Chairman, Fall River Capital LLC (NFA 298790)
Program(s) Developed: Global Strategies, Salt River Bonds, VOLEX
Interview Date: February, 2007
Interviewed by John F. Gallwas ? Founder of Striker Securities
Fall River Capital is a registered Commodity Trading Advisor specializing in the trading of global financial and natural resource futures markets. Fall River trades three programs, each operating in a different time frame: Global Strategies (and Global Strategies High Leverage) which attempts to capture long-term trends in over 60 futures markets around the world, VOLEX which endeavors to capture intermediate-term moves and the Salt River Bond Program which takes short-term trades in the US Bond Market based on pattern recognition. Fall River trades over $70 million, and has been trading for clients since the year 2000. Charlie Wright is the chairman of the Fall River Group, Inc. (a manufacturing company in Wisconsin) and has been associated with the Fall River Group since 1973. He is also the chairman and co-owner of Quaestus & Co., Inc., a venture capital firm located in Milwaukee, Wisconsin, and from 2002 ? 2004 he was the chairman and co-owner of Kilbourn Capital Management Inc., a CPO (Commodity Pool Operator) which manages the Kilbourn Diversified Strategy Fund, a Fund of Funds.
John Gallwas: Given your background of extensive experience investing in such diverse and non-traditional areas as venture capital and hedge funds, why do you invest in futures?
Charlie Wright: That?s a great question. Futures are highly liquid; they are also exchange traded and usually provide continuous prices. Futures contracts now exist on almost anything you could possibly want to trade. It is also very easy to move in and out of positions. Liquidity for managed accounts is accessible on a daily basis. Even most managed futures funds will provide monthly liquidity. Venture capital funds are on the opposite pole of liquidity; their investments are not traded on exchanges, and the pricing of the investment portfolios tend to be very complicated. I view the average venture investment time length to be about 7 years, with virtually no liquidity. Hedge funds fall in between, and the pricing of non-exchange traded investments is still a big issue. Many funds require a year or more lock-up, and most with quarterly or longer advance notice redemption requirements. For my money, the solid managed futures program provides as good or better returns, with substantially better liquidity, and actual pricing.
John Gallwas: Why did you decide to use a systematic approach to trading?
Charlie Wright: Systematic trading takes the emotion and the subjective judgment out of trading. Your creativity and decision making is used in the objective environment of the research department, with testing and simulations, rather than the emotionally charged environment of the trading day. Once you have the system in place and running, your task becomes simply to put the trades on correctly. The ability to put on mechanical trades is not dependent on your emotional state. The discretionary trader, on the other hand, is only as good as his emotional and mental state at the time of the trade. Even though they still use ?rules? to some degree, for the discretionary trader, if the news is particularly distressing during the day or the trader is having problems in their personal life, or if they partied too hard last night and do not feel well, trading judgment can be impaired to some degree. Systematic trading eliminates the ?how you are feeling today? parameter.
John Gallwas: How much data do you use in developing and testing a system?
Charlie Wright: We use daily data going back to 1970. The length of the data stream is important for two reasons. First, the longer the data the more important economic events you are able to test against. Second, you are also able to do effective walk forward testing. That is, you can test for a decade, say the 1980?s, then choose the parameters, and run those parameters in the 1990?s to see with unbiased eyes how your system would have performed.
John Gallwas: What amount do you use for slippage and commissions when testing a system, and why is this important?
Charlie Wright: We use $75 per trade. This is important because in the end, trading is a business. All of the costs of this business need to be factored into the business plan, and slippage and commissions are the most important variable costs in the trading business.
John Gallwas: Do you customize your parameters to a given contract market?
Charlie Wright: Never. We are very cognizant of the perils of over-optimizing and fitting parameters to back data that most likely will not occur in the future. If a parameter does not work effectively over the entire portfolio of markets, we won?t use it. We view different parameters for different markets as classic over-optimization and a disaster waiting to happen.
John Gallwas: How does your actual trading compare to your hypothetical trading?
Charlie Wright: The first thing we did when we opened up our shop was to create our own data streams for each market. Each successive day we update the data stream with the current day?s data. We use this same proprietary data for research as well as trading. Thus, each day we are trading the same data we are using to develop our models. This allows us to regularly compare our real time trading execution to our hypothetical models. Over the last 6 years, our real time trading has correlated in excess of 90% with our hypothetical models. The reason it is not 100% is because we experience less slippage and fees in actual trading than we use in our hypothetical models.
John Gallwas: What common mistakes do you think system developers and traders make?
