Market selection, shorting & managing volatility

Transcript

Andrew Swanscott 0:02: Welcome to the trading panel of the show where we assemble a group of traders or a panel of traders, I should say. We talk about all things markets and trading. As you can see on the screen, we've got a couple of the usual suspects. We've got a special guest and our first bird on the show. So I can't wait to hear the story around that. Jason, how's your week been?

Jason Kurz 0:20: Good. How about you, Andrew?

Andrew Swanscott 0:22: It's been pretty good. We're getting some colder weather now. So I was just saying to Pavel before, it's that transition from warm to cold and so everybody's sniffling. So hopefully I don't sneeze and cough too much on the show today. You get much where

Jerry Parker 0:37: you're at?

Andrew Swanscott 0:39: It doesn't get that cold. Sorry, I'm being a little dramatic, but colder than what it has been the last few months. So yeah, exactly. Pavel, looks like he's got some warm weather. He's got a bit of a tan. I'm jealous. Well, it

Pavel Kýček 0:56: was about the last two days. It's freezing here in fact. So it's snowing here again. Weekend was nice and now it's under zero here in Czech Republic again. So yeah. Oh my goodness. Also a little bit better, especially in Spain, but yeah, we have to wait a bit one more month.

Andrew Swanscott 1:14: And Jerry Parker, welcome to the trading panel.

Jerry Parker 1:20: It's good to see Thanks for having me. I'm glad to be here.

Jason Kurz 1:23: Thanks for coming, Jerry. We've been trying to talk I've to been trying to get Jerry week after week. I'm like so excited to get Jerry on here. There's no better person to have on this show than than Jerry to just kind of have a good conversation about trend following, systematic trading, and so on. So, we're we're all excited to have you and the bird. Petey is the name. Right? That's right. Petey Akakatil.

Jerry Parker 1:48: Not sure how old she is. She's a rescue. So she we got her in 2018. April 2018. So but, yeah, she's is in here in my office every day, so we just kinda trade together. Well, I don't trade. So I just I watch the markets. We watch the markets together.

Jason Kurz 2:10: No no predictions together.

Jerry Parker 2:12: Exactly. Exactly.

Jason Kurz 2:15: So how long so you've been I remember there was one time it's kind of funny when I was thinking of saying this to Andrew before we got on. But I remember there was one time, I think you mentioned you had the birds in the other room one time, and you did an interview, and people were wondering where the birds were. Was that is that right?

Jerry Parker 2:35: Well, yes. And so I would get really self conscious about the birds flying around on Twitter, Spaces, or Clubhouse, and podcast. And then but then I got bolder, and they're just usually always with me. And and then once I didn't have them with me and people on the spaces got really nervous. Like, they wanted to hear the birds in the background. And they come across the microphones very loud, but they're hardly making a noise to me.

They don't sound loud at all. But people tell me that they're very, very loud. So I apologize if they get too crazy. But there is still one podcast that I do. You know, I did it yesterday on Schwab Network. I'm still too chicken to bring the birds on. I don't know if they would invite me back. They're pretty I think they're pretty serious versus most of the podcasts I'm on. We we try to have a lot of fun and Yeah. Haven't done that yet.

Jason Kurz 3:37: I mean, I love it. I think it's it's it adds character. I'm an animal lover too, though. You know? Like, I always like to see people with animals in their background. I got four dogs and two cats and all types of stuff that pops up in the background for me. So it's just I think it's awesome. I've never actually heard anybody say anything but, hey. That's super cool. Jerry has birds in his videos.

Jerry Parker 4:00: Yeah. I guess it depends on what I say too. But if I said something pretty kooky, I think people would say, yeah, he's really losing it with having all these animals and birds around him. But my wife was out walking the dogs one day, 2018, and she's an animal lover. She's very knowledgeable about animals. And so this bird flew at her head. And she wasn't afraid, but she wasn't sure what kind of bird it was.

So she was, like, doing a selfie to see, what's on my head. Mhmm. And so she brought the bird inside, and I was like, oh, I don't like birds. Get this bird out of here. And and like all good wives, she immediately ordered a cage off of Amazon. And so that's how we know exactly the day we got her. And then the bird and I just bonded after a week or two and was just like best friends for life. And that's the story of the bird. So it can happen.

And people are very skeptical about how great little birds are and how much fun they are. But as I was. But one of these days, if you get a chance, I recommend giving it a shot. I have five dogs as well. The birds are much more manageable.

Jason Kurz 5:12: Oh, yes. Do do they get along with the dog does the bird get along with the dogs?

Jerry Parker 5:16: Well, we have labs. And one of the labs is young, and she has a look in her eye that we try to Yeah. Keep them But we actually have a picture of from a few years ago of PD on the back of the older lab. And so we didn't wanna try that again, but it just happened one day. We were watching. But I don't recommend it. You know? You never know what can happen. See, really docile dogs do a lot of crazy things because they're hungry or something.

Jason Kurz 5:50: No. I love it. I think it's cool, and I'm glad that you feel comfortable here to do that because it's, to me, it's awesome. I think it just adds something to the show, and every show you come on, I think it's it's a lot of fun. So Yeah. You know, hopping right into it, Jerry, can you give people I know there's most people know who you are at this point. You know, we all know who you are, but can you give a little bit of a background on yourself?

