Technically Speaking, February 2020

This month, let’s talk about maintaining and improving your personal and professional momentum – “sharpening your tools”.

Stephen Covey, the popular and successful self-help author promoted a similar mantra in his 1989 book, The 7 Habits of Highly Effective People.  The idea, or lesson, was to take some time, no matter how busy you were, to self-renew. Grow by refreshing yourself, by learning new things, and by enhancing your tool kit.  I’ll give you a few suggestions that can be timely in the context of the current market volatility.

The first recommendation is a book written by a good friend of the CMT Association, Dr. Andrew Lo.  The book I’m referring to is his 2017 work titled, Adaptive Markets.  In it, Dr. Lo argues the Efficient Market Dogma is an incomplete framework when it comes to understanding and profiting in the markets.  He advances a more complete framework he calls the Adaptive Markets Hypothesis.  In that theory, he melds economic theory with behavioral finance and allows the rational to coexist with the irrational.  He provides some great stories and provides support for the theory using the work done in biology, neuroscience, AI, and psychology.  This is an interesting read and I recommend it to you to sharpen your tools.  This book is especially helpful in our current market dislocation due to the Coronavirus!  (Amazon gives it 4.3 stars)

The second recommendation is a recent book by Greg Zuckerman, a highly decorated writer for the WSJ.  The book is called, The Man Who Solved the Market.  In it, Zuckerman traces the history of Renaissance Technologies and its founder, Jim Simons.  It is a fascinating book about quantitative and algorithmic trading at an institutional level – but it didn’t start that way.   It also reveals a lot about the personalities and issues involved in building a world class firm.  If that doesn’t draw you in – maybe the $100 billion in profits the firm generated over its lifetime will.  It’s an easy read and you’ll learn a lot about them and yourself if you take the time.  (Amazon gives it 4.6 stars)

My last recommendation is a live event in NY in April, our CMT Association Symposium.  Don’t miss it!  Be a part of this exciting, high-energy event.  The speaker lineup is shaping up to be one of the best ever.  The content is full of timely and meaningful learning opportunities.   The panels and breakout sessions look very strong, and will give you insights into the industry as well as a chance to engage in meaningful dialogue with notable researchers and analysts.  So far, early registrations are significantly higher than last year, which means it is shaping up to be a large and awesome group of practitioners.  This is a chance to sharpen your tools in real time.  I look forward to seeing you there.

If I can be of any help or if you have any questions – please don’t hesitate to reach out.

Be well.

Many of you are beginning your journey towards earning the CMT charter.  Others are moving on to the next step in the process.  And we know that there may be some who have experienced a drawdown and may be reevaluating the trend in preparation for the next breakout.

This seems a good time to recap some of the resources beyond our standard texts that candidates will find useful in their studies.

1. The CMT Program FAQs is the single best place to find critical administrative information about the CMT Program, the exams, the membership process, and ethics. The topics on this page include grading, fees, and exam registration.  The staff reviews and updates these regularly so they act as a ready reference for candidates.
2. The CMT Association is committed to promoting the ethical practice of our discipline. Therefore, ethics are a topic for questions on all three levels of the CMT exams.  Having adopted the CFA Code of Ethics and Standards of Professional Conduct – which is the focal point of our exam questions – the CMT Association makes the Code and Standards available via our website.  Also available is the CFA Standards of Practice Handbook.  The Handbook contains detailed discussion and case studies related to the Code and Standards.  In addition to those two texts, the CFA Institute also makes available a video series that discusses each of the seven top-level topics and the subtopics that make up the Code and Standards.
3. Several of the chapters in our texts are excerpts from the work of Perry Kaufman. Some of these contain references to additional files.  Wiley and Mr. Kaufman have been very helpful in making these files available to our candidates.  This link will take you to the relevant page: https://www.efficientlearning.com/cmt/resources/online-resources/
4. Finally, I encourage all candidates to immerse themselves in the language of technical analysis and current perspectives on markets. This is usually done by reading magazines, blogs, websites, and research reports.  A convenient utility for this is the CMT SmartBrief.  It is a free daily email aggregating interesting and timely articles on technical analysis and markets.

I hope you will find these resources valuable in your studies.

