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Opalesque Futures Intelligence

Manager Profile A new CTA talks about his mostly shortterm strategies and how living in New Zealand influences his perspective.

Friday, January 07, 2011


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.



 
This article was published in Opalesque Futures Intelligence.
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