Jerry Parker 6:13: Well, I worked for Richard Dennis in the turtle program in '19 I went to Chicago in 1983. And, so I just, have been doing that trend following and really just in about the same way that we were taught. Yeah. It was many years ago, almost forty years ago. Over forty years ago. And, yeah. So, I just bought the trend following idea hook, line and sinker. And I thought it was the greatest thing ever.

But I thought it was great before I worked for Richard Dennis. I had read a bit about it and read books and newsletters and I was sort of interested in Marty Zweig and got his newsletter and he was kind of a trend guy. So it was just a great situation for me to go to Chicago and learn how to trade for Richard Dennis and build that card. It sort of was already something I already thought I knew something about.

But I kind of really didn't compare to what they taught us, of course. And then that program lasted four years and I started Chesapeake in 1988. And we've just been trading trend following strategy the whole time. And nothing but the trend following strategy. And sort of always more or less a preference to longer term trend following.

And I was always obsessed with diversification and Rich preached diversification that was really the most, one of the most important things. Your risk control, diversification, following rules, following systems, having a good back test, all that stuff. So, so now we're, I think we may be the only CTA that trades a full portfolio of currencies, commodities and bonds and plus single stocks.

So we trade 400 markets and about 200 of those are single stocks. And so that's my attempt to not be so concerned about being part of managed futures or what is, what is a managed future CTA supposed to do. I kind of wanted to be a trend follower first and put trend following the best light possible with all these markets, all these stocks, long and short, single stocks. Most CTAs, they trade indexes. And so that was sort of my goal.

And now we have an ETF that has that same program that's available to everyone in an ETF format with these 400 markets and 50% stock. So it's really kinda different and unusual. And another thing too that's different about Chesapeake is we let profits run. We don't have a money management overlay like 99.9% of managed future CTAs that do some volatility management, correlation management.

So an overlay on top of your system to reduce trades or increase trades when the volatility changes or the correlations change. So we just put the trade on at the entry and let it run without doing anything to it. So we're like, these days we're pretty afraid every day coming in and watching our cocoa position. Because we haven't scaled it back at all. We've just been kinda crazy holding onto it. It's a winner, you're supposed to let profits run.

Take small losses, cut losses short. So that's what we do. And that's enough. That's enough about my history because that's the highlights, I think. And probably a lot of people already know that about me because I say the same darn thing every time I'm on a podcast. I can't stop myself.

Jason Kurz 9:44: But that's part I think also part of the reason why that's significant is because that's a significant part of your personality. Your personality and being a trend follower. Like, isn't trading isn't supposed to be exciting or fun like gambling. Trading is supposed to be doing the same thing over and over again, having the discipline to do so. That's what makes you a good trader. Well, no matter what type of trader you are.

So I think even if you say the same thing, the reason is because that's the discipline that you have to do this all these years, and that's something that people can always learn a lot from. So just getting just to name the ETF, what is the name of the ETF?

Jerry Parker 10:22: The symbol is TF PN, and it's Blueprint Chesapeake Strategic Trend something. I can never remember the name of it. Believe it or not, it's so long. But it's Blueprint Chesapeake. I know the word trend is in there. But it's TFPN and it's been going since about last July.

Jason Kurz 10:45: So another thing to talk about too is you brought up Coco. And you and I have talked about this before. I'm I'm one of the traders too just like you. I don't wall target. I don't. But I'm sitting here every day just in fear of this Coco position because it's driving the whole portfolio. If Coco has a down day, the portfolio does. You know, how did you how do you handle that type of pressure?

Jerry Parker 11:10: Well, it's it's really difficult. I mean, it's super difficult. I think I remember Rich saying, profits are can be destabilizing. You know, you can get a lot of when you're losing money and you especially have a lot of trades, losing trades in a row which trend followers can do, you have moderate profits that turn into losers and you kinda like those small profits, you don't like them to turn into losers.

It really weighs on you and it makes it difficult to have a good day. Or the worst thing too is it could impact your ability to carry out the trades and do all the trades you're supposed to do and do only those trades. But with something this big, gracious, it can really just destabilize you. The bigger it gets, the more money you make, the more nervous or worried you get and you wanna get out.

And I think that's one of the biggest rules about trading, especially when you do a back test. Is that the computer says like, can hardly be too long term. You can hardly hold onto those profits long enough. You're a human, you really are gonna just try everything in your bones to get out of that trade with any semi legitimate reason possible to take that profit. It's just how we're built.

And so it's really difficult to ask the computer, please optimize this for me to the trailing stop. And the computer may say, oh, you gotta be really long term. It's really difficult for people to accept that and do that. Now, I cheat a lot on that now because I trade 400 markets. So, it's one out of 400 markets. Back in the turtle years, it was one out of 25. And then, even, not long ago, was maybe one out of 75 or a 100.

But one out of 400, it's so immaterial. And it just, and it's, and that's kind of a bummer because I'm not having these eye popping returns that a lot of managed future CTAs are having that have cocoa as a material part of their portfolio. I subscribe to this idea that about five to 10% of my trades are gonna be outlier trades per year. They're gonna be the ones that make all the money. So I've got 40 of those I'm looking at, every year.