On Wednesday, January 15, 2020, the New York Chapter hosted Larry Connors, Chairman and Principal Executive Officer and Chris Cain, CMT, Senior Quantitative Researcher from Connors Research LLC. Their presentation was titled: “The Alpha Formula Book and Quantamentals ” and was broken down into three sections:

1. The three first principles that make up “The Alpha Formula”
2. The strategies presented in “The Alpha Formula” book along with their results
3. Quantamentals – Combining Technical and Fundamental analysis in a quantitative framework for better investment results

Larry walked us through the first part of his presentation which discussed his team’s book “The Alpha Formula – High Powered Strategies to Beat the Market with Less Risk.” The three primary ideas in this book include applying first principles to portfolio management, combining uncorrelated strategies in a portfolio to increase risk-adjusted returns, and designing quantitative strategies backed by inherent human behavior (which is unlikely to change).

The first principles used as the core of their approach include the fact that markets go up, markets go down, and markets go through times of stress. Next, Larry shared Ray Dalio’s research, which demonstrates that having 4-5 uncorrelated strategies is sufficient enough to reduce the majority of risk in a portfolio. The benefits of any additional uncorrelated return streams after that are marginal.

In section two, Larry and Chris walked us through the strategies from their book. These strategies look to take advantage of certain market tendencies caused by our behavioral biases – namely long-term trend following and short-term mean reversion. This is where the meat of their research was presented, sharing the construction and results of each of the strategies formulated from the market truths Larry covered in section one. All of this research and data are included in their slide deck.

During the second half of the presentation, Chris Cain took center stage to explain their new white paper on Quantamentals. The conclusion of this work is that combining fundamental and technical analysis in a quantitative, rules-based framework leads to improved performance compared to each discipline in isolation.

They’ve coined a term the intersection of fundamental, technical, and quantitative analysis; Quantamentals.

Before presenting the results, Chris walked us through the fundamental (value and quality/profitability) and technical (low volatility/low beta, time-series momentum, and cross-sectional momentum) factors used in their models. This included back tests of each factor on a stand-alone basis.

After laying that groundwork, we moved into a series of back tests which analyzed the results generated by combining these fundamental and technical factors in a variety of different ways. Needless to say, the results were very compelling and worth a look for anyone interested in markets.

The entire presentation was filled with a ton of valuable research and insights that the short summary above cannot do justice. The last slide also included a number of resources available for those interested in learning more about their research and approach. I’d highly encourage you to check it out if you haven’t already. Please email Barbara@cmtassociation.org for access.

Thanks again to both Larry and Chris for taking the time to share their insights with us. It was a great topic to kick off the year and get us all thinking about how we can improve our approach as market participants in 2020.

This is the fifth installment of a periodic series rerun chronicling the history of the street. The series originally ran in Technically Speaking beginning in September 2000.

It’s Inauguration Day, April 30, 1789.  The “Wall” is gone, but the granite blocks remain as part of the City Hall building also located on Wall Street.  George Washington stands just inside the balcony of City Hall, recently re-named Federal Hall, about to take the Oath of Office.  At his side is Major Leonard Bleeker, who had been with Washington for the British surrender at Yorktown.  As the men wait, Bleeker, peering through the grand archway leading to the balcony, watches as the events unfold in the streets below.  Also watching from the second story window of his home across the street is Alexander Hamilton, future Secretary of the Treasury.  Though there remains little to show today’s visitor of this particular event, these two men, Bleeker and Hamilton, would be participants in a separate event, the manifestations of which still can be seen.

On Wall Street today, there stands a statue of George Washington on the spot where he took the Oath of Office.  If you stand there and look across the street as Washington must have you will see the end result of the work begun by Hamilton, shaped by Bleeker and as integral to the building of the new nation as the events taking place on that balcony in 1789.  For at the corner of Wall and Broad Streets, across from Federal Hall and within easy sight of Washington’s gaze, today stands the New York Stock Exchange.

From Humble Beginnings

The New York Stock Exchange came into existence because the United States of America needed a loan.  When Hamilton was made Secretary of the Treasury, his first job was to clear up the problem with the Continental Currency. With no tax and poor credit after the Revolutionary War, the Continental Currency had depreciated to about 1% of face value.

To re-value the currency, Hamilton knew he first had to establish good credit by paying off the war debt.  Hamilton’s plan to pay off that debt and re-value the dollar was to issue Treasury bonds.  In buying these bonds, the purchaser would be lending the government money, for which he could expect to receive interest payments.  Thus, on the morning of March 1, 1792, at 22 Wall St., the first of $7 million in government bonds were auctioned.  They paid 6% interest.  The event was so popular that it’s been going on almost continuously for over 200 years!

