Today we are profiling Goldenwise Capital Management.
Goldenwise Capital Management is a global multi-strategy firm that manages capital for qualified institutions, family offices and high net worth investors. Goldenwise is registered in the United States with the Commodity Futures Trading Commission (CFTC) as a Commodity Trading Advisor (CTA), and is a member of the National Futures Association (NFA).
In an effort to help QEP investors better understand Goldenwise Capital Management’s trading program and risk management we asked the following questions to Huakun Ding, Goldenwise’s Founder and Chief Investment Officer.
Market Philosophy and Trading Method
- What are your core beliefs about the global equities markets? What have you learned about these markets that led you to your current trading approach?
Global markets have some characteristics: they are closely correlated, they often have strong trends and they often have short-term inefficiencies.
Predicting market directions is not easy. However, analyzing and comparing relative value of some closely correlated markets is much easier. Using some leading markets as a reference, it’s easier to analyze and predict other markets’ directions. If you cannot catch a rabbit, you can catch a lagging turtle.
We study and compare the correlation, volatility, spread and divergence of different markets to identify strong global market trends, market inefficiencies and mispricing wherever they exist to achieve superior absolute returns.
- Can you describe your trading program?
My trading program is discretionary, proprietary, highly complex and based on mathematical model’s statistical probability. Futures and options are used in an attempt to profit from global market macro trends, market inefficiency and mispricing using sophisticated proprietary mathematically derived quantitative trading strategies. Global equity markets and volatility indices and highly liquid commodities are the main markets traded.
- How does your trading method work and what is the theory behind it?
Global markets are closely correlated, but the correlation changes sometimes. In addition, there are leaders and laggards in the markets. Their movements are correlated but have divergence sometimes, especially when markets are not efficient.
We monitor and study market correlation, volatility trading and short-term directional trading based on the identified market conditions, relative value and the predicted directions.
Our main trading methods: Relative value long/short + trend following + mean reversion
- What markets do you trade?
Exchange listed futures and options on Global Equity Indices (for example, S&P 500, DAX), Volatility Indices (for example, VIX) and some liquid commodities like gold.
- How much of the decision making is systematic and how much is discretionary?
We use a model-driven discretionary method. We use mathematical models and statistical models to analyze markets and generate trading ideas, but we execute trades manually.
- Futures and options is a zero-sum game. What type of market participants do you seek to capitalize on?
Our strategies are structured to capitalize on short-term market inefficiencies, mispricing and strong market trends.
Especially, when the market is in panic or feverish status (panic selling and panic buying with high volatility), there are mispricing and inefficiencies. Then we do arbitrage, long/short and short-term directional trading to take advantage of investors who are panicking, from hedgers who use over-priced volatility products to hedge their risk, and from big institutions who have margin problems or liquidity problems.
When a market has a strong trend, we employ trend following trading and seek to profit from slow investors who identify the trend later than we, and from big and slow institutions who build positions slowly and gradually because of their size, liquidity and cost control.
- Describe the role of each of the following types of analysis in your program: fundamental, technical, statistical, other.
Quantitative (statistical): Analyzing market data to identify trading opportunities, win probability and risk/reward ratio, generating trading signals, making trading plans and managing risk.
Technical: Identifying what other traders/investors are thinking and predicting their sentiment, the market’s next reaction, market’s next moves and volatility (Game Theory). We also use technical analysis for establishing exit points for limiting losses and taking profits.
Fundamental: Studying current macro market conditions and comparing them with historical conditions to analyze if historical regularity can work again. This can help us veto some trading ideas in advance. In addition, it helps us close out a wrong trade early before hitting stop loss limit.
- Do you believe your program will continue to be profitable as it has been in the past? If so, why?
A market always has volatility. Investors have emotion cycles. Panic and feverish markets are unavoidable. Market inefficiencies, mispricing and strong trends will happen again and again. This is what my program is designed to capitalize on.
- Do you think it will always work or it will stop working at some point?