And some people may have two or four if they only trade, just a few markets. So, but that's the it's good and bad. I don't stress about cocoa at all because I'm happy for it but it's just one out of 400. And I need a lot more. I need 39 other markets to really make my year. And I need 39, so I need a lot of bad things happening as well to get my ass handed to me. But it used to be a much bigger deal than it is now.

But now I have another psychological problem. I'm jealous of everyone making, I'm jealous of Mulvaney making 50% in February and March, probably all due to cocoa.

Jason Kurz 14:03: No, I get that. It's well said. It's also part of when you're a money manager, know, me being a PM, the amount of money I'm managing is nowhere near the amount of money that you're managing. So of course, it's gonna be different. I'm going to have less products I'm trading most of the time. And also, when you're trading to that level that you're on, you're also, your biggest goal is probably to protect your clients' money every single day.

And so it's like, getting used to those two different worlds, so to say. But I think it's cool to know and cool to also hear from you because, for me, it's been very stressful because it really is running my portfolio. Yes, it's been cool returns, but also, the down days are like, oh, it's just running it up and down every which direction. And I think it's hard, like you said, profits are destabilizing.

You know, I think that's a really, really key point that you just said there. I hope a lot of people picked up on that.

Jerry Parker 15:00: It could be worse. And I've been in worse situations. And I'll tell you a situation that's way worse, and that is you don't have cocoa. And you thought about it. I've heard this recently from friends on Twitter. I thought about it. I used to trade it, but I took it out or I just skipped this trade. And cocoa, almost a lot of people confirm this with their backtest that cocoa is, a really bad market in the backtest.

And so I don't believe that is worth, paying attention to. I think that you should, trade all the markets that are liquid and help with diversifying obviously. I don't go through my 400 markets and optimize them to make sure I've got the 400 best performing or 200 best performing stocks. I think there is a wisdom in trading all markets and not really relying too much on history of any one particular market.

And so my response to cocoa never really had never making money for maybe fifteen, twenty years was to trade two cocos. We trade London and New York. So, and with the coffee as well. We trade three coffees. We trade Brazil as well. You know, wheat's another one that's not very good. And I think I trade six contracts of wheat. So, you just never know. You can't predict these markets. You need to do a back test of hundreds and hundreds of markets.

And over many, many years, and take away from that your performance on an average. You know, how did the average market do versus trying to look at the numbers as it relates to any one market.

Jason Kurz 16:37: I think that's cool. You know, the idea of people taking stuff out of their portfolios, maybe we could pass that around the panel too, which is I think that, just like you said with Cocoa, I've heard that so many times. I actually posted a chart showing all my Cocoa trades over the last ten years and how bad they were. Like there was a bunch of, they're just chopped up over and over again until this final one.

And just kind of showing, just sticking with your trading plan, your strategy, at some point, you will get a good trend out of something that might look choppy for a long time. So I'm wondering, Andrew, Kabul, what would make you take something out of a portfolio? Like something out of your algos, you're done trading this specific ticker.

Pavel Kýček 17:28: Low liquidity, really untradeable conditions other than backtested, like, backtest from the past, definitely not something like that because I like what Jerry is talking about, that you have to be broadly diversified across big universe of basically assets or even in one asset, if someone is trading stocks or crypto algorithmically, for example, you never can pick just some universe.

You always have to have some kind of ranking mechanism based on which you are trading, which is also if I can, one of my questions to Jerry, because he told us that he's trading half of his portfolio in stocks, basically single stocks.

And what I would be interested in is what kind of mechanism, if I'm not going too much into secret sauce here, what kind of mechanism you are using for basically choosing these 200 stocks if this is some kind of ranking based of momentum or what is the mechanism? Because 200 stocks, yeah, it is a lot, but from the stock universe, it's still very, very small number of tradable universe.

Jerry Parker 18:55: Right. So I think the way to look at the stocks is to look at is in the same way that you look at all the other markets. So, in the currencies, we trade all the currencies as long as they're liquid. And in the commodities the same way. We're trying to get our hands on more and more commodities. We trade them all like almost all CTAs, if at all possible. You trade whatever you can get your hands on.

We even trade sunflower seeds and white and yellow maize. And so, we really push it, push the limit on the volume the liquidity in those markets. And the same way with interest rates. We trade a lot of interest rates. Every bond future, you know there was one bond future that I don't think too many people knew that it existed. We added it. It's The US three year. So I've only added it within the past six months or whatever.

But, so we're always on the lookout. I read, newsletters of other CTAs of what they're trading, especially on the currency front. Because a lot of the currencies we trade, they're not, there are no futures. We trade a lot of the ETFs in fixed income that you don't get with the future, tips, junk, muni bonds, mortgage backs, corporate bonds. Those are not there's no future. So, we wanna take this total mindset. They're all liquid.

We can go long and short though. So, take this same mindset into the stock world where there's thousands and thousands of stocks. So how do you do it? Well, you certainly don't spend a lot of time thinking about it because we didn't spend any time thinking about the futures. The CME created it, we traded it. And it's that simple. So, I do see that people do get a certain level of anxiety when they think about these stocks, as do I.