Hamilton’s bonds and the subsequent interest in the auctions brought about a coalition of brokers who decided to specialize in this instrument exclusively.  On May 17, 1792, these brokers signed the Buttonwood Agreement, taking its name from the shade tree under which they would meet.  By this agreement, they promised to trade only with each other and charge the public a commission of not less that 1/4 %.  This agreement is generally looked upon as the beginning of the “Big Board” and the broker who formed it, whose signature appears first on it and who is most responsible in organizing the individuals who made Hamilton’s auctions possible, was Major Leonard Bleeker.

Incidentally, as a by-product of this auction, the term “stock market” came into use.  Although the first instruments auctioned were bonds, the paper on which they were printed was known as printer’s stock paper and therefore the auction market in which these securities were traded became known as the “stock market.”

Editor’s note – For those of you outside of New York, Bleeker Street is a rather well-known street in the Greenwich Village section of Manhattan. Interestingly, Bleeker Bob’s records, an institution in the 70s, was not on Bleeker Street.

On January 21, 2020, 20 members of the Minnesota Chapter met at Piper Sandler’s headquarters to hear a presentation by John Kolovos, CFA, CMT, Chief Technical Strategist at Macro Risk Advisors.

John blends traditional forms of technical analysis with quantitative methods and believes technical things happen for fundamental reasons. He cited factor trends as among the most important because active managers are focused on factor tilts and trends tell which ‘ponds’ to swim in. He discussed his 2020 price target of 3455 on the S&P500 and the process he used to arrive at his estimate.

The long-term uptrend remains well established since 2009, with 2994 as the lower limit and 3915 as the upper limit, with his target is the average of the two. He noted that we are closing in on the target early but will likely see the rate of change slow throughout the year.

Additional markets discussed included copper, which he sees as breaking a reverse H&S pattern towards 300 and oil, which he sees as working through a three-leg correction towards $67/barrel. He mentioned that while $67 may be attainable, it is best if prices remain below it based on his review of the period 1989-1991. During this period, oil was in a secular bear market, similar to today. As tensions rose in June/July it was likely the presumption that stocks would consolidate and not collapse, but oil broke the dam with the breakout above well-defined resistance. Stocks broke down, eventually collapsing an additional 16%.

This is a blog post first published in 2013 on the New Zealand-based etfhq.com site, led by the author Derry Brown. That site is now inactive. The link for the original story is http://etfhq.com/blog/2013/03/02/top-technical-analysts/

My first brush with Technical Analysis was not a good one and I was left asking the question “Does Technical Analysis work?”  There was plenty of evidence to suggest Fundamental Analysis worked (Warren Buffett has billions of dollars of evidence).  But Fundamental Analysis really doesn’t suit my personality, so what were the other options?

Everywhere you go online there is another guru selling the latest TA system accompanied with confusing-looking charts.  I decided that if there wasn’t a long list of very rich Technical Analysts out there then I had lost enough money using TA and was ready to quit.  To my delight I discovered many successful traders and investors who had the track record to prove that Technical Analysis does work.  Here is a list of the traders I found particularly noteworthy:

The World’s Best TA Traders:

Marty Schwartz

Originally a stock analyst, but got sick of having to write bullish investment advice on overpriced companies.  He developed and combined several technical indicators in an effort to determine lower risk entry points for his trades.  Schwartz found success when he shifted to technical analysis and focused on mathematical probabilities.

He ran his account up from $40,000 to $20 Million and also won the U.S. Investing Championship in 1984.  When asked if Technical Analysis works, he replied, “I used fundamentals for nine years and got rich as a technician.”  A big advocate of moving averages, Schwartz identifies healthy stocks by looking for positive divergences in price action over the broad market.

They (traders) would rather lose money than admit they’re wrong …  I became a winning trader when I was able to say, “To hell with my ego, making money is more important” – Marty Schwartz

Mark D. Cook

Lost all his capital several times while learning to trade, including one occasion when he lost more than his entire net worth.  In 1982, he sold naked calls on Cities Service that expired deep in the money.  His account dropped from $165,000 to a deficit of $350,000 in a matter of days; a total loss of $815,000 when taking into account for the money that he lost in his family’s accounts.

