Visual Econometrics

Trading

My background has been that of a fundamental discretionary trader of futures and options that relies on the historical relationship between commodity supply and demand.  I am a profitable trader of the softs (sugar, cocoa and coffee), cotton, precious metals, base metals, and the energy complex.  I maintain fundamental data on each market dating back over 20 years.  I take a top down approach where a commodity's present and expected stock/use ratio is examined and correlated with historical price ranges.

My early foray into financial markets was weak. I have since developed financial economic models that will guarantee improved results going forward.

My average annual trading return for 73 months (from October 1989 - February 1996) was 6.7%. My commodity market trading averaged 15.9% a year while my financial market trading was a negative 9.5%. 

History

For the first 17 months of proprietary trading, I was a trader/broker in the sugar division of a London based commodity trade house, Woodhouse, Drake and Carey (Oct 1989 – Feb 1991).  I also directed the firm’s profitable options portfolio and had input into the firm’s global strategies and positions.  This 200-year-old firm was forced into liquidation in February, 1991.

In May 1991 after registering as a Commodity Trading Advisor (CTA), I received an allocation of capital from Goldman Sachs Asset Management (originally Commodities Corporation). They enrolled me into their Trader Evaluation Program where I continued to trade profitably (July 1991 – October 1992).  This program funded select aspiring traders with seed capital.

They invited me to join their in-house trading program in October 1992.  Up to this point 95% of my trading was in sugar futures and options.   I spent the next 22 months studying the fundamentals of additional markets and risk control.  In August 1994 the hard work began to pay off.  Between August 1994 and January 1995 I had four 10% plus months. During Goldman Sachs' 94/95 trading year, I was in the top 15% of all traders.

With my success came additional allocations of capital eventually trading an allocation of more than 2 Million dollars.  I began to believe that I had figured out the “trading game”, started trading many new markets and significantly increased my portfolio risk. 

My hot trading streak ended in November and December 1995 with a –17.9% and -8.7% loss. All of my trading losses came from large short positions in the S + P 500 index and 30 year U.S. Treasury Bond futures.  In retrospect, I knew very little about these financial markets and should have only taken small positions until a financial markets methodology was developed and tested.

As I reflected upon my trading in the 1990's, I take away two critical observations:

• Maintain reasonable risk levels. Even the most profitable trader will have a debilitating draw down with large positions.
• Focus only on select markets. My commodity market trading was profitable because I had a clear understanding of their fundamentals and had developed sophisticated economic models. 

I am very confident of my trading and research skills and would eventually like to return to a trading desk.