When the market volatility is very low, the market does not move much, and there is no strong trend. Correspondingly, the trading opportunities will decrease. In that case, we decrease or stop trading for a while and wait for the next good opportunity.
- What type of market environment is good,bad, neutral for you and why?
Good: High volatility markets lead to the most mispricing and inefficiencies for us to attempt to capitalize on.
Worst: Market volatility and correlation have a sudden and sharp change at the same time. Our existing positions may have a loss and be closed out with or without hitting our loss limit during the change.
Performance and risk-management
- How long have you traded your current system/method?
About 5 years
- What is your average holding periods for gains and losses?
Average holding period 1-2 weeks for both gains and losses.
- Identify the best and the worst periods in your track record and explain why they happened.*
Best Period: 2010. Our Program typically, has low or negative correlation with the S&P 500 Index and has positive correlation with VIX (volatility index). Generally, when market’s volatility (VIX) is high, there are more good trading opportunities for the program. The program’s trading frequency increases, and its holding period decreases. In addition, we adjust our strategy allocation and position size based on the combination of Kelly Criterion (based on win probability and win/loss ratio) and max drawdown limit. If the market environment is very favorable (with high win probability and win/loss ratio) for some strategies, we increase our allocation to them, and vice versa.
In 2010, the VIX was high, and there were lots of inefficiency and mispricing in the volatility market, especially after the May 6th Flash Crash. There were many good opportunities that year. So we did lots of volatility trading (arbitrage and directional). In the favorable market condition, we increased our trading frequency and decreased our holding period. In addition, we had a good macro market view in 2010. That helped us have good market timing on some directional trades that year. Our very strong return in 2010 was attributed to a combination of high volatility + inefficient market + our precise macro market view.
Drawdown: Oct 2014. During the past several years, we have focused on equity index and volatility index products. I believe we have an edge in these areas, and I believe our performance also proves this. Past performance is not necessarily indicative of future results. Equity markets’ volatility was quite low in 2014, and there were few good trading opportunities for us, so we tried to expand our trading strategies to Crude Oil. The drawdown in Oct. 2014 was due to our loss on Crude Oil. We have realized that we have a relatively smaller edge in Crude Oil, so we have completely stopped trading Crude Oil since then. We will not trade Crude Oil until we improve our trading methodology in that market. We will only focus on products and strategies where we believe we have an edge. Our performance has improved since then. Past performance is not necessarily indicative of future results.
*Please note that the performance shown for this trading program from January 2010 through July 2013 is the proprietary trading performance of the Advisor’s principal, and such performance has been pro forma adjusted to account for the 2% management fees and the 20% incentive fees. The performance shown starting in August 2013 in the Net trading performance (net of 2-20 fees) of client accounts trading pursuant to the trading program. Please see the Advisor’s disclosure document for more information.
- What are your risk-management tools? Which one do you believe is the most important?
First, we focus on long/short, pair trading and spread trading to minimize our overall portfolio’s directional exposure.
Second, we use various hedging methods to hedge our risk when market changes.
Third, we use stop limits in an attempt to control our maximum loss in a market disaster.
We place risk control as a first priority and use various stress scenario tests and stop loss controls to achieve optimal risk/reward. Action is usually taken once any drawdown of 3% is reached intramonth (to reduce/close out positions or increase hedging); and in the event of approximately a 10% loss the entire portfolio is liquidated. Consistent returns with controlled volatility is the goal.
Most importantly, we trade markets with high liquidity, utilize an Alpha strategy (high win probability + high win/loss ratio) and prudent risk management.
- Do you use stops? How do you use them? Do you have max loss per trade/day/month?
Yes, we use stops. Before we trade, we make a trading plan and set the maximum risk for the trade. Our stop loss is set based on that plan.
Maximum stop loss limit based on entire portfolio is approximately -10%.
- Tell us a little about your background and from whom have you learned about the markets and trading.