Not one to give up, after five years Mark had totally recovered from the losses but vowed never to sell another naked option.  He attributes his turn around in success to the development of what he calls the ‘Cumulative Tick Indicator’.

There is a widely used indicator called the ‘Tick’ that measures the number of NYSE stocks whose last trade was an uptick minus the number whose last trade was a downtick.  When the ‘tick’ indicator is above or below a neutral band the ‘cumulative tick indicator’ starts to add or subtract the ticks from a cumulative total.  This works as an overbought and oversold indicator.  When it reaches extremes of bullish or bearish readings, the market tends to reverse direction.

In 1989, Cook finished second in the U.S. Investing Championship trading stocks and in 1992, after shifting to options, he won the championship with a return of 563%.  Now he trades options, holding them 3-30 days and day trades S&P 500 and NASDAQ futures.

To succeed as a trader, one needs complete commitment … Those seeking shortcuts are doomed to failure.  And even if you do everything right, you should still expect to lose money during the first five years …  These are cold, hard facts that many would-be traders prefer not to hear or believe, but ignoring them doesn’t change the reality. – Mark D. Cook

Victor Sperandeo

An options trader and technical analyst who had a string of 18 profitable years clocking an average return of 72%.  His first loss was in 1990 with a 35% drawdown.

He described his style as only taking risks when the odds are in his favor.  After an extensive two year study he identified ‘life expectancy’ profiles for market moves.  For example he noticed that an intermediate swing on the Dow during a bull market is typically 20%.  After that 20% has been realized the odds of further advances are diminished significantly.

Understanding this makes a big difference he says, like when a life insurance policy is written the risk profile of an 80-year old is very different from that of a 20-year old.  Sperandeo believes that the most common reason for failure with technical analysts is that they apply their strategies to the market with no allowance for the life expectancy of the bullish or bearish move.

These days, Victor is the President and CEO of Alpha Financial Technologies, which is widely known for its trend-following, futures-based indices: The Diversified Trends Indicator, The Commodity Trends Indicator, and The Financial Trends Indicator.

The key to trading success is emotional discipline.  Making money has nothing to do with intelligence.  To be a successful trader, you have to be able to admit mistakes.  People who are very bright don’t make very many mistakes.  Besides trading, there is probably no other profession where you have to admit when you’re wrong.  In trading, you can’t hide your failures. – Victor Sperandeo

Ed Seykota

THE pioneer when it comes to computerized trading systems.  Inspired by the work of Richard Donchian, he began developing futures trading systems in the 1970s.  Seykota tested and implemented his ideas using an IBM 360.  This was well before the days of online stock trading.  Back then, such computers were the size of a large room and were programmed using punch cards.

Originally he wrote trend following systems with some pattern recognition and money management rules.  By 1988, one of his clients’ accounts was up 250,000% on a cash-on-cash basis.  Today, it is reported that his daily trading efforts consist of the few minutes it takes him to run his computer programs and generate the new signals.

Ed attributes his success to good money management, his ability to cut losses and the technical-analysis-based systems he created.  He refers to fundamentals as “funny-mentals” explaining that the market discounts all publicly available information making it of little use.

There are old traders and there are bold traders, but there are very few old, bold traders. – Ed Seykota

World’s Richest TA Traders:

I was very happy to discover that the Forbes Rich List was scattered with investors and hedge fund managers who have profited handsomely despite giving fundamentals a back seat.  Here are my favorites from the 2012 list:

2012 Forbes – #82 James Simons – 11.0 Billion

Sometimes referred to as the “Quant King,” he is also a math guru and a very smart cookie who studied math at MIT and got a Ph.D. from UC Berkeley.  Simons deciphered codes for U.S. Department of Defense during Vietnam and went on to found Renaissance Technologies in 1982 and at the start of 2013 was managing over 15 billion. [Editor’s note: one of the books referenced in the President’s Letter, The Man Who Solved The Markets, is about Jim Simon.]

He co-authored Cherns-Simons theory in 1974; a geometry based formula now used by mathematicians to distinguish between distortions of ordinary space that exist according to Einstein’s theory of relativity.  In addition to this, it has been used to help explain parts of the string theory.

Renaissance Technologies is a quantitative hedge fund that uses complex computer models to analyze and trade securities.  A $10,000 investment with them in 1990 would have been worth over $4 million by 2007.

