August, murphy’s law struck us in so many ways it was ridiculous actually ridiculous, and makes it especially painful for us to post a -13.06% broker and system average for the August (our worst yet this year). We had not only chaos in the markets to deal with, but we had many technical challenges this month (server problems, license problems, and brokerage problems) which caused quite a discrepancy in our results from one broker to another. Unfortunately this caused us to witness some of our max monthly thresholds last month in terms of negative performance (aka – our worst case scenarios) which we never like to see.
So on the news front, after August we thought things couldn’t get any worse in terms of the USA and most of the Euro zone, and then unbelievably the Swiss decided it was their turn to “join the party”!!
If you didn’t hear the news, in the first week of Sept the Swiss National Bank surprise announced that it is putting a ceiling on the Franc's appreciation against the euro - effectively abandoning its economic sovereignty and putting its future in the hands of corrupt and inept bureaucrats. Due to this news, in the FX market the Swiss Franc virtually fell off a cliff, dropping almost 11% in a matter of minutes (literally). We watched in awe as the USD/CHF moved over 700 pips in about 30 mins! Some people surely made huge money from this, while others likely lost it all. Gold priced in Swiss francs jumped about 10% in 30 seconds as well. Thankfully we were not caught up in any of this and were sidelined. Either way this is not good news and the Swiss government has basically told the world that they will print as much money as it takes, and buy up as much crappy sovereign debt as they can, to competitively devalue their currency. Many who thought the Swiss Franc to be one of the last solid currencies have now agreed that precious metals are all alone as one of the only real forms of sound tangible currency.
So, it's been a tough few weeks for many traders for many different reasons in the markets. It's not been a great summer in general this year for most of the major currencies with the unprecedented financial turmoil back and forth in the US and Europe. Then factor in the riots, and natural disasters and it's certainly been a huge pill full of events to swallow lately!
We know at times like these you hear droves of people coming forward to bark at how terrible a time of the year it is to trade. We don’t think this is a cover up for bad results, and we certainly do not look for excuses in our trading performance. But August historically is a poor time of year to trade in the FX Markets, and this one just happens to have been the worst one we have ever seen to date. We only hope things are FINALLY settling down now.
But it is not all doom and gloom, and we do have some changes and good news to report which we will explain below. But we are coming up to a new period now (September to December) which is the tail end of the 3rd quarter and blunt of the 4th quarter which historically we have found to be a pretty decent time for trading. There are a lot more players (and hence liquidity) which returns to the market from the summer holiday, and this normally gives us a good run of reliable price pattern formations and proper trends. This coupled with the fact that we believe and really hope the financial drama has reconciled for at least a little while; makes us believe that by proceeding with caution we should see some good conditions ahead.
Our returns for the month of August are as follows…
SYSTEM | OFM | INOVA | Broker Average |
Precision FX | -15.24% | -25.03% | -20.14% |
McLaren FX | -14.04% | -2.70% | -8.37% |
Vega FX | -0.41% | -20.93% | -10.67% |
August Average | -9.90% | -16.22% | -13.06% |
* 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 more than one broker. We will always have discrepancies between different brokers no matter who they are. For certain systems we have also noticed small discrepancies between larger investor’s accounts (100K+) and smaller investor’s accounts (<5K). This often has to do with the broker’s min position sizes and how smaller trades are distributed or rounded with the allocation software in our MAM/PAMM. Please take note that while our returns are calculated from 1st of each calendar month to the last trading day of the month, our performance fee period (the period in which high water mark performance fees are calculated on), is from NFP to NFP. NFP is the non-farm payroll and is the first Friday of each month.
