Markman Capital Insight

Magnitude 1

This letter takes a systematic, opportunistic, intraday approach to trading futures contracts on Nasdaq 100 E-minis, S&P 400 E-minis, the VIX, the U.S. dollar, silver, platinum, coffee, cocoa, cotton, natural gas, gasoline, corn, soybean meal and soybean oil. All trades will conclude within 24 hours.

Magnitude is a joint venture of Markman Capital Insight and Parallax Financial Research. PFR is a financial science firm based in the Seattle area that has nearly three decades of experience in developing, testing and deploying unique market-timing signals for professional money managers. Magnitude recommendations are driven by a sophisticated, dynamic, signal generating algorithm and probability-based trade management system. Some human discretion may also occasionally be applied.

Magnitude 1 trades its specified commodities, one at a time, via a variety of methods that span the spectrum from mean reversion to trend-following. This adaptive approach is designed to help ensure that the system is not dependent on the volatility of any one futures instrument. Its dynamically generated stops also reduce the danger of unforeseen peril (at the risk of occasionally curtailing a potentially profitable trade too early).

The recommended portfolio size is $35,000, though members must determine their own portfolio size at their own discretion. Each new recommendation will be designed to use up to 50% of the available margin.

Trades may be initiated or adjusted from 8 am ET to 9 pm ET. The average expected hold time for Magnitude 1 trades is three hours. Trades will at times be held over a time gap – e.g. 2:20 pm ET to 8 pm ET for grains -- but will never be held longer than 24 hours.

The program will make two trades a day on average, but days in which there will be no trades or up to four trades will also be common.

The number of contracts recommended will be determined by a proprietary "constant average risk" formula that is calibrated to ensure that every sequence risks around the same dollar amount.

All trade sequences will start with an entry limit order and stop. A target is typically published separately soon after. If the initial target is reached, the system will recommend selling/covering a portion of the position. The system will then set a trailing stop and leave the target open-ended. The stop will move dynamically, as often as every 15 minutes, based on volatility expectations. If a stop is hit, all contracts will be sold/covered. This approach will allow the system to get the most out of any given trade, as the upside potential is open-ended while the downside risk is largely finite.

All new positions will be initiated with the same model portfolio size in mind. Thus even if the system is up 50% in the first six months, it will not lift the number of contracts traded. And likewise if the system is down 10%, it will not reduce the recommended trade amount.

Results for Magnitude One exceeded 65% per year on average in testing, net of $10/RT commissions and subscription fee. But past results may not be indicative of future results, and all the usual caveats regarding tests are appropriate. (Please review all warnings at the bottom of this note.)

Futures trading can be a blast, but it is also often a grind. Mentally prepare for a ground war. Only 60% of trades are expected to be successful. The system is expected to succeed because gains from wins should be larger than givebacks from losses. As an example, in testing the five worst trades lost $5400, $5265, $4200, $4120 and $3960, but the five best trades gained $32000, $21090, $20300, $19265 and $18494.

There can be long stretches in which there is a lot of trading but no progress. This is normal. It's like fishing. You need to keep baiting your hook and casting into the river. Many bites will lead nowhere as fish wriggle away. But over time you should have the opportunity to potentially land a few big winners that provide most of the success. Be patient and don't give up.

Results can be very streaky. The system in testing logged up to seven successful trades in a row followed by up to six straight losing trades. It's important not to get too elated when landing one winner after another or to get depressed if losing trades stack up.

Magnitude 1 is designed to work together with our other futures program, Magnitude 2. Each program should individually be successful, but running both at the same time is expected to smooth out your results over time. We recommend that members license and trade both the intra-day and multi-day programs if possible, though trading just one is fine too.

Futures speculation plays an important role in the financial ecosystem. Without speculators, corn farmers could not hedge the price of their crop and airlines could not hedge the price of aviation fuel. Speculation is risky, but practiced sensibly it can be a valuable weapon in independent investors' portfolios that is uncorrelated to other holdings.

* *

Past results are no guarantee of future returns. All accounts may not achieve comparable results. Futures trading inolves the risk of substantial loss.

Although Magnitude programs are systematic, they are also leveraged and speculative so only use risk capital -- i.e., money you can afford to lose. Futures should be a small part of your broad investment strategy.

The Magnitude system only makes recommendations. You control the position at your brokerage. If a mid-sequence draw-down is larger than your personal risk tolerance, then stop it out yourself and wait for the next signal.

Magnitude One assumes a model portfolio size of $35,000. Subscribers must determine their own portfolio size. "Gross" results do not include the cost of subscription or commissions and are not compounded.

Several brokerages offer "auto-trading" or "broker-assisted" programs. This is an economical, hassle-free way to make sure trades are executed for you on time by an experienced broker who gets the system's instructions directly. Email us for a referral.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. 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.

