An Important Note to our Stone Fund Investors (current and future)
Jan 28, 2014: We have some mixed news and important information to discuss with you regarding Stone Fund, so please be sure to read this email in its entirety. As most of you are aware, we are currently down this month with Stone Fund in balance of approx 8-11% as of the 29th, depending on the broker you are at (our reference account is here).
We have been analyzing this situation very, very closely this month and have come to the sad decision that we are going to have to discontinue offering this current strategy as a core investment program. This has been a really tough call to make, and has stemmed from a combination of few key indicators that has brought us to this decision. These are;
1.) There has been a parting of ways between the two primary members of the Stone team.
2.) There was an irrational change of strategy at the start of this month (bringing forth many CAD pairs which were not traded previously).
3.) There has been a breach of its max historic drawdown.
While the closed trade drawdown this month is within our tolerable metrics (i.e., there has been worse balance draw downs historically speaking), what is not tolerable, is the additional 10% drawdown in open trades floating on top of the current drawdown (you can view these circled in blue in the equity graph below, where the red line is balance, and the yellow line is floating equity with open positions).
It is our job as part of our analysis to identify these situations when they occur and to react accordingly for the ongoing safety of our managed capital. This was a very tough decision to make. As many of you know, we have a very long history with Stone Fund. In fact, we have been invested with it ourselves since the fall of 2011, giving us almost 2.5 years of history with it (see here). It has evolved quite a bit since then. So we normally would not be so quick to react, however the combination of the above factors gives us enough conviction that we need to react to this before things worsen even further (and we have been down this road before).
We must digress; we know that this was touted as an aggressive fund, however, one of the key reasons for this decision in addition to the trading events which have occurred is that there is “trouble in paradise” between the partners managing this fund. This sends a bit of a red flag off for us. The team, at the core, consists of a Russian and an Italian, whom together have developed the program, and together are trading approximately $8M USD in addition to our funds.
There have been some politics involved between the two, and they are currently parting ways. Their breakup is a friendly one; however it certainly causes concern for the future of the program. Despite the state of trading and the minor drama between the partners, there is a silver lining to this all, which we will explain below.
How Does this Affect You?
For those of you who wish to continue trading with this original Stone program, you of course can, and we will leave the MAM open, however we strongly recommend against this. We have moved this program out from one of our main program list, and into our Trade Lab, for now, until we can see it remedy and re-prove itself again.
So you can wait for the current open positions to close naturally on their own (which may be in a better, or worse position) or you can opt to close your account out now, and realize the floating equity drawdown and make a decision from there on what to do with your funds (which we will present our recommended options below). Should you wish to re-invest the funds of course all high water marks ill be honored, and we would like to offer free or reduced accounts for life to our Stone account holders based on their decisions on where to re-invest should you wish to do so.
The GOOD news from this!
The good news from all of this is that we have been working mighty hard to firm up our line-up of products for our portfolio this year. We are now, 99% there (we are waiting for a futures program to complete to offer). But our line up for the 2014 year is now very firm, and we must say… looking VERY solid! So out of the original Stone team, we are much closer to the Italian partner (the true mastermind and programmer behind the original Algo). Our relationship is very strong with him and we are going to fully continue to work with him this year in a new capacity.
The best news is that he has coded a new (improved) Algorithm, which has a pretty darn attractive risk:reward profile, (MUCH better than the original Stone program) and you may be interested in joining us with it, as a replacement to the original Stone program. We are initially referring to it as Stone v2.
We started testing this back in July with him, and next month we will be moving in to our 8th month of live forward testing with it in a live environment. Given the havoc which has been wreaked in the global financial markets during that span of time, it’s been pretty impressive in our opinion. Originally we had planned to offer this as a new and additional product this year, but given the recent events with the original Stone program, a replacement is a much better move at this point so this will be the replacement product under the Stone name as the replacement program for Stone.
The result so far with the new Algo, is a 7 month winning streak (pending this month which is BE right now), but during this time the Algo banked nearly 40% gains, with a 5% monthly average, and the best part is that it has a max peak to valley equity drawdown of only -4% during this time. This is going to be quite attractive for many people who want a smoooooooth ride in terms of drawdown for an FX investment.
*** YOU CAN VIEW THE PERFORMANCE FOR STONE v2 HERE
To give you a little bit of back ground about this, the developer, who we have the best relationship with, is a physicist from Italy, and also holds a masters in Technical Analysis at S.I.A.T. (the Italian Society of Technical Analysis - http://www.siat.org)… i.e., he’s playing with a full deck when it comes to trading! He has a nice drawdown approach to trading, which is what he bases this Algo upon first (staying within draw down parameters) and he just lets the profit targets unfold naturally from there.