During 2007-2009, I studied my second master degree in math finance at the University of British Columbia, and my research are was on modeling and pricing of derivatives and developing quantitative trading strategies with a focus on volatility arbitrage. I conducted extensive theoretical and empirical research in that area. I read hundreds of academic papers and hedge funds and quantitative trading firms’ strategies, and I believe I improved upon them. In the subsequent several years, I further improved my trading methods and risk management system.
- Why do you believe a QEP investor should open an account with you now?
My program’s best trading environment is highly volatile markets where there is a greater tendency for mispricing and dislocations between markets. I believe our past performance proves this.
The past two years volatility has generally been near record lows in stock indices and the VIX. This explains our modest net returns of 15.03% in 2013 and 6.93% in 2014. Past performance is not necessarily indicative of future results. The risk of loss in futures and options trading can be substantial.
I believe that most investors would agree that the stock market is potentially at a critical juncture. We have not seen a correction of 10% or greater in over 45 months from the date of this interview (04/01/15). The market may be significantly overvalued, and if this is the case, it is not a question of if but when we will experience a sharp increase in market volatility. I believe this will come sooner than later. Our program has little correlation with the stock market, and generally over performs when stocks under perform. Because of this, I believe now is a particularly good time to open an account with Goldenwise Capital Management.
For more information regarding Goldenwise Capital Management, contact us below.
The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable in light of your financial condition. Past performance is not indicative of future results.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS. YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES.
IMPORTANT RISK DISCLOSURE
Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. They are not suitable for all investors. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.
Managed futures accounts can be subject to substantial charges for management and advisory fees. The above number includes all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Regulations require managed futures performance to be calculated as a composite of all accounts of non qualified eligible persons trading the same program. This ‘averaging’ of individual account performance can cause individual performance to be higher or lower than the reported composite performance depending on several factors, including commission and fee levels and investment amount and duration. Some of the statistics above show rates of return for only the listed period (i.e. 12 mos, 36 mos, 5 yrs, 10 yrs), where rates of return for periods longer than the period shown may be higher or lower than those shown.
Investors interested in investing with a managed futures program (except those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFTC rules. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA’s management over at least the most recent five years. Investors interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs. Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document are considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
The information contained in the reports within this site is provided with the objective of “standardizing” trading system, managed forex, and managed futures account performance, and is intended for informational purposes only. It should not be viewed as a solicitation for the referenced system or vendor. While the information and statistics given are believed to be complete and accurate, we cannot guarantee their completeness or accuracy. As past performance does not guarantee future results, these results may have no bearing on, and my not be indicative of, any individual returns realized through participation in this or any other investment. No part of this document should be considered apart from the Disclosure Statements contained herein.
QEP = These programs are offered only to Qualified Eligible Participants as thterm is defined under CFTC Regulation 4.7. Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
Variable degree of risk
Transactions in options carry a high degree of risk. Purchasers and sellers of options should familiarize themselves with the type of option (i.e., put or call) which they contemplate trading and the associated risks. You should calculate the extent to which the value of the options must increase for your position to become profitable, taking into account the premium and all transaction costs. The purchaser of options may offset or exercise the options or allow the options to expire. The exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the option is on a future, the purchaser will acquire a futures position with associated liabilities for margin (see the section on Futures above). If the purchased options expire worthless, you will suffer a total loss of your investment which will consist of the option premium plus transaction costs. If you are contemplating purchasing deep-out-of-the-money options, you should be aware that the chance of such options becoming profitable ordinarily is remote. Selling (“writing” or “granting”) an option generally entails considerably greater risk then purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the market moves unfavorably. The seller will also be exposed to the risk of the purchaser exercising the option and the seller will be obligated to either settle the option in cash or to acquire or deliver the underlying interest. If the option is on a future, the seller will acquire a position in a future with associated liabilities for margin (see the section on Futures above). If the option is “covered” by the seller holding a corresponding position in the underlying interest or a future or another option, the risk may be reduced. If the option is not covered, the risk of loss can be unlimited. Certain exchanges in some jurisdictions permit deferred payment of the option premium, exposing the purchaser to liability for margin payments not exceeding the amount of the premium. The purchaser is still subject to the risk of losing the premium and transaction costs. When the option is exercised or expires, the purchaser is responsible for any unpaid premium outstanding at that time.
