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Tim Rea
Short-Term Trader from New Zealand
Tim Rea, founder of Transworld Capital Management Ltd. in New Zealand, has a
wide variety of experience, including farming. He is fairly new as a registered
commodity trading advisor but is known in trading circles. For instance he is a
winner of the 2010 World Cup Trading Championship in futures and forex, with a
return of 157%.
Here he discusses his strategies and whether being in New Zealand makes a
difference. And as a systematic trader, he has an interesting comment on the
"flash crash" that happened in May.
"New Zealand being a little country at the bottom of the Earth, I think
living here makes you think more about what goes on in the world."
While working in other businesses I always had an interest in trading and traded
for myself. Then in early 2000's I sold some of my farming business and
commercial property interests, so I had time and capital to pursue trading on a
bigger scale. Using discretionary strategies I realized that they require
judgment-a major drawback as far I'm concerned. At one point I was really
frustrated because my computer could trade better than me!
That led me to seek to harness what the computer could do better than me and
develop absolute rule-based systems. In 2007 I decided the systems I developed
would be useful to other people as well, so I started Auto Trading Systems to
get subscribers.
In 2009 I became a CTA and at the end of the year launched a program that trades
S&P 500 and Treasury note futures. I chose these instruments because they are
very liquid, so we can accommodate large investors. On my own account I trade
other contracts but you can't put a lot of volume into those.
I use a portfolio of quite a few different styles, not a single strategy. The
variety of methods include some that look for a trend then enter following
pullbacks and counter-trading. Another method is to trade trend reversals in
Treasuries, both long and short. But like I say, we use quite a range of
methods.
My approach is mostly short term. Around 90% of the trades last one to three
days. Many of them are within one day and most of the rest are done by the next
two days. One method we use for T-notes carries over for a longer period.
This year our worst month was when the S&P 500 had its best month. It is
disappointing when you consider that people made good money in the stock market.
But then we have had our biggest successes when the market dropped. At least,
that is how it has worked to date, though we have no bias and trade both long
and short the same regardless of market direction.
Recently I started a forex program for clients. For myself I've traded forex
some time. This year I did very well with it, making almost 90% with short-term
euro trading. The forex program uses some of the same approaches as the
high-liquidity program. The strategy is not identical but similar and again
short term.
We're 100% systematic but do reserve the right to use discretion on occasion. In
exceptional situations it may be better to stop trading or at least reduce
exposure. If there is something very unusual going on, we could intervene in the
system.
During the "flash crash" this past May I did not intervene, but I got close to
possibly turning the system off. I realized at the time that some technical
glitch must have triggered the extreme movement. If a similar situation arose
again, we might intervene. We lost money that day but recovered the next day. Of
course, if we see a better way of trading, we will modify the model.
I think my perspective is in some ways different from many US-based traders'.
Americans tend to focus on the US and often not pay that much attention to
what's happening elsewhere. It almost doesn't seem to matter, but of course it
does. New Zealand being a little country at the bottom of the Earth, I think
living here makes you think more about what goes on in the world. In developing
systems I often consider data from outside US time zones. Even systems that do
not trade around the clock may factor in certain data. My team works almost 24
hours a day, except for long weekends when we close down. We monitor markets
around the clock, which I think may not be that common for a US-based CTA.
Being in New Zealand has no adverse technical effect on our trading-although it
makes for interesting working hours! We have servers in Chicago that we actually
trade from and monitor closely. I personally don't think it makes a significant
difference for speed for the way we trade. In any case latency has not been an
issue. Our system is set up to run automatically and we can monitor it from
anywhere in the world. Just in case there is a problem, we have multiple servers
and can take over when technical issues arise.
Having experience with businesses as diverse as farming and vehicle sales, I can
say that there are some aspects of trading that make it very different from
traditional lines of work. Things like scalability and performance have little
connection to the underlying economy and you can choose to operate pretty much
anywhere in the world. Those are just some of the things I really appreciate
about this business.
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