But basically, we just choose the type of, stocks we wanna trade that's gonna give us a lot of diversification and sufficient liquidity. And I have chosen to trade small stocks like Mhmm. Less than 10,000,000,000. So, we just, yeah, sort of like with this theory that we want some commodity exposure, you can get quite a bit of commodity exposure through stocks. And we want small companies that have maybe one story. They're not very diversified.

So, they may be involved in temper or oil or some one product or one service that they do. So, I don't want them to be diversified and water down my outlier possibilities. Some piece of fundamental news or fact comes along and can hit this company and make their business really do well or whatever they produce do very well, that's what I'm looking for. So basically, we then just trade the largest companies in that group.

You know, we just say, okay, we're gonna trade the 200 largest of anything below 10,000,000,000. And then it's over with. We don't spend any time on it at all. And, there's no need to because we have this fixed universe. We're we're gonna hopefully trade these 200 stocks for the rest of our career. We're not gonna be able to because sometimes they go away. They get bought out or they go out of business. But, yeah.

So, I think it's the same mentality that you would have with futures except you have to figure out a way to corral all these thousands into 100 or 200, however many you wanna trade. And, just do it based upon diversification, liquidity, and just like I would do in the futures. There's really no difference. You know, CTAs are are not it's kinda funny because you're always reading articles about how this stock is gonna be great.

I get a subscription to Barron's and it's always hitting me up with, these are the stocks that are gonna be moving next. And, these are the stocks that have been doing really well. And, I think I just wanna ignore all that and just trade what is, liquid and diversifying. And then, you may come up with another 200 that's different from my 200. And that's fine.

You know, just be consistent for the rest of your career and try to trade those 200 or 100 or whatever it is. And just be consistent and have sort of a fixed universe. Yeah, that's what And just follow those trends as they randomly appear.

Andrew Swanscott 23:20: Jerry, this

Pavel Kýček 23:22: Oh, sorry, Pavel. No, no, no. I just wanted to thank thanks that for this sharing.

Andrew Swanscott 23:28: Yeah. Gerry, you posted, I think it was yesterday, a comment on Twitter or X about I'm just trying to remember the exact details. There was something about the overperformance of funds that do short selling versus the, I guess, competitors that don't. And it got me a little bit thinking about just then when you're talking about universe selection.

When you select a stock or a future, do you go both long and short or have the ability to go both long and short in all of the instruments you select? Or are there some where you say, I'm only gonna short this, money gonna go long? Or how do you look at that? Are you a little bit more selective there?

Jerry Parker 24:08: I think you need to take that in consideration when you choose the stocks you're gonna trade. You need to make sure that you can do the shorts and that they're liquid and they're available to be borrowed and the borrowing fees are kind of normal. But I think it's critical to have shorts in every market, of course. They don't really look very good on the back test.

But you need them as a diversifier in times where they will sort of do well when, longs do poorly. You know, obviously, an extreme example would be February, March 2020, where everything was going down. Every we were long almost everything in every market. And then they all started going down. So you're really, looking for those shorts to kick in quickly and for that trend following trade to begin.

So we we just, start selling those downside breakouts. And I'm not surprised that research would show that, the portfolio performance would be better with shorts because, once again, sometimes there's just no nothing to own. There's no longs that are in an uptrend. So for us, it's it's pretty important for us to have a good short position too. Even though the longs historically have made all the money or almost all the money, that could change.

It could be like COCA. The shorts could have a really great period. And and they all they even even even though if they don't, they still add some diversification and risk control.

Andrew Swanscott 25:37: Yeah. I think it's quite, I guess, common for futures traders to go both long and short. But I think for people who trade stocks, there are some, some limitations to being able to short. So, how do you think traders should kind of look at that in their portfolio?

Jerry Parker 26:00: Like they do in all the other markets, unbiased. You can easily be as you can be short just as easily as you can be long. But once again, I think in stocks, you need to it's a little bit more difficult because you need to stick with some stocks that have enough liquidity so you can short them. And there's borrowing fees as well. So you want those to be sort of reasonable.

And, it's not hard, but there is no reason to avoid doing shorts just like there's no reason to avoid doing shorts in bond bond futures, currency futures, and commodity futures.

Andrew Swanscott 26:37: Do you ever find that the shorting pool in stocks dries up just when you need it the most? Have you ever had situations like that?

Jerry Parker 26:47: No. Because I go in knowing that's very, very unlikely to occur. Know? I've got my my portfolio of stocks that I'm not I haven't had to worry about that.

Andrew Swanscott 27:00: Yeah. Okay.

Pavel Kýček 27:02: To me to me, it's very interesting because I have to say that I like trend following a lot. I'm trading like broad portfolios of different strategies on stocks or on crypto and so on. But even though I'm trying to be as unbiased as I can, I still cannot trade long term short trend following on stocks because I can see that over the last fifty years of data, these kind of strategies were basically losing money?

I understand it completely in your situation as a strong diversifier, but I'm just saying that to me, it's something like against logic to trade to trade it. But I completely understand your solution, of course.

