January statements are now out, and we finished up +1.91% for the month.  Despite the good performance, at one point this month we were up over +4% but gave up some of those gains to the energy complex.  Natural gas displayed some black swan type extreme volatility towards the end of the month being up over 60% in a single trading session and then right back down the following day.  The trading system was firing off signals left and right during that time at which point I manually shut it down due to the fragility of that market.  Not all volatility is good volatility when liquidity dries up in the market. 

Now, one subject matter I’d like to address here is the question I get asked all the time, “what do you think the economy will do this year and how will that affect your trading”?  My response is always the same – IT DOES NOT MATTER.  That statement usually leave’s a few scratching their heads.  Allow me to give you a primer on volatility-based order flow trading.  There are thousands of investment/hedge fund managers and traders around the world managing trillions of dollars, all of which have unique approaches to their investment process.  Some use (although archaic) economic data inputs, fundamental analysis, event driven and a whole myriad of other features in their specific process.  Out of the hundreds and even thousands of inputs that drive investment decisions there is one and ONLY one output.  That output is an order, either a buy or sell of a particular instrument/security that gets routed to the specific exchange at which it trades.  All trading done here at Stroot Investment LLC is done through the Chicago Mercantile Exchange which is a centralized exchange.  That basically means ALL incoming orders get routed to the exact same place and that is the only thing we care about.  Orders!  We do not care one bit about what when into the decision-making process to generate that specific order as it is a second order effect on actual prices.  Think about basic supply and demand and how that might impact prices.  The same goes for buy and sell imbalances in a centralized exchange (marketplace).  A buyside imbalance will create upward pressure on prices and vice versa with sell imbalances.  The basic premise of this is called Auction Market Theory – something I have studied vehemently for the past 18 years.  This is the foundation of the trading systems I have developed over the years with obviously many details left out for proprietary reasons.  Data is the new oil.  Everything is driven by data these days…or at least should be.  However, understanding the power of data and data science is where many fall short.  Thankfully, this is where we excel.

Hopefully this basic primer gives you a better understand of the lens from which we view markets.  I will expound on this in more depth at a later time. 

Lastly, I mentioned previously about our venture into the crypto space.  Despite most cryptocurrencies being down over the last month 40-60%, our trading model finished +6.47% which was primarily due to shorting micro bitcoin futures contracts.  I will continue to keep you posted as things progress.