Trading Strategy Overview
The Multi Strategy Investment team at Cadogan have developed and designed a multi strategy, multi market trading methodology. The strategy is structured to trade via technical analysis and the system builds a "multi strategy" FX portfolio on all client accounts. The overall portfolio is underpinned by a trend following system. This is then supplemented with other systems which we believe reduces the overall volatility on our portfolios. The multiple systems smooth out the equity/volatility curve by generating counter trend trades, mid-term trades, and failed momentum trades.
These FX systems are then supplemented by a technical strategy that trades worldwide equity indices, i.e. S&P, FTSE, NIKKEI. We occasionally supplement these further with Oil and Gold exposure, and other commodities in particular market climates.
Technically we analyse multiple time-frames and multiple indicators searching for what we would term 'high probability' trades. Our portfolios will therefore consist of numerous small 'high probability' trades resulting in a diversified risk, overall biases, and a portfolio that is dynamic and is able to evolve with an ever changing market climate.
The system that underpins our overall strategy is a form of a trend following system. We analyse multiple time frames using multiple indicators with set parameters. If the parameter’s criteria are met, then this is what we would term a ‘high probability trade’ and will be added to our portfolio. Besides FX, our trend following strategy also covers Gold, Nasdaq, T-Notes, Nikkei, Copper and Bunds amongst others, thus providing exposure to markets that offer strong diversification for our overall portfolio.
Our exposure to counter trend trades is a small percentage of what we will have 'trending'. Counter trend trades work well during retracements or a stagnant market, and therefore provides further diversification by mitigating risk when other strategies fail to operate as efficiently as we would like. This strategy predominantly operates on 'over bought' and 'over sold' indicators and employs tight stop loss orders, meaning if we are wrong, the losses should be minimalized.
This strategy focuses on a few key currency pairs that build a 'mid-term' outlook into our portfolios. It has a heavy weighting towards USD, is of course technical by nature, and is the closest we have to a 'buy and hold' strategy. We would expect many more profitable months than negative months utilising this, but occasionally when trades are wrong, until the technical data evolves, we will continue to 'hold'. There is a 'martingale' element to this strategy meaning that sometimes we will add further size to the same position.
Equity Market Specific
Although our technical expertise is employed traditionally in the FX arena, we have developed a system that operates on the worldwide equity indices. We find certain major equity indices tend to trade as well as the FX market from a technical perspective (due to its vast liquidity), but the activity is very minimal in comparison to our FX exposure. The main reason behind building this exposure is to diversify our exposure away from the FX arena, and to take advantage of both appreciating and depreciating equity markets.
Our 'Failed Momentum' strategy specialises in the FX arena. This is built upon the premise that currencies predominantly trade in ranges and that momentum is not sustainable, and that prices of currencies often fall quicker than they rise. Often after strong movements forward, this system initiates short positions and provides another counter trend exposure to our portfolios.
Trading Methodology Key Points
Our methodology is underpinned by 'trend following'.
We have filters within our system which create 'counter trend', 'mid term' and 'failed momentum' exposure for our portfolio.
We believe this allows us to build a robust portfolio which will minimise our equity swings in extremely volatile periods.
Our portfolio will consist of multiple smaller trades meaning we are diversified.
Our portfolio will generally create 3-4 strong biases (eg USD weakness, GBP strength etc).
The small positions assist us with evolving with an ever changing market place.
We build a multi-market exposure into all portfolios.
There will be many occasions where we are wrong, but we believe we will be able to control our risk with our technically based strategy.
Desired Risk to Reward Ratio
The markets we operate in are leveraged, they are volatile, and we will witness and encounter equity swings. We will aim on a yearly basis to achieve 1.4 times the amount of negative volatility we witness. Although no guarantees can be offered, we'll position size our portfolio to reflect the risk to reward threshold.
Live Portfolio Access
To demonstrate in real time how the strategies utilised at MSI Cadogan operate in the market place, we have built a live multi market, multi strategy portfolio for investors to monitor.
By monitoring the portfolio in real time, we believe it will provide investors with the knowledge and understanding of the type of portfolios and methodologies we can structure.