Jerry Parker 27:53: Well, if if you so if if what you're trying to say is that shorting the stock market is not profitable, then I agree. But any individual stock can be very profitable. I mean, the people write these other studies that show that, 4% of all the stocks made all the money, in a buy and hold. So if you owned all the stocks in the past one hundred years, only 4% of those stocks really made any money for you.

So owning stocks doesn't really make money. 96% of them don't really make any money. But that's not what we're doing. We're in there for this slice of the trend. You know? One of the greatest trades of all time would be Enron. You know? It was a huge massive uptrend, and it was a huge massive downtrend. But Enron itself made no money. It went bankrupt. But a trend follower made money on this big uptrend and made money on the big downtrend.

So we're not really caring too much about about what happens in the stock market per se. It's what happens on, with these stocks. Do they have trends, uptrends, downtrends? And we're gonna we want to be on those trends. So they're just and they don't really, stocks short stocks, I have never seen a back test that showed they made money overall. But, there's a lot of markets that don't make commodities.

I probably don't make, in general when you look at all the commodity shorts, they probably didn't make money either. But we still trade them and they do help out from a risk control point of view. And they do help when lungs are suffering. Let's say the lung trades, or there are no lungs to be had. And, they can help. Yeah, that's all. Thank you.

Andrew Swanscott 29:47: Jerry, there's a comment in the chat here about we can model trends and seasonality, but noise, I'm not sure what the rest of that comment means. But do you ever look at the noise in the markets or maybe in individual stocks and use that as a consideration in your models?

Jerry Parker 30:12: Well, I don't look at any market by itself. Know, I really don't care what these markets have done historically or currently, the noise or the trends in these markets. I just look at, the system and how it performs over all the markets, over all the test period. I don't really pay any attention to recent performance. So, but I am very worried about getting into trades too quickly. So, we try not to get in so quickly.

You know, we wanna make the market show a lot of trend and stay away from, maybe that's noise, of the gyrations back and forth. The markets hitting the breakouts on the upside, then going down to the downside. So, try to have longer term parameters to where we're just not getting into trades. It's really difficult for us to get in, we have to get into a trade. It has to show a lot of trend and momentum.

And then once we get in the trades, we have this, two things we have to be concerned about. One is, we don't wanna get shaken out too quickly. So we have to have a long term exit and then that's gonna keep, because there is a lot of noise. Like you look at cocoa or some of these big trends, there's some really bad spikes down, in these markets. And you have to, look at your back test and see what is required.

And it's, unfortunately, it's usually what's required is to have a trailing stop that's pretty far away. Or what we would call loose pants. You know, you can't be too tight. And so, the problem with the loose pants and having a trailing stop that's the one hundred day low or the two hundred day moving average or three hundred day moving average is that you give back a lot of profit. But, or you can give back a lot of profit.

But that's sort of what the back desk says. Look, if you wanna make this money, you gotta be tough. You've gotta hang in there. You gotta accept a certain amount of volatility and a certain amount of ups and downs. And then, something like a cocoa, when you know that you've really nailed one, it's really a nice trade.

It's gonna be great trade, you have to have a, your trailing stop needs to be close enough to where it's, you don't give back all of your profit or too much of your profit. I think on any one individual trade, you will have that happen. And so, that's why you don't wanna look too closely at any one trade. But, you wanna look at all the trades and how do these systems perform over all the markets, over all the data.

And, that's what we're gonna go with. And, there's nothing more important than the current trade in everyone's mind. Clients are very concerned about it. They're concerned about performance that we're having now. We're concerned about it. We're very uptight about it. We wanna book these performance fees and we want to, have a good track record.

But really, you gotta force yourself to try to not to be so concerned about these particular trades and how they're gonna play out. It's all random. You just wanna commit to yourself that you're gonna follow your rules. And I don't think you're gonna have better performance than following your rules. I think discretionary moves based on fear or greed are probably just gonna mean you're gonna make less money. So you're walking that fine line.

Don't get out too quickly but don't stay too long. And I think that really is, more anything else, psychologically difficult.

Andrew Swanscott 33:42: I guess that's the, oh sorry Jason. No, go ahead, Andrew. I was going to say, I guess that's part of the art of trading, right? And it takes, well, I think it takes a long time, a lot of trading before you kind of understand the delicate balance that can be there sometimes. How do you think traders who are just starting out can accelerate that process of understanding what you're just talking about then?

Jerry Parker 34:07: Well, I don't think yeah. I think it's just looking at the backtest, really. And, running different parameter sets and seeing how long term you need to be. And seeing how how short term you can be. You must be a certain know, can't be too short term, you can't be too long term. And just finding the sweet spot. And it's a pretty big spot. But then just committing yourself to do it. So, think the knowledge of gaining that knowledge is pretty easy.

I don't think you need to have any experience or any intuition. You just need to be committed to do the back test and then committed to follow it. And I think that's the problem. And I think what happens also, and definitely happened to me before, not recently, but it has happened to me. And that is, you get this performance and you see with these the strategy that, yeah, this thing makes a lot of money. It does really well.

And yes, historically, it's had some bad periods. Just mainly really big profits turning into smaller profits. Know, this really bums us out. We don't, some people even go so far as to declare that a loss. Like I think if I take a loss and I get out of a trade with a small loss, that's the loss. I don't really consider give back of a massive profit like cocoa as I couldn't really honestly characterize that using the word loss.

