Investment Methodology
The Discretionary Trading Program has a sophisticated and robust approach designed to capture trending behavior while continuously managing risk. Its strategy is the product of many years of trading experience, research, and development by Balfour Capital Group’s research department, incorporating numerous innovative features unique to Balfour Capital Group in the quantitative space.
The Program utilizes proprietary linear strategies for the identification of trends and movements in market prices. These strategies are based on Digital Signal Processing (DSP) techniques used to identify a variety of cycles over multiple time frames.
The Program blends the linear DSP approach with a non-linear Pattern Recognition (PR) methodology used to pinpoint significant turning points in trends where traditional trend-following systems can be slow to respond. The linear and non-linear, DSP and PR strategies take advantage of independent informational subsets from price data and, therefore, complement each other to provide a more complete description of market behavior. The combination of the strategies results in an automated trading strategy with a trader-style response at important junctures in the development of any price action.
The DSP approach relies on the superposition principle in that complex waveforms are composed of multiple waveforms. This is illustrated by the graphic, showing how successive waves of different frequencies can be combined to produce a complex waveform that starts to resemble a price. The DSP technology allows the process to be reversed to extract frequencies from price data.
The Program also employs a proprietary portfolio weighting technique that rebalances the portfolio to target diversification. This approach results in an adaptive portfolio that seeks opportunities in uncorrelated markets, which helps to even out the irregularity of price trending behavior in markets.
Investment Philosophy
Underpinning Balfour Capital Group’s investment philosophy is the concept that financial markets do not appear efficient or exhibit persistent behavior in the form of price trends. This phenomenon can be partially elucidated by the influences of crowd behavior, information absorption delays, changing fundamental drivers, and the macroeconomic evolution of global economies.
Balfour Capital Group aims to capture price trends over multiple time horizons for a globally diversified portfolio of assets. Price trends are not smooth, and market movement is unevenly distributed over time and inherently complex. One key differentiator for Balfour Capital Group in this space is the research that recognizes such complexity and models price behavior with a highly unique blend of proprietary linear and non-linear strategies. These fully automated strategies, Balfour Capital Group believes, are better suited to handle price behavior such as abrupt price reversals and variable range conditions.
The advantage of automated trading systems is that they deliver a consistent, disciplined trading approach that not only enhances risk control but also opens up a wealth of historical data for analysis and research. The certainty of action delivered by automated trading systems makes one certain about their trading actions based on past data. A researcher can then undertake experimental investigations that uncover potentially persistent phenomena in markets.
Research
Research and model development is fundamental to our approach. The research team brings over 50 years of combined research and development expertise in the managed futures industry, with complementary skill sets that blend trading intuition with quantitative mathematical abilities.
The team follows a disciplined research process grounded in the scientific method. Trading and systematic experience guide our research goals, while the removal of judgmental bias ensures that our analysis yields objective and reliable results. The strategy incorporates many unique and innovative features, taking ideas from various branches of science and engineering. All elements of the strategy are backed by rigorous and extensive testing that demonstrates consistency across multiple time frames and environments.
The research team continuously enhances the strategy to keep pace with changing market environments and to retain our competitive edge.
