Futures Micro and Mini Portfolios Weekly Update
I want to address some issues today that I think are important.
Margins have been doubled in many commodities during the past week at several of FCMs we trade thru. This means if you are not following my recommended money management of at least 3X cash to margin, you are no longer at 3 times. Those that have been around for awhile have made money and are at the correct ratio, however is you have recently started the margins are higher while the FCMs panic a little. That is why you never want to be trading with thin equity regardless of market conditions. You need to have enough capital backing your trades so you can sleep at night and if we go through an extended drawdown period, you can weather the storm. I address what to do in point # 3 below.
Because of the savage and unprecedented volatility in the stock indexes and some of the other markets, your equity can be different than what I show on the spreadsheets. The reason is, there were several times last week when there was a trade variance of 3-7 thousand dollars depending upon when you entered a trade. Because we are reversing a trade, if you covered a short when the S&P 500 e-mini was down big during the night session, you were able to cover at a lower price and reverse to long effectively. However, eight hours later, the S&P e-mini let’s say had moved to up big and therefore you covered the short at far higher prices than eight hours earlier- and obviously you also went long at higher prices. This variance accounts for most of account value differentials. It should even-out over time, but right now when you enter a trade is highly significant and far more significant than in the past.
3. Drawdowns and equity trend regression lines
We told you to expect a possible drawdown at any time because we were so far above the running equity regression lines. In fact, we were historically far above the regression lines because of the tremendous open trade profits we had accumulated over the past few months especially. Right now, we can drawdown even more and the reason is, we will always pull back to and usually below the regression lines before we see another surge in equity to the upside.
Historically drawdown periods can last for several weeks or even months, but because of the historic volatility and directional movement, several of the Model Portfolios had large declines in equity.
I usually recommended 3X more equity than margin, but you might consider 4-5X margin until the volatility subsides whenever that may be. With virus fears, there is no telling how long this market condition will last and therefore I am recommending you beef up your equity if that is possible for you.
4. It depends on when you start in virtually every investment including mine
If you started trading a Model Portfolio at the close on 3/01 for example, you have a loss and it could be substantial depending upon your Model Portfolio. However, if you started before 3/01, you had the benefit of the incredible equity run we experienced, and you will still show good profits from the time you started. This assumes of course you are following the rules 100% of the time- and assumption that unfortunately is not true for many traders.
My point is, if you started when equity was far above the red regression line, your risk was geometrically higher than someone that starts when equity is far below the regression line. That is just the way it works and if you cannot accept that, you should not be trading my method or anyone else’s because every trading method is in drawdown over 99% of the time.
5. Taking statistical advantage of a drawdown
Once we go under the red regression line in your Model Portfolio, a strategy that I employ is to press or add to the number of contracts you trade. If you are trading one, you would do two, etc. In this way, you always take advantage of the rebound in open and closed trade equity that historically had always happened. We have always made a new historic equity high after every drawdown with no exceptions.
If you are in a financial position to press your investment at the right time, you will produce large gains in your account equity based on historic realities.
**This week we were in drawdown across the board, but a late move up in the currencies helped lessen the losses for the week and in several of the Model Portfolios, it lessened losses substantially.
We still have five (5) markets in Mega-Trade status and the profit factor is still incredibly high in most of the Model Portfolios. If you remain disciplined and mechanical, probability works for us and not against us.
We make big money by being long term position trend traders- nothing more-nothing less. You need to be 100% disciplined to replicate the Model Portfolios and the more you deviate from full discipline, the worse your performance.
***New Trade Alert***
Trades can be entered during the electronic night session or in the morning. There is some flexibility in terms of when you enter a new trade and this is because our profits are not marginal. Trade prices shown on the Model Portfolio spreadsheet are what I get for my own trades. Yours can be better or worse.
There was a glitch in the program and the numbers are off this week. The positions are correct and your numbers are what they are. Remember, its about the historic returns that we make and even with this weeks drawdown we have made a ton of money. It all depends on when you started.
Don’t be shortsighted and look ate one day or one week, this is about the long run, our returns are the best in the industry, history tells us if we follow the model and the rules we make lots of money.