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Discretionary Trading Q2 2017 Commentary

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Instruments traded:FX Spot and CFDs
Asset Classes:FX, Equity Indices, Commodities, Government Bonds
Investment Style:Discretionary (non-systematic), Volatility, Opportunistic 
Quarterly Return:-3.91% (net of service fee but gross of any applicable performance fee)
Q1 2017 daily return volatility:1.37% 
Average Trades per week:12.5 (since inception)

Market Overview

Markets in second quarter (Q2) 2017 continued to incur low short term volatility, with decade-low volatility in equities, bonds and currency markets. There was a pickup in volatility at the end of a quarter in the form of a 5% correction in technology stocks and some pickup in yields after Mario Draghi, president of the ECB, hinted towards potential QE tapering and also the US Fed announcing an expected balance sheet reduction in the second half of 2017. 

Looking back over the quarter, the market appears fundamentally different than in recent years. Moreover, the market structure, the way it reacts to news, the speed and consistency of moves, intermarket correlations, the relation of noise-to-signal in daily moves, has shifted. It is the strategy manager’s belief that financial markets are coming out of a post crisis period and normalising to become more efficient, reducing opportunities for short term trading.

Portfolio Performance

April
 -3.4%
May
 2.9%
June
 -3.3%

In Q2 the Discretionary Trading strategy produced a return of -3.91%, lagging performance enjoyed in prior periods. This result is attributed to conventional trading techniques proving less advantageous over the period, such as technical analysis including breakouts and reversals, and also prioritising reaction time and nimbleness when trading. Moreover, a pro-cyclical reaction to news based on the fast assessment of information, was not profitable. 

Outlook

The strategy manager believes markets are similar to the 2004 -2006 period, whereby the most appropriate style of trading is to focus on longevity and patience, rather than trade reaction speed. As such, into Q3 2017, a greater emphasis will be placed on timing and precision of entry/exit of trades. In addition, position decisions should have a greater focus on cumulative evidence and to a lesser extent on signals (such as single events or movements), since these are being easily priced-out by algorithmic participants. The strategy manager believes this shift is permanent, at least until the next major dislocation. We anticipate that both the number of trades and position sizes will be reduced, notably during the summer period, whilst the strategy style transitions to cater for the evolving market environment.

Any information found in this document, including performance information and statistics are subject to change. You can find the latest updated pricing information on the description page for each available portfolio. In providing this material Saxo Bank has not taken into account any particular recipient’s investment objectives, special investment goals, financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail a risk and may result in both profits and losses, and all capital is at risk. In particular investments in leveraged products, such as but not limited to foreign exchange, derivatives and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financial advisors in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment or entering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither a comprehensive disclosure of risks nor a comprehensive description of such risks. Any expression of opinion may not reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent).