'You Can be Your Own CTA' and Avoid Troubles With CTA'S & Managed Accounts
Matthew Chiang from Canada
I am a novice trader with 2-years trading experience. Over the past 4-years I have purchased and read enough books, newsletters, magazines, and software to make me talk like a pro. Yet in actual trading up to 1992 I have a loss equalling a new Mercedes Benz!
Plagued with a burnt pocket and frustrated with losses, I turned to professional newsletters, advisers, CTA's and managed accounts. I concluded that futures trading is only for the pros. I was more convinced when I visited the CME and CBOT pits in January 93. In Feb/March, I was shopping for a good broker-advisor while searching for the holy grail.
Fact 1: Without Proper Verification, Published "Track Records" can be False
I was attracted by the splashy, cover-page ads on the Futures Magazine put up by Broker "A." They have engaged professional advisors (with combined 20 years floor experience and numerous titles) formerly providing services only to floor brokers at $12,000 annual fees.
Their service was then available to the small investors at a fraction of this price. They sent me splendid trade "records" and simulated performance sheets. I subscribed to their service and opened a managed account with them.
Within 5 weeks, from June to early July, my account was down 60%. I immediately stopped their trading. Concurrently, their published trade "records" showed only -10% in June and positive other months.
I challenged their record and protested against their poor management, their answer was even more startling: They insisted on impeccable records, and they admitted only one "calculating error" of using 1/16th instead of the 1/32th tick value for the Bonds! They circumvented my claim by defending on non-discretionary exemptions, and the advisor took the blow to relief the broker (the accused). Finally they tried to mute me with a defense hearing and a possible counter suit.
To damp down their damaging acts to others. I decided to pursue an arbitration case with NFA, and prepared myself to legal nightmares and counter claims. As expected, they defended the case with legal might!
After weeks of worry and exchanges of legal firepower, I finally settled with them before Christmas for a mere 45% ($3,000) recovery of my loss. I withdrew the case.
Fact 2: Hypothetical Results REALLY bear no Resemblance to Actual Performance While I was shopping around, I was wooed by no less then 2 other CTA-backed brokers. They kept sending me advise and hypothetical trade performances from March to now.
Broker "W" is a CTA-backed full service broker situated in Iowa; they claim to have their ears on the grazing grass and cornfields. I followed on paper their recommendations. A $10,000 account taking all of their cattle and grain trades would become $2,000 from March to Sept. 93!
Now I still receive their regular mailings and I use them, jokingly, as counter-position tools. Perhaps their ears are too close to the fields to be full of grasshoppers.
Broker "S" who sells CTA-managed futures sent me piles of trade results and managed futures reports, claiming that CTA "K" topped the April 93 managed futures survey of his category.
I was attracted by the reprints and so I followed a few more issues of the survey. A few months later, CTA "K" disappeared from the list and Broker "S" stopped sending me promotional letters on that managed account. I am not sure how that CTA performed lately.
Correct me if I am wrong, most CTA's are like the ebbs and tides. I do not see many repeating names on annual surveys.
Fact 3: Psychological Barrier Kills, Not Your Losses
With the "pros" looking after my financial health, I felt safe and I ventured out on my own analysis. I still maintain a small account at discount broker "I" and a bank currency trading account, and I traded on 9 occasions throughout 1993.
Surprising, these 2 order-desk accounts were up by $3,500 from Jan to Aug 93, while I lost mega-bucks with Broker "A" and paper accounts with Broker "W" and "S." All these trades were technical, without any regard to fundamentals nor report forecasts; I did not even read the newspaper.
Psychology Makes Hotline Trading Difficult
Thrilled by these results, I persisted, I have learned the hard way that good trader psychology is more important than a top advisor (try this: Futures Chart's Trend Setter, Commodex and Larry William's hot lines are verified big winners, but can you trade them? Why not?)
Small but Positive Step . . . Brokerage Account is Now Up
I stopped looking for advisors, and in August, I purchased Swing Catcher. My first Swing Catcher trade was a small loser ($450 in Pork). Then I applied my other tools to filter the Swing Catcher signals. I made numerous paper trades and a few actual trades between then and now. My actual account at Broker "L" is now up by another $1,200. Small but positive.
Discipline, Self-Analysis & Emotions are Vital I will test my cash currency trades with Swing Catcher and other tools and hope to see better results. Discipline, self-analysis and emotional detachment are vital to survival, not a CTA nor a holy grail. They can help, but they are not the main key.
Courage and Pulling the Trigger is Difficult On paper, Swing Catcher trades were doing much better. In actual trade, I did not do as well because I still lack the courage to trade more than 2 markets at any one time, nor would I take every signal that comes along, I also have difficulty in pulling the trigger. Thanks to mega-ton losses by the "pros", I have gradually overcome the fear of manageable losses. These endeavors and huddles have become my 1994 training goal.
I am far from earning back what I have lost in these years, but I am glad that time and experience has finally shed light in my trading path. I am also bold enough to assert that small traders can still make it in the futures markets. With proper tools and a good trader's mindset, a novice may even out-perform the pros!
Swing Catcher is not the best system available, but it works. If you apply properly your own trading filters and styles, you may improve your trades.
Finally, when you feel frustrated by your own losses and want to call in the prose and let someone take over your fate, or simply want to become a brain-dead trader, remember this ad:
"What does your broker get when he makes a mistake? A full-commission!" This is the crux.
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