Charlie Wright: We tend to be fascinated by the entries and the exits, you know, how we get in and out of the market. This is the fun part of system development. We think that to develop a great system all we need to find the greatest entry and exit. In reality, entries and exits are probably less than half of what is required to develop a good system. In the end, there is not that much room for creativity in entries and exits. A market is a market, a trend is a trend. Our research shows that depending on your time frame, all traders get in and out at about the same place. We believe that what distinguishes an outstanding trader from the average is how they execute on the back end of their system, that is, how they manage risk and volatility of portfolio positions.
John Gallwas: Many major Commodity Trading Advisors and Fall River have $1,000,000 minimum account sizes. Is there any advantage, other than administrative convenience, to having a larger account?
Charlie Wright: Yes there is. Most solid reliable trading systems trade multiple markets, some managers over 100 markets. Included in the portfolio are markets that have very large contract sizes which add significantly to the returns of the portfolio over time. These large portfolios and contracts require larger account sizes to take full advantage of the diversification. Here?s an example: let?s say we get a trade in Nickel. The $1 million account will take a 1 contract position, but an $800,000 will not take the trade at all because the contract size too large for the account. The manager?s research and trading results are dependent on taking all of the trades, including Nickel. Thus a manager sets a minimum account size, not to penalize the investor, but to make sure that the account is big enough to take all the trades and match the performance of the back-test.
John Gallwas: Do you have an opinion on whether or not the markets have changed since you began investing in futures?
Charlie Wright: Most definitely. The major assumption that trend-following managers made in the last 30 years has been that a diversified portfolio of non-correlated futures markets lowers risk. Our research confirms that in the last few years, all the world?s futures markets have been correlating to a high degree - especially the daily volatility. So the basic supposition for portfolio risk control that managers have based their systems on for the last 30 years may be obsolete. You can see the difference in performance between managers that have grasped this change and those who have not.
This interview is for informational purposes only and is not intended to be
a solicitation of any kind. Trade only with risk capital. The risk of
trading can be substantial and each investor and/or trader must consider
whether trading systems are a suitable investment.
There is a risk of loss in trading. It is the nature of commodity and securities trading that where there is the opportunity for profit, there is also the risk of loss. Commodity trading involves a certain degree of risk, and may not be suitable for all investors. Derivative transactions, including futures, are complex and carry the risk of substantial losses. Past performance is not necessarily indicative of future results. Please read additional risk matters on our web site, www.striker.com. It is important you understand all the risks involved with trading, and you should only trade with risk capital. This communication is intended for the sole use of the intended recipient.
About this report The information and links on this website are for informational purposes. The risk of trading can be substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Striker is a member of the National Futures Association ("NFA"), the Managed Funds Association ("MFA"), and the National Introducing Broker Association ("NIBA"). Striker is registered with the Commodity Futures Trading Commission ("CFTC"), and was formerly registered with the Securities Exchange Commission ("SEC"). Additionally, Striker is a former member of the Financial Industry Regulatory Authority ("FINRA"), and the Securities Investor Protection Corporation ("SIPC"). FINRA is the largest non-governmental regulator for all securities business in the United States. Please read Striker Disclosure Statement for the additional disclosure.
The trading performance cited throughout our web site is based on actual trading history, unless otherwise noted. The starting account balance is based on the system developer recommendation. Striker tracks actual performance by recording and maintaining each trade ticket for each system generated. The performance information assumes that no additions or withdrawals have been made. The rate of return for all systems disclosed in the Striker Report is cumulative from the day the system actually started trading at Striker. We maintain a "life" track for all 3rd party systems. We do not necessarily base our records on any particular client account. No one particular customer has achieved these results. The percentage returns reflect inclusion of commissions and fees.The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor participation (whether or not a client takes all signals for a system) in the specified system and money management techniques.
Striker is a revolutionary concept in action: an international, professional team of brokers dedicated to trading only for clients. It bears repeating: unlike most other brokers, Striker does NOT trade futures for itself or any of its employees. This policy has been in place from the start in order to guarantee that our entire focus remains on the interests of our clientele. Striker believes that when brokers are allowed to trade for themselves (or have in-house trading practices) there is a strong potential for conflict of interest, as the broker may place more importance on his own trading activities (or that of his firm's) than on those of his clients. Finally, Striker has no financial ties to system developers, so there no bias or pressure on how we report the actual trading results posted in our client section. This section is designed specifically for Striker's clients, so they may audit their results on a daily, weekly, monthly, or annual basis.