Ferox Advisors Newsletter Q3 2014
“It never troubles the wolf how many the sheep may be.” Virgil
Dear Investors & Friends,
A few months ago as the German 10 year interest rate synthetic derivative, Europe’s most famous fixed income product “the Bund Future” was trading around 145 (EUR nominal), if you had sat down with the world’s greatest Bund traders and asked them what they would do if they could envisage this instrument surpassing 150, arguably 9 out of 10 of them would even sell their shirt and take it to the bank to increase their short positions.
As we closed August just a couple of days ago, the Bund Future stood at 151.5, and the general sentiment in the market was that the rally could easily go on a further 2-3 Euros. While I was debating the pros and cons of increasing my positions with a few of the most renowned Bund traders of the past, I had an epiphany. We hadn’t yet made any money on this trade, and the Bundesbank and the Ukrainian crisis were showing no signs of respite. In thinking that this was an anomaly and we were looking at an opportunity of historic proportions, we were almost about to convert ourselves and our past Bund profitability into an anomaly as we took higher and higher risk on what looked like a once in a lifetime instance that had no probabilistic relevance because it was so specific, too specific and singular in fact to be considered for serious trading.
Chasing black swan events and then taking aggressive risk had often paid off for us in the past and might pay off on discretionary instances for some people. The kid who got rich by betting on TSLA options when it was 10 USD and increased his positions when it was 80, and finally cashed out at 200. The initial 500k USD sponsors of Facebook… The pit trader who shorted Silver as it briefly breached 50 USD when some people were expecting it to go as high as 1000 USD. All very impressive bar-counter stories; however none of them can be replicated or enhanced into a system or strategy because of their extreme “tail event” particularistic states. Not to mention, for any of these one time - one trick fortune stories, there is an equivalent number of catastrophic tales of bankruptcy that are also initiated by similarly discretionary and unique courses of action and circumstances.
The epiphany I had helped me formulate the phraseology for our new fully automated trading strategy which is launching September 1st and will be publicly available on a fund status in 2015 after we offer it with privileged purely profit sharing deals to our existing investor network in the year 2014. As we were back testing and forward testing an algorithm that completely removes the human element from analysis and execution during the course of 2014, I saw the genius of consistency in automated trading and why it is both the way of the future and the most probable path to wealth creation.
Contrary to my previous newsletters, I will not be citing any numbers or percentage figures for performance on this one; the future will reveal itself in a very brisk and astonishing manner to all those involved with us. I will only outline some of the basic principles on which I have built the fully automated Ferox Strategy 1:
1) Win in at least 60 % of trades where the profit target is always equal or greater than the stop loss.
2) Trade in at least 20 instruments to achieve a minimum frequency of at least 1 trade / day
3) Have the number of consecutive winners at least double the number of consecutive losers, while ascertaining that in no product the consecutive loss streak accumulates to over 3 % of the original account during any period.
I leave it to you and your brokerage statements to determine precisely how much wealth you can accumulate if simply these three conditions are met, and I invite you to give us a chance to demonstrate to you that this is mathematically the most modest glance into what our new strategy is capable of achieving.