We are a research organization… We hire people to make mathematical models of the markets in which we invest… We look for people capable of doing good science, on the research side, or they are excellent computer scientists in architecting good programs. – James Simons

The flagship Medallion Fund trades everything from Pork Bellies to Russian Bonds.  In 2008 the fund forged ahead another 80% even after the 5% management and 44% performance fee.  More recently 9.9% returns were seen net of fees through the end of July 2012.  Unfortunately, the Medallion fund is now only open to employees, family and friends.

The key to the success of Renaissance Technologies has much to do with the people they hire; PhDs and not MBAs. About a third of their 275 employees have PhDs.  Those on the payroll include code breakers and engineers, people who have worked in computer programming, astrophysics and language recognition.

They also look for people with creativity.  Simons says that creativity is about discovering something new and you don’t do that by reading books or looking in the library, you need ideas.

Everything’s tested in historical markets.  The past is a pretty good predictor of the future.  It’s not perfect.  But human beings drive markets, and human beings don’t change their stripes overnight.  So to the extent that one can understand the past, there’s a good likelihood you’ll have some insight into the future. – James Simons

Forbes 2012 #88 – Ray Dalio – 10 Billion

Placed his first trade at the age of just 12, studied finance at Long Island University and got an MBA from Harvard in 1973.  Dalio traded futures early in his career and founded Bridgewater Associates in 1975 when he was just 25.  From the moment he started managing money, Dalio kept notes in a trading diary with the hope that his ideas could later be backtested.

Now king of the rich hedge fund industry, Dalio controls the world’s biggest hedge fund, Bridgewater Associates, which has about $130 billion in assets.  His flagship fund ‘Pure Alpha’ has had an average annual return of 15% from 1992 – 2010 and has never suffered a loss over 2%.  Big bets on U.S. and German government bonds saw his funds surge about 20% in 2011; a year where most hedge funds struggled.

Dalio focuses heavily on understanding the processes that govern the way the financial markets work.  By studying and dissecting the fundamental reasons and outcomes from historical financial events he has been able to translate this insight into computer algorithms that scan the world in search of opportunities.  He says by doing this research it provides “a virtual experience of what it would be like to trade through each scenario.”

Ray is particularly interesting because he does not believe in an approach devoid of understanding fundamental cause-effect relationships.  He has however been able to use technical analysis to identify mispriced assets based on fundamental information.  So to say that Ray gives fundamental analysis the back seat to technical analysis would not be entirely accurate.

Well-defined systems, processes and principles are his key when it comes to making investing decisions.  All strategies are backtested and stress tested across different time periods and different markets around the world to ensure that they are timeless and universal.  The strategies are all about looking at the probabilities and extreme caution is exercised; for a hedge fund Bridgewater uses relatively low leverage of 4 to 1.

While the hedge fund industry as a whole has an average correlation to the S&P 500 of 75%, Dalio claims to have discovered 15 uncorrelated investment vehicles.  Bridgewater focuses mostly in the currency and fixed income markets but uses powerful computers to identify mispriced assets on dozens of markets all over the world.  To find so many different uncorrelated investments requires stepping well beyond the realm of the stock exchange.

I learned to be especially wary about data mining – to not go looking for what would have worked in the past, which will lead me to have an incorrect perspective.  Having a sound fundamental basis for making a trade, and an excellent perspective concerning what to expect from that trade, are the building blocks that have to be combined into a strategy. – Ray Dalio

2012 Forbes – #106 Steven Cohen – $8.8 Billion

Now a well-known force on Wall Street due to his world class performance and high volume of trading which accounts for about 2% of the daily volume on the New York Stock Exchange,  Steven started trading options in 1978 and made $8,000 on his first day.

He founded hedge fund SAC Capital in 1992 with $25 million in assets.  By the end of 2012 SAC had about $13 billion under management across 9 funds and had averaged 36% net return annually.  It is reported however that SAC suffered a loss of approximately 15% in 2008.  Its flagship fund was up 8% in 2011, a year in which the average hedge fund was down 5% and up again in 2012 8% through to August.

Steven keeps his activities very secretive but his style is understood to be high volume hair-trigger stock and options trading.

The old guard wasn’t crazy about me; I used to hear it all the time … Most of the old-school had no belief in anything that wasn’t based on fundamental analysis … We were trading more than investing, and people frowned on it, they looked at it and didn’t want to partake.  Finally, they said, ‘Shoot.  He’s making money.’ And they started copying me. – Steven Cohen

He believes that 40% of a stock’s price fluctuations are due to the market, 30% to the sector and 30% to the stock itself.

