Trader Profile
BY DANIEL P. COLLINS
Chenier: Systematizing what works
J
ean-Jacques Chenier uses most of the same indicators
as a systematic trend following manager that he did as a
discretionary manager but has found that systematizing
the approach added much needed discipline, allowing him to
exploit the inefficiencies of the currency markets.
Chenier believes markets, in general, are less efficient than
touted. He says most are shaped as bell curves with fat tails,
especially currency markets, which have greater inefficiencies
because many participants dont trade it to make money but for
other reasons. For example, he notes that central banks rou-
tinely lose money trading currencies.
The Bank of Japan will intervene to push the yen lower...a
commercial bank in Japan will repatriate yen assets overseas
just to window dress its balance sheets for the end of the fiscal
year, Chenier says. These activities create liquidity but it is
inefficient liquidity that can be exploited, he says.
Chenier, who heads up commodity trading advisor (CTA)
Alternative Asset Management, cut his teeth trading soft
commodities in the booming Paris markets of the 1970s, earn-
ing positive returns for his brokerage customers during a sugar
squeeze. (The eventual price collapse following the squeeze
led to a regulatory crackdown ending the booming Paris softs
markets.) Chenier went on to hedge precious metal positions
for a Spanish firm and eventually evolved toward foreign
exchange trading.
By the end of the 1980s he knew he wanted to start a hedge
fund but could not raise the money in Europe for his venture.
Reprinted from FUTURES July 2003 issue. Copyright 2003 by Futures Magazine Group, 833 W. Jackson Blvd., 7th Floor, Chicago, IL 60607
So he moved to New York and started a discretionary global
macro hedge fund with his own money. After a significant
drawdown, he closed the fund and began developing his pro-
prietary technical system, Trendoscil, while working as an asso-
ciated person for various management firms.
Cheniers launched his CTA in August 2001 and has had a
good start with a 73.6% return in 2002, and a 15.17% return in
2003 through April. The largest drawdown was 20% in May,
following September 11. The program trades the Australian
dollar, euro, Swiss franc and Japanese yen.
His trading system incorporates the basic philosophy of cut-
ting losses short and letting profits run into mathematics.
What he gained from that was risk control. As a discretionary
trader you are never sure that what you loved to buy at 100,
you will not just adore when it falls to 70. So I thought that the
best way to avoid this [tendency] and no one is immune to
it is through a trading system, Chenier says.
The temptation to add to a losing position a cardinal no-
no in trading is a strong one particularly when the logic
behind a trade still seems valid. It never makes sense to add to
a losing position. Even if it works 99 times out of a 100, it will
not work at some point and you will be out of business,
Chenier says. He admits to adding to losing positions while
trading discretionary funds and even having some success with
it, but adds, You always do it one too many times. It is better
to miss a trade than to get in with too much risk.
His medium- to long-term system incorporates trend follow-
ing indicators with fast and slow oscillators to capture the
trend while avoiding giving back profits when the trend fails.
His use of oscillators allows him to be more selective and avoid
drawdowns without adding strategies or varying his timeframe.
While other managers have avoided the large givebacks by
using multiple strategies and multiple timeframes, Chenier
takes a minimalist approach. Short-term trading [even as a
way to mitigate drawdowns within long-term systems] is a los-
ing game. It increases your cost of transaction. Our system is
completely out of the market about 25% of the time. We are
very good at doing nothing and we are proud of it, he says.
The system produces just as many losing trades as winners
but the winners outpace the losers by 300%. He adds to win-
ning positions when it breaks out of an envelope of 3% above
the moving average. He has initial stops of 5% but no trailing
stops. When the fast oscillator crosses below the slow one it is
an indication that the move is losing its momentum.
The system averages only 350 roundturns per million under
management. His method of avoiding givebacks has the benefit
of reduced risk from margin and lower execution cost. It proved
itself during the March reversal with a drawdown of only 5.74%
after earning over 40% the previous four months, once again
exploiting inefficiencies within the currency markets.