It's just a give back of profit. I understand it's painful. But really I think understanding the rules and the systems based on breakouts and moving averages that get you in the trades and that are the optimal strategies, optimal parameters, I think it's really easy. It's not hard at all. Everyone, anyone can do it. Hire someone to do it for you to write the back test.

Now, you look in real time, you start trading this thing, you're like, oh my gracious, we have to add some more things to it because I don't like what's occurring. So wait a second. When I told you about this system, you wanted to trade it. I asked you, is making the most amount of money that you possibly can, is that good enough? And you said yes. When in reality, it's not good enough. Oh, no.

Because we have to add other things to it, other parameters, more rules that makes it less reliable, less robust, because we cannot stand to watch this fluctuations with our profit like we have in COCO. It's totally just a psychological thing. And people have these rules, they pat themselves on the back and they say, I'm following the rules. True, but you have a lot of bad rules and you have too many rules and you have over optimized rules.

And this is what I think is the problem, is not finding it. Not having it. Not having the experience. I mean, come on. Technically, if you have a systematic approach and you're good with the computer and you've come up with a good system and good rules and you trade a lot of markets, you don't over optimize, you're ready. You're set. What do you need to do? Just do the trades. You don't need any yeah. I mean, I think experience is good.

Don't get me wrong. But, I had lots of experience many times. I've had lots of experience over the years, and I just was weak and decided to, do a nonsystem trade, for instance. And it never worked out. And I think that's what you need to do is get into a situation where you can train yourself or learn how not to override your system.

Andrew Swanscott 37:36: Yeah. I think there's also a gap there in the back testing process because a lot of these reports that get spit out by these trading platforms, they're all based on or the stats are based on close trades. And yeah, sure, there are some stats that show you what's happening inside a trade, but you don't really get a good understanding of that until you actually trade the thing.

You go like Jason said today, this Coco trades, throwing around my portfolio with this open trade because it's so much profit and you don't really get that understanding by looking at a backtest. And so is there, like, is there a different way that you should look at back test to get that understanding? Or how do you recommend people approach that?

Jerry Parker 38:25: Well, I think you definitely need to have a back test that shows, the daily fluctuations of your open positions, for sure. But, probably it would would is the case for most traders, and certainly was for me over the years, has been I was just trading too large. And sometimes when you trade so large, you have so much fluctuation and the losses are approaching 40%. The drawdowns, let's say, are approaching that.

You know, it's almost impossible to keep trading that system and maintain discipline. So I know that was one of Rich's most important rules. The two most important rules were follow your system and trade small. Trading small is a superpower. And we all overestimate how much risk and volatility we can handle. Except Mulvaney. He's really good at that.

But, I think for most of us, you wanna get to a situation where you can really sleep well at night and your volatility and your risk allows you to actually do the systems. Do the trades.

Jason Kurz 39:38: I think one thing to add that, you said earlier, which, when we're talking about returns, like so many people get stuck on good trades over what my yearly return is? And I think for me, like, well, yes, the cocoa trade is flopping around and doing all types of stuff to the portfolio at the moment, that doesn't mean I, I care that much. I know that's part of my strategy. That's what I do.

So the volatility inside of that one trade is just one of many trades. And I think if you continue to just kind of, I think that's the things that new traders don't focus on enough. New traders don't really focus on that, hey, over one year period of time, I'm gonna have great returns. Yes, COCO, which is netting, I think around 150% year to date right now, probably, if it stops me out here, I'll probably get out with like 130%.

And that has to be totally fine with you because you understand your backtest and your strategy. And that's just part of it. And that little bit of a giveback is just a small thing and part of your process. So I think too many new traders really get stuck on this idea of every trade has to be a good trade, every trade has to be right. Whereas a seasoned trader basically doesn't, I don't care what goes up in the portfolio.

I know that I'm gonna lose on more than half of my trades. They're gonna be small losers. And then I'm gonna have a few outliers and a bunch of break evens and a bunch of small profits. And that's how my years are gonna go. And that's how I produce my own returns. Because at the end of the day, too many people are just getting stuck on. Look at the market like it's this thing that should be paying them.

Like, hey, I'm a trader, I should be getting my weekly salary or something. It's like, no, like, you're gonna have periods of time where you have trades like cocoa and so on in a great quarter. And you go, Hey, that was awesome. And then you're gonna have periods of time where the market isn't conducive to your strategy, and you're flat, and then a drawdown, that's gonna happen too. So it's really like taking that long term focus.

Mean, if you're doing this for the right reasons, you're doing it for all, to make more money that you're not gambling, you're trying to make money over time, you're trying to compound your wealth. And so the more you're able to compound your wealth over those years, the better you are. But that short term view of, hey, this volatility, I need to get every trade right. It's just a bad way of looking at trading.

Pavel Kýček 42:09: Yeah, to me, it is also about truly deeply understand the solution or the approach I'm trading. Because one thing is backtest, backtested results, what they are showing us. But, the other thing is what really trend following is about. Yeah. You will have huge open profits, and you will get give back a lot of open profits.