Despite the great performance of SAC Capital their best trader makes a profit on 63% of their trades while most of the traders are profitable 50-55% of the time.  Interestingly 5% of their trades account for virtually all their profits.  Something to keep in mind the next time you get a spam email claiming that you can buy a 95% accurate ‘Stock Trading Robot’.

Steven attributes the success of SAC to the breadth of experience and skills found in the people working for the firm.  They look for traders who have the confidence to take risks, those who wait for someone to tell them what to do never succeed.

You have to know what you are, and not try to be what you’re not.  If you are a day trader, day trade.  If you are an investor, then be an investor.  It’s like a comedian who gets up onstage and starts singing.  What’s he singing for?  He’s a comedian. – Steven Cohen

Forbes 2012 #330 – Paul Tudor Jones II – 3.6 Billion

Both a discretionary and systems trader who had his early success trading cotton futures.  Jones majored in economics at the University of Virginia in 1976 and got a job working for the cotton speculator Eli Tullis not long after graduating.  The greatest lesson that he learnt from Eli was emotional control, but he was later fired for falling asleep on the job after a big night out on the town with his friends.

In 1983 Jones began the hedge fund Tudor Investment Corp with $300,000 under management.  At the end of 2012 the fund was estimated to be managing $12 billion and had achieved an average annual return of 24%.  His firm’s flagship fund, BVI Global saw a gain of 2% in 2011 and 3.8% net of fees through to August 2012.

Much of his fame came from predicting the 1987 stock market crash from which he pulled a 200% return or roughly $100 million.  Jones claims that predicting the crash was possible because he understood how derivatives were being used at the time to insure positions and how selling pressure on an overpriced market would set off a chain reaction.  He says that you need a core competency and understanding of the asset class you are trading.

He attributes his success to a deep thirst for knowledge and strong risk management.  Jones is a swing trader, trend follower and contrarian investor who also uses Elliot Wave principles.  Most of his profits have been made picking the tops and bottoms of the market while often missing the ‘meat in the middle’.  Jones believes that prices move first and fundamentals come second.

A self-professed conservative investor who hates losing money.  He tries to identify opportunities where the risk/reward ratio is strongly skewed in his favor and does not use a lot of leverage.  In his eyes a good trader is someone who can deliver an annual return of 2-3 times their largest draw down.

Don’t be a hero.  Don’t have an ego.  Always question yourself and your ability.  Don’t ever feel that you are very good.  The second you do, you are dead… my guiding philosophy is playing great defense.  If you make a good trade, don’t think it is because you have some uncanny foresight.  Always maintain your sense of confidence, but keep it in check. – Paul Tudor Jones II

Top Traders’ Secrets

It is clear that Technical Analysis has worked in the past and continues to work for many successful traders and investors today.  But what are the common aspects that are being were used by these successful market technicians?

Unfortunately, due to the extreme secrecy surrounding nearly all of these traders, the specific methods that they use are not known.  However, I did uncover the following:

Common Themes

• Mechanical trading models were used by many of the most successful.
• They all used clearly defined systems and stuck to their rules.
• Many of them backtested their ideas before implementing them in the real market.
• Most of them surrounded themselves with exceptional people who had the expertise they needed.
• Many of them lost money for the first few years before hitting their stride.
• Each trading system suited their personality.

Common Personality Traits

• Low Emotional Reactivity – Staying calm; experiencing neither major highs nor lows.
• Detached – Understanding the market does what it does that they have no control over it.
• Humble – With little ego they have no challenge taking losses or letting profits run.
• Decisive – They reach decisions quickly and take action without second guessing.
• Conscientious – Self-controlled, disciplined, consistent, and plan-driven, they persevere.
• Confident – They have faith in their system and their ability to implement it.

It is undeniable that Technical Analysis does work, so ignore all those who try and tell you otherwise.  The next step is to make Technical Analysis work for you, and that first requires identifying or creating a system that suits your personality.

Please tell us what you do professionally.

I have a multifaceted career.  I manage money for clients in separate accounts using equities and options through a technical approach.  I run a subscription service for clients that wish to trade their own account.  I am also an Assistant Professor of Banking and Finance, Weatherhead School of Management, Case Western Reserve University.

How did you get there?

