Markman Capital Insight

Introducing Magnitude TY

A few days ago, we announced a change to futures system subscriptions at Markman Capital Insight. Now I would like to take a moment to explain the change in more detail.

The new system generating buy and sell decisions is called Magnitude. Its origins are in earthquake science, and it leverages advanced mathematics and behavioral finance principles to measure and predict crowd effect and mean reversion.

The scientist behind the system many years ago discovered a fascinating connection between the physics of the release of energy from strained rock strata during earthquakes to the release of energy from strained market participants during Wall Street panics and euphorias. In both cases, the reaction to the energy burst tends to follow a predictable pattern in both direction and time.

When I say "earthquake" your mind probably races to big events that made headlines. But there are thousands of smaller quakes all the time. Likewise, extreme market panics are rare but there are thousands of smaller panics in markets all the time on any time frame that you study, ranging from five-minute price bars to 15-minute, 60-minute, daily, weekly and monthly bars.

The new system takes advantage of these insights in a unique way. When the developer's software observes emotional investors selling a market in an extreme fashion, for instance, it can determine the moment that the fury appears to have reached an extreme "exhaustion" point. At that moment, the software triggers a buy signal, and calculates the length of time and distance the market will potentially then travel in the opposite direction.

These types of events occur regularly in all markets -- e.g. equities, bonds, metals and grains -- in all time frames. Any market that attracts a crowd will generate predictable crowd effects. As a result, the Magnitude system may have more flexibility to discover and act upon trading opportunities in more types of futures contracts than the previous system.

Now here are some additional key details.

-- Unlike the previous system, every Magnitude trade will come with a stop. We believe this is critical to risk management. Because the system believes it knows what to expect each time a trade is initiated, it also knows if that view is proving to be incorrect. The software in essence accepts that it could be wrong on any given recommendation, and provides an escape hatch.

-- The benefit of setting stops is that long, deep, painful drawdowns will not occur on any given trade. The downside is that the system will record more single-trade losses. Another way to put it: The prior system had a high level of conviction that it had made the right choice the first time, and would sometimes wait a long time to be proven correct. Magnitude also has a high level of conviction in its recommendations, but will more readily acknowledge near-term execution missteps in order to avoid steep, time-consuming, emotionally draining drawdowns.

-- While the prior system looked ahead to price levels to enter and exit each trade, Magnitude uses real time "price exhaustion" signals. As a result, trade entries and exits will be delivered as real time market orders rather than in advance with predetermined limit orders.

-- Every Magnitude program will have the ability to trade at least one additional compatible contract in addition to its main contract. This is a key new benefit added to your subscription at no additional cost, and opens up the potential for more trades. In the case of Magnitude TY, the main contract will be the 10 Year Treasury Note (TY). The program will also be able to trade two sister contracts: the 30 Year Bond (ZB) and the U.S. Dollar (DX).

-- The program could have up to four contracts in play at any given time (e.g. two TY and two DX) but will aim to never exceed margin requirements of the model $20k portfolio.

-- The developer's historical and live beta tests indicate that Magnitude TY should generate around 60 round-trip trades per year. That's roughly five per month on average, or a little more than one a week. Of course trades may instead come in bunches, and there could also be multi-week stretches in which there are no trades.

-- The system's win rate for a model portfolio with the TY, ZB and DX contracts during a 120-day live beta test from early March to early July this year was 47% on 21 trades. That means a little more than half the trades were stopped out for losses. Yet the return for the 120-day live beta test was +54%. For comparison, the underlying 10-year note was -1.9% in the same stretch.

There are no guarantees that Magnitude TY will continue to deliver these kinds of results, and all accounts may not achieve comparable results. Always keep in mind that futures trading involves substantial risk of loss, and you should only trade with money you can afford to lose.

In summary, I believe that the Magnitude TY system will have a good shot at delivering great results in coming months and years while managing risk in a way that will help you sleep easier.   

-- Jon

Markman Capital Insight LLC

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Magnitude TY assumes a recommended model portfolio size of $20,000. Subscribers must determine their own portfolio size at their own discretion.  Results are not compounded, and are reported gross of subscription fee and commissions. Past results may not be indicative of future returns. All accounts may not achieve comparable results. Futures trading involves substantial risk of loss. Use of this service is strictly at the subscriber's own risk. Markman Capital Insight will not be liable for losses of any kind.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.