A spread is defined as the sale of one or more futures or option contracts and the purchase of one or more offsetting futures or option contracts. It should be recognized, though, that the loss from a spread can be as great as – or even greater than – that which might be incurred in having an outright futures or options position. An adverse widening or narrowing of the spread during a particular time period may exceed the change in the overall level of futures or option prices, and it is possible to experience losses on both of the futures or options contracts involved (that is, on both legs of the spread). In addition, spread trading increases transaction costs because the customers will be charged commissions on each leg of the spread.
This website may make certain references to the use of stop orders as means of limiting losses or protecting profits. Please note that there is no guarantee that any stop loss order will be executed at the stop price. Therefore, there can be no guarantee that placing a stop order will limit losses or protect profits. Accordingly, no representation is being made that the trading in customers’ accounts will be profitable or will not result in losses as the result of placing stop orders.
PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS ACCOUNT DOCUMENT OR BROCHURE OF THE TRADING ADVISOR IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF THE COMMODITY TRADING ADVISOR’S DISCLOSURE INFORMATION. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS ACCOUNT DOCUMENT OR BROCHURE.
CLIENTS PARTICIPATING IN THE TRADING ADVISOR’S TRADING PROGRAM ARE CAUTIONED THAT ANY PERFORMANCE INFORMATION SET FORTH IS NOT INDICATIVE OF, AND HAS NO BEARING ON ANY TRADING RESULTS WHICH MAY BE ATTAINED IN THE FUTURE BY THE TRADING ADVISOR OR A PARTICIPATING CLIENT ACCOUNT, SINCE PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THERE CAN BE NO ASSURANCE THAT A PARTICIPATING CLIENT WILL MAKE ANY PROFITS OR WILL BE ABLE TO AVOID INCURRING SUBSTANTIAL LOSSES.
AN INVESTMENT IN THE TRADING PROGRAM INVOLVES A HIGH DEGREE OF RISK, INCLUDING THE POSSIBILITY OF A TOTAL LOSS THEREOF. THE TRADING ADVISOR AND ITS AFFILIATES MAY ALSO FACE CERTAIN CONFLICTS OF INTEREST IN RELATION TO MANAGING MULTIPLE CLIENT ACCOUNTS. EACH RECIPIENT OF THIS INFORMATION SHOULD CONDUCT SUCH AN INVESTIGATION AS IT DEEMS NECESSARY TO ARRIVE AT AN INDEPENDENT EVALUATION OF AN INVESTMENT IN THE PROGRAM, AND SHOULD CONSULT HIS, HER OR ITS OWN LEGAL COUNSEL, , ACCOUNTING, AND TAX ADVISORS TO DETERMINE THE CONSEQUENCES OF SUCH AN INVESTMENT. THE INFORMATION SET FORTH IN THIS DOCUMENT AND IN THE ACCOMPANYING PRESENTATION IS NOT TO BE DISTRIBUTED OR FORWARDED TO ANY OTHER PERSON. PER CFTC RULE 4.7, THIS DOCUMENT IS FOR QEP (QUALIFIED ELIGIBLE PERSONS) ONLY.
THIS COMMUNICATION IS NOT TO BE CONSTRUED AS AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITY OR INVEST IN ANY MANAGED FUTURES PRODUCT. ANY SUCH OFFER OR SOLICITATION CAN BE MADE ONLY BY MEANS OF A 4.7 EXEMPT DISCLOSURE DOCUMENT AND TRADING AUTHORIZATION AGREEMENT (WHICH CONTAIN A DETAILED DESCRIPTION OF RISK FACTORS).
The factual information on this website has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by eFloorTrade or its affiliates. eFloorTrade maintains no opinion with regards to the aforementioned Commodity Trading Advisor.
In light of a client’s investment objectives, it is entirely up to the client to determine whether or not this is an appropriate alternative to meet those objectives.