All of these roles have developed following a 22-year career trading and managing training desks at several Wall Street firms.  It started when I was laid off during the financial crisis and started Dragonfly Capital Management.  It was a consulting firm at first and then morphed into money management and the subscription service.  The teaching is the most recent. I began in 2015 on the introduction of a friend to the head of the Banking and Finance department.  We talked about my process for managing risk and that led to the first course, Using Options and Technical Analysis to Manage Portfolio Risk.  It expanded from there to now being a full-time professor.

Who was an early mentor in your career?

Early in my career I talked often with George Wellde, a former Vice Chairman at Goldman Sachs.  Later adding John McFarlane, who was at Salomon Brothers and then Tudor Investments.

What book/author was most influential in helping you understand TA?

The most influential book on TA for me was Steve Nissan’s book on Japanese Candlesticks.  Technical Analysts are visual people but Japanese Candlesticks are the most visual of our tools.

What do you like to do when you are not looking at markets?

When not looking at markets, or teaching about them, I like to spend time with family, walking to clear my head and drinking wine.

What brought you to the CMT Association?

It might surprise you, but despite that 22-year Wall Street career I was not aware of the CMT Association until after I was laid off.  I had worked toward the CFA at the suggestion of my employer but then learned of the CMT program through social media.  In my early days of social media, I would post charts on Twitter all day Saturday as part of my prep for the coming week.  The people I met through Twitter in real life introduced me to CMT.  I got my designation and developed many more relationships.  Now I chair the Admissions Committee and continue to promote the CMT Association to others on social media.

What is the most useful benefit of membership for you?

The most useful benefit of membership is knowing that those with a CMT designation can be trusted in this world of social finance, where there are pretenders and outright frauds, to have meaningful conversations about markets.

The CMT Association announced on Friday that Chris Cain, CMT and Lawrence Connors, of The Connors Group, are the 2020 winners of the CMT Association’s prestigious Charles H. Dow Award.

The pair received the Dow Award for their research, entitled “Quantamentals – Combining Technical and Fundamental Analysis in a Quantitative Framework for Better Investment Results,” a paper that demonstrates a unique approach to the application of technical analysis. They will be honored during the CMT Association’s 2020 Annual Symposium on April 2-3, 2020.

In addition to receiving the award recognition, Mr. Cain and Mr. Connors will give a presentation on the topic of “Quantamentals” during the 2020 Annual Symposium. Attendees will have the opportunity to learn firsthand about the development and implementation of this winning strategy, ask questions, and think critically about their own approach in the context of this new research.

Mr. Cain and Mr. Connors demonstrated that a combination of investment styles including fundamental and technical analysis within a quantitative, rules-based framework led to greatly improved performance.  They also discovered that identifying known factors in their model led to increased performance over the course of the last 16 years.

The winning paper will be available to read in full on the CMT Association website after its publication in the Spring 2020 edition of the Journal of Technical Analysis, which will be published in early March. The archives of previous award-winning papers are also accessible on the Dow Award page.

Since 1994, the CMT Association has presented the Charles H. Dow Award for excellence and creativity in technical analysis. This Award represents the most significant competition for recognition in the field of technical analysis. The papers honored with the Award have historically represented the richness and depth of the technical analysis discipline.

The National Association of Active Investment Managers (NAAIM) invites members of the CMT Association to submit research to their annual Founders Award.

The Founders Award is a research competition that draws entries from all over the world in the areas of computational finance, advanced algorithms, tactical investment management techniques, strategic investment strategies and numerous other topics, all designed to further our knowledge of the active investing world.

The competition is open to anyone involved in financial services, including academic faculty, researchers and graduate students, investment advisors, analysts and other financial professionals.

Papers need to focus on describing an investment technique, its pros and cons and the market conditions under which it is expected to fare well or poorly, or should explore topics in active investing that are of broad interest to the investment community.

The winning author will receive the following prize package:

• $5,000 cash prize and the opportunity to present the winning paper at the 2020 NAAIM Uncommon Knowledge conference, May 3-6, at The Westin Tampa Waterside
• Uncommon Knowledge 2020 registration, domestic coach airfare and one night lodging for one author of the winning paper.
• NAAIM membership for one year.

Deadline:  February 28, 2020

Final Paper (up to 30 pages) together with a required 750-1000 word abstract must be submitted electronically to info@naaim.org by 11:59 pm EST on Friday, February 28.

Winners will be notified on or before Friday, April 3, 2020.