The best part is that he has just recently finished a huge analysis and has reprogrammed the algo to include more pairs other than EU which is the primary pair thus far. This will help diversify it further and keep DDs even lower. These will begin to be added next month.
The algo is adaptive and the developer looks to continually improve it, and typically it receives updates each month (sometimes more frequently - based on feedback from the market) – very different from the original Stone program which the Russian partner kept a tight strangle hold on. This is kind of cool how this works - when the program’s equity drops below its own internal moving averages, then that is the trigger to tweak it. It has been working very well for him.
Other features are; that it trades with an auto-adaptive stop loss and a precise money management algo based on a fixed % of the balance. This allows it to accurately control the risk and contain the draw downs. The entry algo is ONLY about intraday price action, NO indicators and NO oscillators at all are used which makes it highly scalable.
This one ticks a lot of boxes for us (our only regret is that we wished we would have upgraded the original Stone program to this before we were forced with the decision to do so) and we are rolling it out live next month. As most of our investors are seeking conservative to moderate (smooth) risk profiles, we feel that this will be a much better fit.
Needless to say, despite having to shelve the original Stone program, we are pretty excited about the new one and the future potential and are glad to be able to continue working with our colleague on this in to the future. His views on trading and the markets and risk are much more in line with ours personally than his partner’s are, and his private algo, without a doubt, has one of the nicest track records unfolding that we have seen in a long, long while (as you can see in the myfxbook link above).
Participation in Stone v2
For those wishing to move funds in to the new Stone (v2) program, there are a few caveats to be aware of. The minimum investment in Stone v2 is $7,500 (this is to ensure all pairs in the newer multi pair algo will get filled with the proper risk protocol).
We are currently funding a live account ourselves of approx $10,000 in addition to our smaller live test account, as we believe in this one for a GOOD long-term investment.
Other Options
For those who do not want to open an account at our Brokerage in Australia to participate, we would recommend transferring funds in to our Valor FX program which is currently trading at ALL of our brokers. You can view the performance of Valor FX for the last 3 months here.
This is also a great option, which has been fully revised. However we do not have as long of a history with it (yet) as we do with the new Stone v2. This is one of our pillars in our portfolio for the 2014 year. Both options will be excellent alternatives. Our opinion is that Valor will be slightly more aggressive, with great returns, but still well tolerated in terms of risk. Stone v2 will be more conservative and is slightly ahead with history, although Valor is catching up nicely.
What is the life expectancy of a trading program like this?
This is a question many have been asking based upon this decision we have made. While the situation is not ideal with the original Stone program, it is unfortunately something we will have to contend with in this business. We only see this as a slight set back, with our good news far surpassing the bad. Of course we will have some profit to make up, but feel we are well equipped to do so.
We are very calculated in making these types of changes, but believe that with safety as the underlying reasoning, we are making the right decision here. We have not had to deal with this with Stone for YEARS, literally, so it has been a big and difficult decision to make for sure.
To answer the question though, we try to choose all of our trading programs which stand the greatest chance for long-term profitability. We know that the true key to building wealth in any asset class, is by using the power of compound interest. We are aiming to make the required adjustments so that we, and our clients can compound their funds and feel some substantial growth. We cannot give any guarantees as to the longevity of any of our funds, just as we cannot predict the future. We understand that as our fund grows, issues may arise particularly with liquidity, strategy stalemates, tech problems, and our trader’s abilities to perform.
Unfortunately there is no way around such issues. However we are setup to detect any of these issues with our traders well in advance. We anticipate such changes, and will adapt to them as they arise. We are constantly adjusting our portfolio when required and the risk profile of all the invested capital. We feel that the current line up we have in place now (Arc FX, Stone v2, Valor FX, and Eagle FX) is an extreme “all start line up”, very diversified, and safe.
Soon with the addition of our futures program, we will have a complete well balanced winning portfolio. Our best yet! We are aiming to not even look to make any adjustments until the start of 2015 which is a year from now, and which will give us a full year to allow the current lineup to milk as much profit from the market as possible (and to compound returns).
As always, we will continue to grow and improve where we can. Please do let us know if you have any interest in the Stone v2 at our Aussie broker, or the Valor FX at any of our other brokers, and as always one of us would welcome a chat at any time if you want to get in to more detail on anything regarding this or anything else for that matter.
To our forward progress!
Managed Forex Hub