Street Stories: Managed Futures
Monroe Trout of the Trout Trading Fund
Market Wizards Index: +67%
Compound annual over 5 years
Fund or affiliation
Trout Trading Fund
Methodology
Trading the futures market using a combination of discretionary and systems based methodology.
Research Techniques Employed
Trouts staff monitors the slippage in each market, and of each broker that they use, on a daily basis.
They test out many models and systems on every combination of markets and interval relationships; and screen out models and relationships that they cannot make logical sense to explain. (versus trend following)
Trading Techniques Employed
Due to Trouts floor trading experience, he has a good eye for picking out where stops are going to be.
50% of Trouts trading is determined by systems, but he exercises discretion as to how he executes the trades.
The other 50% includes "magnet effect" and information flow from the floor contacts. Trading against locals, and trading along players they repsect.
Trout likes to trade the "magnet effect", the tendency of markets to get to round numbers. In these situations, he monitors the noise level on the floor to decide whether the market would trade through that number.
Risk Management Techniques Employed
Loss limit of 1.5% on every single trade; will liquidate trade if breached.
Loss limit of 4% of total equity on every day; will liquidate all positions and stop trading for the rest of the day.
Loss limit of 10% of total equity per month; will liquidate everything and stop until next month.
At the end of each month, they decide the maximum volume they will trade in each market.
Philosophy and beliefs
Believes that whoever has the highest daily Sharpe ratio is the best trader.
Trout believes his success is explained by:
Good research, being their edge.
A rational approach to money management.
Pays a very low commission.
They have the best execution in the business.
People who work for him keeps a large part of their net worth in the fund, including 95% of his.
Trout thinks that the minute he doesnt have fun trading, he would quit.
If he is in the business of picking CTAs, he will base on the total dollar profit extracted from markets.
He believes in moving averages, but not in Fibonacci retracements, Gaan angles, RSI and stochastics.
History and other facts
Trout did his senior thesis at Harvard on stock index futures, the conclusion of which is that the probability of very large price changes is much greater than that assumed by standard statistics.
Trout went to work for Victor Niederhoffer who also studied at Harvard.
Performance Record
67% over 5 years: "Over the 5-year period surveyed, his average return was 67% but, astoundingly, his largest drawdown during that entire period was just over 8%."