If you want to trade minor versions, you will have maybe more stable, profits over the time with big dips in the equity curve from time to time. So I think that this is the biggest reason why novice traders that already can backtest properly, that knows what backtesting is showing them, how even backtest the way that the results won't be over optimized, but they cannot stick with the trading solution.

I think that the biggest bridge here is that they really truly don't understand what the trading approach that they are trading is all about. I think this is big, big mistake or just not experience enough in this kind of terms. And I think researches can help a lot here, like getting this knowledge.

Jason Kurz 43:38: So Andrew, you wanna bring up some of these questions? We got some interesting ones for Jerry.

Andrew Swanscott 43:45: Yeah, was just looking through that actually. So we've talked about the one for noise, which is more of a comment. Oh, here's one. I don't think we covered. I thought I heard Jerry once say he only shorts ETFs.

Jerry Parker 44:03: That's No, I don't trade any

Jason Kurz 44:06: I don't know if you're trading I

Jerry Parker 44:08: don't trade stock ETFs. I trade like corporate bond ETF, mini bond ETF, TIPS ETF, mortgage backed ETF, but no stocks. And it's strictly I mean, only stocks on the single stocks on the longs and the shorts.

Andrew Swanscott 44:31: Yeah. Okay. Actually, there's not a lot of questions here. We've got one from Marcus. Jace the best. TFN to the moon. Thanks, Marcus. Now, Jason, I cut you off before you're going to ask a question. I don't know. Do you want to go back and revisit that? Do you want Yeah, that was exactly what I was trying to say, because I think it's,

Jason Kurz 44:53: know, Jerry was talking about the idea of yearly returns and or being patient and understanding your systems. And I was just thinking about newer traders and what they kinda do wrong. So I just was trying to talk about that a little bit. But I think that, us having these conversations, on here and constantly being very public about how disciplined we are as traders, I think that helps people a lot.

So it's great to have someone like Jerry on here just to kind of really focus people on those things. And getting into the individual stocks, Jerry, you mentioned earlier about the commodity based stocks and getting some commodity exposure through individual stocks. Now, how do you Do you weight that a specific way for your fund?

Jerry Parker 45:46: No, I don't. Like I said, I just have a systematic way of choosing which stocks to put in there based upon their liquidity. And, anything less than 10,000,000,000 is something I might trade. But then, once I get the list of stocks below 10,000,000,000, I'm going to choose those based upon liquidity and diversification. So, might make sure I don't I'm not overloaded in too many gold stocks or gold miners or mining companies in general.

But, there's a lot of, you could get quite a bit of commodity exposure with companies. It's a different type of commodity exposure. Know, we have, we trade lumber futures and we trade lumber producers. And, so sometimes and we trade shipping companies and shipping futures. So sometimes the, futures does better and sometimes the stock does better. Yeah. But it's so it's another way just to diversify.

And of course things like, lithium and uranium, marijuana, you You can't get those with futures. We have a company that's the biggest egg producer in the country. We have that one as well. So it doesn't take a lot to find. I'm just looking at the list now. Coal, steel, asphalt, lumber, uranium. A lot of mining companies we supplement our aluminum and copper and nickel, lead and tin and zinc trading with the miners.

We have one company that owns a, I guess millions of acres of trees. So, there's all sorts of different companies that you can get that kind of have some, have a commodity connection. You know, I wanted to get a company that was involved in perfume. You know? I wanted a perfume company. There's a couple of companies out there that make perfume. So I'm like, not perfume, that's a commodity, right? It's something, right?

So I bought this company, it was like two or three I had. And so I bought the breakout in e. F. E l f. And e. L. F. Just went to the moon and it was just incredible. It's still going. It's like, it looks like Nvidia, know. So I even posted that one day, like here's an, here's e. L. F. And here's Nvidia. You can't tell the difference. And, and so, but then I realized that, e. F. Really didn't make perfume. It was a retailer.

And I was like, darn, I got that wrong. And I still couldn't, I still couldn't stop for making money because so I think sometimes when you have these ideas about like that idea, like, I want a producer and not a retail, that you it's sort of a little bit of predicting there and it's kind of like, it doesn't matter what you think, Jerry. That company can still have a big trend and did.

So, I've done that a couple of times where I thought I was buying something that was a producer but it was actually a seller. And, it ended up really good for me. So, you don't really ever know. You can't predict these markets and even having that mentality of small companies with one story and one product, you can the best stock trade I've seen in a long time is Eli Lilly. I think it's better than Nvidia.

It's one of the biggest companies on the planet. And so my whole idea, I tell people, look, I have this idea, but don't follow me because there's lots of examples of, things that don't fit my my thinking that if you just trend follow them, you're gonna do very, very well. No one can predict these markets. It's really just a way for me to be very consistent and very disciplined approach to stocks.

It doesn't mean it's always gonna work work out the best.

Jason Kurz 50:08: No, I like that. It's an interesting conversation just because, for me, I haven't I trade the sector futures, but I haven't gotten into into the individual stocks at all. And something I've been looking at more as time has gone on. So it's just a fun conversation to have and just to learn more, because you're one of the, I think you were one of the first ones to start really doing that and talking about it.

So it's really interesting, because I've, it's the same thing. I see every time somebody shows me an individual stock, see the trends, I see the breakouts. I mean, there's tons of them out there. So I absolutely agree with you.