Our complete Performance Tables have also been updated with the following statistics of interest (broken down by brokerages) on this following page: http://cayoflow.com/performance.html
MONTH-END TRADING RECAP
Without getting into to many details on this update, we really had a lot of struggles last month. We dedicated countless amounts of hours and hours to trouble shooting a few problems, which turned into a huge time drain for us. This is the nature of the beast however, and nothing every runs smoothly forever. Our systems were causing us problems after an applied update. Our trade servers were crashing also after an update for quite some time without reason, and one of our brokers (Inovatrade) went through various technical challenges too. When all the chaos landed on and off in the markets, it made for a month we really would rather not ever re-live again. But we plowed through these issues and with some help we were able to eventually solve all problems and get things well under control into Sept. We have some news on this front in the section below…
IMPROVED TRADING PLAN WITH OUR SYSTEMS
We take our trading very seriously, and we went last month to meet in person with a very high profile and well respected manual trader. During his career he traded various instruments on Wall Street for multiple institutions, and now he teaches and consults and has always been a big role model to us as we have spoke with him in the past. We ended up meeting with him in person last month, and asked for him (and paid for him) to review our full list of strategies and systems. And he did with a fine tooth comb (took 3 days). We conferenced in our programmers and partners, and it was a very very productive and informative session.
One of the most important things we identified from this workshop was that the majority of our strategies are actually really sound and very well put together. He identified that our biggest problem was not in the strategies themselves, but was more in the rate at which we changed our strategies around and on what basis for doing so. What we have essentially been doing this year is changing strategies around once we encounter a tough period, and then move on to implementing other strategies which have been performing well. What happens in this situation, especially with volatile markets, is that when moving to the best performing strategies at the current time, you usually end up moving to it when it is about to struggle (based on that all strategies go through performance cycles – since the markets themselves go through cycles). Meanwhile the strategies that you switched FROM due to poor performance start to begin performing well again. We of course know and understand this concept quite well, but have not been the best at implementing it ourselves this year. Probably because markets have been changing so much and so drastically, we have been fighting hard to adjust and adapt.
We do not claim to be the best in the world at what we do, and strive to keep learning, progressing, and improving so this was a nice eye opener. What we ended up doing in terms of implementing a new go forward strategy, was to get assistance in sub-diversifying each strategy, turning down the overall risk, and letting the systems run hands free for a longer duration of time. We picked up an additional automated strategy used by our contact as well which was a nice added bonus for us ;-). But for the most part our systems are better diversified, are “set n forget” mode on quite a bit lower risk, and will have set checkpoints in place on when we may look to change a strategy around. Overall we think that this is going to be quite a nice change to things. These systems will ride out through the good and the bad, but it will be far less of a rollercoaster ride, and we should catch some nice winning streaks through time.
BROKERS AND NEW DEVELOPEMENTS
While this is normally the biggest section of our updates and our biggest source of complaints, we are going to spare people from that time and time again. We have come to the inevitable conclusion that if we really ever want to be long term profitable, and make our lives easier, we need to open our own in house brokerage – and after much thought, this is exactly what we are doing!! No one has been screwed around more, wasted more time and effort and money, been through the ringers more, and witnessed the worst services and dirty and illegal tricks brokers pull than us. It makes our job very very very tough. We are fed up, and have decided to bite the bullet and move into doing our own clearing and trading. We are a little ways away from this but we are fully committed to it, and have begun to lay the ground work.
In the meantime, Inovatrade has increased their spreads by 2 pips. Things have slowed down there in terms of their service and wires. We know some of the reasons for this but it seems they often have a hard time keeping their ship in order. OFM on the other hand has been amazing and continues to improve! Their feed improves, their service is impeccable, and they are a very well known and heavily regulated UK based brokerage. Until we have our own setup this is where we strongly urge our clients to open accounts. For Sparen FX clients we will be following up on our most recent email very soon. As you can see from this update we have had quite a few tasks on our hands, but we have not lost track of this and will be following up shortly.
SUMMARY
We are quite happy with the outcome of our new trade protocol and our new model and believe it will serve us all well going forward. We are in the meantime going to be busy working on our new clearing endeavor and will keep all parties informed as we go. Being managed traders for so long we feel no one will be in a better position to do this properly than ourselves. In the meantime we are looking to keep a watchful eye on the markets. It has been a tough go the past few months but we never give up and never stop trying to improve and that is our commitment to our clients and ourselves.
As always we will do our best to communicate 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 (http://cayoflow.blogspot.com/) 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.
Warm Regards,
The CayoFlow Team
