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Trading Strategy of the Week: Moab

Any results mentioned or shown are based on simulated or hypothetical performance that have certain limitations. See bottom of this post for full disclosure and important warnings. Past results are not necessarily indicative of future results. Most people lose money when trading. These results are based on statistics that were current as of December 4, 2016, when this profile and article were edited.

For the last Strategy Manager of the Week for 2016, we spoke with Collective2 Trade Manager Mark Levy about his Forex strategy “Moab.”  View summary statistics, including hypothetical monthly returns and subscription costs, inside Collective2.

His background is in the Texas oil business. He lives on a mountaintop, where coyotes sing him to sleep. He buys and sells currencies, focusing on countries with a dependence on natural resources.

Why he doesn’t rely on automation

c2-trading-strategy-moabMoab is a foreign-exchange (“forex”) trading strategy. It is 100% discretionary. I have developed a set of proprietary indicators which I study every day. When several indicators are in agreement, I use my own judgment, and, if warranted, I take a position. I run my strategy manually. I place and manage all trades myself.

I do not rely on automation. That’s a game that individual traders can’t win. Remember that you are competing with firms that have direct access to liquidity providers and exchanges, and who have deeper pockets than you, which allow them to pay a staff of expert programmers. It’s foolish to think you can beat those competitors on their own playing field.

Instead, I play to my strengths. I have several decades of experience living, breathing, and sleeping the futures, commodities, and foreign-exchange markets. I try to use that human experience — hard-earned experience, I should add — to beat the algorithms that are my opponents.

Moab is a day-trading strategy. The trading frequency varies — from a couple of trades per day, to a couple of trades per week. I no longer hold positions over the weekend; a few bad experiences doing so at the beginning of the strategy taught me some valuable lessons about that!

stats

“Moab” Summary Statistics. All results are hypothetical.

One of the most important aspects of the Moab strategy is deciding which forex pair to trade at any given time. Whenever I choose a forex pair, I always have a specific reason in mind.

All markets have different personalities, and, similarly, each of the major forex pairs has its own personality.

Background in the commodities business

Because of my background in the commodities industry, I like to focus on currencies of commodity-based economies. I understand these best. So I often trade USD/CAD, AUD/USD, NZD/USD. These pairs are often influenced by the price of natural-resource commodities, and are used as a proxy for certain industries or resource complexes.

Of course, there’s more to it than simply having an opinion about the direction of gold, or oil, or grains.

Forex is the largest, most dynamic, and most exciting market in the world. Trading it requires an understanding of politics, legislation, markets, news, and world affairs. What job is more intellectually rewarding and exciting than that?

Most important, forex forms the basis for all other investing decisions. Let me give you an example. Let’s say I told you that you could buy a stock in an Australian company for ten dollars, and then sell it a year later for eleven dollars. You would probably say that a 10% gain is great, wouldn’t you?

But wait. You need to remember that currencies can fluctuate in value between 15% to 40% each year. So you could “make” 10% on your investment, but still lose a large portion of your wealth making such a trade!

That’s why I say FX forms the basis for all other investing decisions. Before investing in a particular asset, denominated in a particular currency, you should first consider the currency in relation to the others in the world. The change in currency value can be — and often is — larger than the change in the underlying security in which you are ostensibly investing. 

Living “off-the-grid”

After college, I jumped on the bandwagon and moved to Texas during the oil and gas boom of the 1980’s. After a dozen years of in the energy exploration industry, I ventured off on my own, and started trading full time.

Nowadays, I live in Colorado, atop a mountain at 10,000-feet elevation, completely off the grid. Well, not completely. I cheat a bit by having satellite internet — but no TV, and no land line.

Without TV, you soon learn the value of, or — rather — the lack of value of the financial media. When I do watch TV nowadays, I consider it mostly as a contrary indicator. I use it to track popular “sentiment” and try to understand how sentiment is manipulated by the establishment.

Whenever I see any of the “talking heads” tout a position or a trade that looks similar to my own, I know it’s time to close my position and move on to something else.

Forex is the largest, most dynamic, and most exciting market in the world. Trading it requires an understanding of politics, legislation, markets, news, and world affairs. What job is more intellectually rewarding and exciting than that?

Living in extreme conditions gives you a fresh perspective. There’s nothing quite like falling asleep to the sound of coyotes howling and barking — not in the distance, but just outside the walls of your bedroom! Being in a raw and majestic setting helps me understand that everything in our human world — everything! — starts with nature. It’s easy to forget that sometimes, living in a concrete island of Manhattan, or in the trimmed suburbs of Los Angeles. Ultimately, all of human wealth comes from the earth. Maybe that’s why I gravitated to trading financial instruments that are based on resource extraction and transportation.

What he thinks of Collective2

I learned about C2 from a friend in the financial industry. Once I played around with it, I was hooked.

I love C2’s large community of users. Having this community means that strategy developers like myself can focus on developing their trading strategies, while letting C2 take care of day-to-day platform and software management.

The advice I give to people just starting out on Collective2 as investors is to diversify. Diversify between various types of strategies, and the markets they cover. Look for strategies that trade with different time frames, and using different instrument classes.

I also suggest that people treat a Collective2 strategy almost like a stock. Don’t be afraid to “buy” on a pullback. Don’t hesitate to scale down after a large gain. And, certainly, if you are fortunate enough to make a large gain, don’t immediately scale up!

As a habit, pull capital out of a strategy when you are able. Take money off the table. And finally, always have a floor for any strategy. You don’t win points for going down with your ship. Live to fight another day. Always live to fight another day.


Past results are not necessarily indicative of future results.

These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Material assumptions and methods used when calculating results

The following are material assumptions used when calculating any hypothetical monthly results that appear on our web site.

  • Profits are reinvested. We assume profits (when there are profits) are reinvested in the trading strategy.
  • Starting investment size. For any trading strategy on our site, hypothetical results are based on the assumption that you invested the starting amount shown on the strategy’s performance chart. In some cases, nominal dollar amounts on the equity chart have been re-scaled downward to make current go-forward trading sizes more manageable. In these cases, it may not have been possible to trade the strategy historically at the equity levels shown on the chart, and a higher minimum capital was required in the past.
  • All fees are included. When calculating cumulative returns, we try to estimate and include all the fees a typical trader incurs when AutoTrading using AutoTrade technology. This includes the subscription cost of the strategy, plus any per-trade AutoTrade fees, plus estimated broker commissions if any.
  • “Max Drawdown” Calculation Method. We calculate the Max Drawdown statistic as follows. Our computer software looks at the equity chart of the system in question and finds the largest percentage amount that the equity chart ever declines from a local “peak” to a subsequent point in time (thus this is formally called “Maximum Peak to Valley Drawdown.”) While this is useful information when evaluating trading systems, you should keep in mind that past performance does not guarantee future results. Therefore, future drawdowns may be larger than the historical maximum drawdowns you see here.

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