Jerry Parker 50:41: That's right. It's particularly, interesting now that just sticking with a normal CTA portfolio of 50 or 60 markets would have done better because of cocoa, basically. I saw this one tweet out there recently that said, careers are being made in cocoa. You know, you really don't want to make a career on one market. You know? If you if you're making a career on one market in cocoa right now,

which you're making all this money, as soon as you get out of the cocoa, just swear you'll never do that again and start trading hundreds and hundreds of markets because you really lucked out. Because I've traded 20 markets or 50 markets, and it is brutal because you can really just get crushed when, when that one market has a reversal or, a few markets just have some whipsaws

and all of a sudden, you're down 10 or 15% because, your portfolio is just not large enough to withstand some really unluck. It's really unlucky. I think trading hundreds of market eliminates well, does eliminate. It minimizes bad luck of you know? Because if you're only relying upon 10% of your of your markets to make all your money every year and 10% of the trades to be outliers, well, you can have some really bad luck.

And if you miss a couple because you only trade 20 markets, you have two years where you don't get any. Yeah. You're gonna get four or five or six in year three, but you've had two really bad years. So I think that's what it's it's good for. And then if you're gonna trade like we do, a real strict classic trend approach with it doesn't reduce positions. It's not gonna reduce the cocoa position. Let's just cut cut to the to reality here.

If you're not gonna reduce cocoa, dude, you're not willing to reduce anything. Right? This is out of control trade. And if you're gonna trade like that and, abide by this cliche of letting profits run and taking small losses, then I do it because I think it's the safest and most robust way to trade.

But I can cheat a little bit by trading all these markets because I'm relying upon the markets to give me some, smoothness as much smoothness in my returns as possible, not more parameters and more rules.

Jason Kurz 53:01: I think people here go ahead. Sorry. You go, Jace. You go. I think it's interesting about the COCO thing because you'll talk to certain CTAs. And I think what's one way you can tell they're way too concentrated is when they're talking about 60% returns in the quarter. Like, that tells you that they're either they're way too concentrated, they have no idea exactly what they're doing, or, they're just every all in on cocoa.

And it's like, basically if you had 10%, 20%, that makes some sense. But when you get to that 50% to you know? And and I have I had one guy tell me he had a 78% return in q one. It's like, you're you're you might be trading a little bit too big there.

Jerry Parker 53:42: Well, in 1986, we there was a lot of good trends going on. I know one of them was short crude. Crude, went to $10, and we probably had a big position on. And I know that I went home one day, and I was up a 100 and I was up 200%. And this was in the first half of the year. I was up 200%. My bonus was a million dollars, and I was so excited. And then on Monday, like, we came in, and we lost 60% in one day.

And, that's just a lot of leverage and, some amazingly great trends. And it wasn't like a tremendously bad day, but we made 200%, because it wasn't tremendously amazing trends. They were good trends. So leverage, hit all of that, all of that risk. You know?

So I think that, chugging along, making 15 or 20% a year, trying to trade a lot of markets, I just have no interest in being the typical CTA, this typical managed futures, only trading futures and trading stock indexes. I wanna see what trend following can really do in real in classic trend following, the traditional. Let those profits run. Can can it work? And I think the best way for it to work is trading many, many different markets.

And, the stocks that I trade, they're they don't look like the S and P. They all go down sometimes, and they all go up sometimes. But they you get quite a bit of diversification trading smaller, mid mid medium sized companies.

Andrew Swanscott 55:24: Yep. Alright. Well, that was a great way to end the show because we're just about out of time here. I think Jerry, my favourite quote from you today was trading small is a superpower. I think that's a great, great quote that a lot of traders figure out the hard way. Thanks for sharing that. So Jerry, where can people find more from you?

Jerry Parker 55:47: They can find more from me at chesapeakecapital.com and tfpnetf.com. And on Twitter, r j parker junior zero nine.

Andrew Swanscott 56:01: Yep. Excellent. Thank you. And Jason, you can go next. Oh, you're on mute.

Jason Kurz 56:07: Yes. So, yeah, thanks for coming on, Jerry. This is a lot of fun as I always really get a lot chatting with you. Thanks for taking the time with all of us. And you guys can find me Against All Odds Research, aaoresearch.com, aoresearchsubstack, and also jasonp138 on Twitter.

Andrew Swanscott 56:32: Excellent. And Pavel?

Pavel Kýček 56:34: Follow me on Twitter and check our website robuxer.com and that's it.

Andrew Swanscott 56:42: Okay. And for me, betassistanttrader.com on Twitter, YouTube, everywhere else as well. So thanks for joining us today, Jerry. Do you have any closing words before we finish up for today?

Jerry Parker 56:57: Oh, no, I don't. Thank you for having me. It really fun. And I wanna come back and not do as much talking, but I wanna ask some questions myself to you guys next time, hopefully. Thanks

Andrew Swanscott 57:11: for having me. It's been fun. Thanks for coming, Jerry. This was a blast. Yeah. Yeah. Yeah. Great. And thanks everyone for joining us. Great comments in the chat today. See you next week. 4PM Eastern, Wednesday. I got it. Yes. Catch you then. Bye.