Mario Kelly and Daryl Swain, forex traders and principals of Wallwood Consultants Ltd., put to lie the adage, “Those who can’t do, teach.”
Formerly partners in a forex education and advisory service, Kelly and Swain taught forex trading before launching their commodity trading advisor (CTA) which, over nearly five years of trading, has posted some quite respectable numbers.
Through September, Wallwood was up 19.72 percent on the year, placing it at the top of the Barclay Group’s (www.barclaygrp.com) forex CTArankings. The firm’s total return since inception in January 2001 is 96.40 percent — a 19.29-percent compound annual return. Other than a 9.45 percent loss in 2003 (the year they suffered their worst drawdown of -32.27 percent), the firm has posted doubledigit gains each year.
Kelly and Swain, both 42, operate Wallwood from offices outside London and in Spain. They trade exclusively in the spot forex market (typically using 6:1 leverage) and currently manage $10 million. It shows a VAMI chart of the firm’s equity growth along with that of the S&P 500 and Barclay CTA Index.
Kelly and Swain both have held various positions in the forex industry, and immediately prior to starting their own business, they were execution traders at CMC Markets, a forex trading firm and brokerage. They launched what would eventually become their CTA when they were (as they say in Britain) “made redundant” in 1997. They decided to set up a forex advisory and educational service, initially for some of their former clients.
The business wasn’t intended to be a long-term proposition, according to Kelly. Although neither one of them had managed money before, he and Swain were set on it, and they eventually began trading their own funds to refine their trading approach.
“It’s all very well telling people how to trade, but we might as well do it ourselves and show them what we tell them to do does work,” Kelly says.
One of the advantages of their former position as brokers at CMC, according to Kelly, was they got to see the different missteps non-professional traders often make. “My impression is that a lot of people tend to have more money than sense when it comes to trading,” Kelly says. “They make really basic mistakes, like not having stops in place and leaving positions unattended.
They don’t realize what they’re doing. “The unique thing we had when we devised our trading system is that we saw a lot of [order] flows and a lot of different trading models,” he continues. “You try to take the good bits of most of them. Our initial trading model mainly looked at how clients traded and avoided the mistakes they made. It doesn’t work totally — we have had our drawdowns. It’s impossible to say you’ll win on every single trade.”
Kelly describes Wallwood’s approach as essentially systematic — with the exception of one discretionary analytical component — with a primary focus on limiting losses, which they accomplish partly by limiting their exposure to the market. They enter the market on price breakouts(long or short), and then use a position management approach that incorporates a trailing stop that tightens as a position progresses.
“We use a mathematically based algorithm that is, effectively, based on swing trading,” Kelly says. “If we experience a certain amount of losses, we pull out of the market and then wait for a period before entering again.”
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