Capricorn Trend Strategy I – (FX only)
Capricorn Trend (FX only) is a systematic, medium term trading strategy that seeks alpha returns in the G-10 currency markets. Trade ideas are generated through a model based investment process requiring a pre-determined signal confirmation of an existing or new trending environment.
The strategy covers a maximum exposure to eleven currency pairs with a concentration around the majors to improve liquidity and reduce volatility spikes. Position sizes are equally weighted and limited to one strategy per currency pair, in order to capture each market opportunity. Risk controls are systematically implemented on each trading strategy, however the portfolio can be subjected to a discretionary risk overlay built around our flagship currency strategy.
Capricorn Trend Program II – (Diversified)
Capricorn Trend (Diversified) is a systematic, medium term trading strategy that seeks alpha returns across multiple asset classes. Trade ideas are generated through a model based investment process requiring a pre-determined signal confirmation of an existing or new trending environment.
The program trades 20 highly-liquid futures markets including; equity indices, energy, interest rates, metals, grains and soft commodities. Trade allocations are equally weighted and limited to one strategy per market, in the aim of isolating and capturing individual market opportunities. Position sizes and loss levels are monitored by risk controls determined by the trade methodology, however the portfolio can be subjected to a discretionary risk overlay built around our flagship currency strategy.
The Investment Process
Our investment strategy is designed to create pure alpha utilising trend following trading principles, which are technically analysed over a medium term time horizon. The systematic inputs behind the idea generation process for all trading signals were created from the knowledge and years of experience trading the financial markets.
Idea Generation Process:
- Analyse hourly movements of markets traded
- Apply a set of rules-based analysis to data
- Set the volatility-based technical indicator
- Seek confirmation of an existing or new trend
- Generate trading signal with market direction
- Formulate position size to risk/reward profile
The investment process is designed to generate a single trading idea for each of the markets that are traded in the strategy portfolio, based upon the hourly observations that are technically analysed by a set of rules-based formulations. Irrespective of the markets traded the trend following strategies share the same investment process and analytical inputs when seeking the confirmation of an existing or new trending environment, in order to build a trading strategy. Risk controls are automatically set by volatility indicators that serve to calculate position sizing based on a pre-determined risk limit per trading strategy.
Each trading signal produced by the trend following strategy, generates a buy or sell signal along with the appropriate position sizing required to maintain its pre-determined risk/reward profile. These signals are then executed under client instructions. Once a position is opened then market pricing determines trade duration and risk is governed by a self-adjusting technical indicator based on market volatility.
All signals are monitored by the investment team should there be a shift in its risk/rewards profile that is not identified by the trading strategy. Clients and their brokerage execution relationships are immediately notified of these modification to adjust the portfolio accordingly.
Understanding the Trend Following Approach
When defining the properties which constitutes a trend whereby the market moves in one direction over a specified time period, this behaviour is commonly intertwined with that of momentum. In other words, an assumption is made in a continuation of this market behaviour during the following period. Therefore a successful trend following strategy is designed to identify the begin and end of a trend, and avoid the false signals around market reversals.
- Attempts to pinpoint the beginning of a trend is futile
- Markets have been observed to trend only 30% of the time
- A trend can only be defined once it is over
- Trends often arise from a flat market following a sudden shift
- Strategies should seek to ‘cut losses’ and ‘let profits run’
The Market Trend Life-Cycle
The dynamics of trend program trading approaches does explain the returns of the majority of CTA trading strategies, and the fact that positive returns are only produced if market prices exhibit trends. Therefore a number of situations must occur for a trend to exist.
If prices initially under-react to news, then trends arise as prices slowly move to more fully reflect changes in fundamental value. These trends have the potential to continue even further due to a delayed over-reaction from herding investors. Naturally, all trends must eventually come to an end as deviation from fair value cannot continue indefinitely.
Capricorn Trend Strategy – FX only and Diversified
Updated on 2017-02-20T15:47:58+00:00, by .