DAVID BEACH: Seeing Patterns in the Markets
Szala, Ginger, Futures (Cedar Falls, IA)
Searching for various technical patterns -- 17 actually -- in more than 75 futures markets is hardly a day sitting in the sun and sand, as David Beach's name connotes. But after at least a decade of study, he says today it has become a natural process for him to spot patterns, from which he'll place or plan trades.
"It's a manual process; unfortunately, it hasn't been able to be computerized," he explains. "There is some variability in the patterns, but once you know them, they're obvious, But to the uninitiated, they wouldn't be able to spot the entry levels and exit levels: it's a very specific approach."
The process must work. Beach, who heads up Beach Capital Management Ltd. in
London, ended his year in his discretionary fund up 32%. That's down from last year's return, 47.51%, but keeps up with his five-year profitable record.
Beach is rare in today's systematic trend-following crowd. Learning from his early mentors at Sabre Fund Management in London -- a throwback to the old-time apprentice era -- Beach studied the key market patterns that allow him to set up for a trade.
"There are 17 patterns.... They're not short-term patterns. Generally, five-six weeks is the shortest," he says. "[The patterns] don't just jump out of thin air. We can watch them building up and have all the levels covered prior to that. The discretionary [model] works on hourly charts as well, which has not been modeled. [This] is the main difference between our systematic and the discretionary [models] -- we can change the time frame [in the discretionary model]."
In 1989, the Sabre principals provided Beach capital to trade his own program. Successful in that venture, he left Sabre to join GM Fund Management in 1994. In 1998, he established his own company. Yet he says Sabre was a key mentor for him, not only teaching him the ropes, but giving him his first stake. Today, Beach Capital manages about $325 million -- mainly in the discretionary fund. About $55 million is in the systematic fund.
The core difference between the discretionary and systematic models is the time frame.
"The patterns came first, and defining them," he explains. "It was then a question of building that into a money management model. In other words, investigating all the different parameters that make up the system. The model has objectives for every single position. Where it gets out of the trade -- where to sell into strength when we're long, and buy into weakness if we're short -- are very subjective. They aren't the most important parameters, but they are important. Every parameter has a distribution associated with it, and we built a money management [system] around that. …