$299/month or $2999/year

Magnitude 2

This letter takes a systematic, opportunistic, multiday approach to trading futures contracts on S&P 500 E-minis, Russell 2000 E-minis, S&P 400 E-minis, the VIX, U.S. dollar, the Swiss franc, Canadian dollar, German bund, live cattle, copper, coffee, cotton, cocoa, orange juice, corn, wheat and soybean oil. Trades will take two days to two months.

Magnitude is a joint venture of Markman Capital Insight and Parallax Financial Research. PFR is a financial science firm based in the Seattle area that has nearly three decades of experience in developing, testing and deploying unique market-timing signals for professional money managers. Magnitude recommendations are driven by a sophisticated, dynamic, signal generating algorithm and probability-based trade management system. Some human discretion may also occasionally be applied.

Magnitude 2 trades its specified commodities, one at a time, via a variety of methods that span the spectrum from mean reversion to trend-following. This adaptive approach is designed to help ensure that the system is not dependent on the volatility of any one futures instrument. Its dynamically generated stops also reduce the danger of unforeseen peril (at the risk of occasionally curtailing a potentially profitable trade too early).

The recommended portfolio size is $70,000, though members must determine their own portfolio size at their own discretion. Each new recommendation will be designed to use up to 50% of the available margin.

Trades may be initiated or adjusted from 8 am ET to 9 pm ET. The average expected hold time for Magnitude 2 trades is seven days, but it will not be uncommon for trades to take just two days or as long as two months.

The program will only trade around 16 times a year on average, though it could trade as little as 12 times or as many as 30 times.

The number of contracts recommended will be determined by a proprietary "constant average risk" formula that is calibrated to ensure that every sequence risks around the same dollar amount.

All trade sequences will start with an entry limit order and stop. A target is typically published separately soon after. If the initial target is reached, the system will recommend selling/covering a portion of the position. The system will then set a trailing stop and leave the target open-ended. The stop will move dynamically, as often as every 15 minutes, based on volatility expectations. If a stop is hit, all contracts will be sold/covered. This approach will allow the system to get the most out of any given trade, as the upside potential is open-ended while the downside risk is largely finite.

All new positions will be initiated with the same model portfolio size in mind. Thus even if the system is up 50% in the first six months, it will not lift the number of contracts traded. And likewise if the system is down 10%, it will not reduce the recommended trade amount.

Results for Magnitude 2 exceeded 65% per year on average in testing, net of $10/RT commissions and subscription fee. But past results may not be indicative of future results, and all the usual caveats regarding tests are appropriate. (Please review all warnings at the bottom of this note.)

Futures trading can be a blast, but it is also often a grind. Mentally prepare for a ground war. Only 60% of trades are expected to be successful. The system is expected to succeed because gains from wins should be larger than givebacks from losses. As an example, in testing the five worst trades lost $5400, $5265, $4200, $4120 and $3960, but the five best trades gained $32000, $21090, $20300, $19265 and $18494.

There can be long stretches in which there is a lot of trading but no progress. This is normal. It's like fishing. You need to keep baiting your hook and casting into the river. Many bites will lead nowhere as fish wriggle away. But over time you should have the opportunity to potentially land a few big winners that provide most of the success. Be patient and don't give up.

Results can be very streaky. The system in testing logged up to five successful trades in a row followed by up to four straight losing trades. It's important not to get too elated when landing one winner after another or to get depressed if losing trades stack up.

Magnitude 2 is designed to work together with our other futures program, Magnitude 1. Each program should individually be successful, but running both at the same time is expected to smooth out your results over time. We recommend that members license and trade both the intra-day and multi-day programs if possible, though trading just one is fine too.

Futures speculation plays an important role in the financial ecosystem. Without speculators, corn farmers could not hedge the price of their crop and airlines could not hedge the price of aviation fuel. Speculation is risky, but practiced sensibly it can be a valuable weapon in independent investors' portfolios that is uncorrelated to other holdings.

* *

Past results are no guarantee of future returns. All accounts may not achieve comparable results. Futures trading involves the risk of substantial loss.

Although Magnitude programs are systematic, they are also leveraged and speculative so only use risk capital -- i.e., money you can afford to lose. Futures should be a small part of your broad investment strategy.

The Magnitude system only makes recommendations. You control the position at your brokerage. If a mid-sequence draw-down is larger than your personal risk tolerance, then stop it out yourself and wait for the next signal.

Magnitude 2 assumes a model portfolio size of $70,000. Subscribers must determine their own portfolio size. "Gross" results do not include the cost of subscription or commissions and are not compounded.

Several brokerages offer "auto-trading" or "broker-assisted" programs. This is an economical, hassle-free way to make sure trades are executed for you on time by an experienced broker who gets the system's instructions directly. Email us for a referral.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. 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.

$298/month or $2998/year