Author: Jesse Barkasy
Covestor model: Trend Following
The Trend Following Model attempted to ride on a few breakouts near the end of July and we saw losses on several trades.
The volume in the stock market dropped off at various times during the day, making liquidity scarce. Knight Capital Group (KCG) lost an estimated $430 million in 30 minutes due to an automatic trading system error where thousands of trades were made in rapid succession.
This confirms to us that a trend is developing regarding computerized trading, risk taking and the capital structure of the marketplace. There was MF Global scandal last fall, and going back further, Lehman and Bear Stearns were wiped off of the map due to liquidity issues. This leaves fewer players and a more choppy market for us to handle.
The Trend Following Model depends on strong trends in the markets to help us digest and reverse several small losses. We are looking into the sudden drop in volume that has happened after several breakouts recently and we are adjusting to this new environment.