The Trade that Killed Dighton Capital?

From Morningstar:

There have been quite a few winners and losers in the immediate aftermath of the 2011 crash (does this move have a name yet?), and one of the biggest losers has been discretionary trader Dighton Capital. We posted their ‘defense’ of their position two weeks ago, but things went terribly wrong since then, with a dramatic move higher in the Swiss Franc causing losses of more than -50% for Dighton in August (on top of -30% losses in July), putting the drawdown on their composite track record at a disturbing -76%.


What are the lessons to be learned from this flame out? One, discretionary managers without set risk per trade limits carry a unique set of risks which aren’t shared by their systematic counterparts (namely that they can/will hold onto a trade a little longer if they have a heavy conviction). Two, contrarian/counter-trend/mean reversion strategies carry unique risks (the market may not mean revert). Three, be wary of investing in a managed futures program doing something different than the typical managed futures trend following type strategy

From Dighton Capital’s disclosure document:

The Dighton Trading Program (formerly known as the Swiss Futures Trading Program) is a combination of systematic, technical chart analysis for the markets, the interpretation and analysis of economic and other fundamental data and use of discretion based on the experience of the Advisor. The Advisor will trade most of the liquid US future markets like currencies, stock indices (especially Mini S&P), bonds and notes, energy, corn, grains and other commodities such as cotton. The Advisor does not initially plan to trade foreign futures or options contracts but reserves the right to do so at a later date. The Advisor reserves the right to trading in any futures market. The Advisor analyses thoroughly the charts of these markets every week and monitors them then during the week.Chart analysis techniques include (but are not limited to) wave analysis (Elliot Wave), W.D. Gann principles (angles), Fibonacci retracements, Time cycles, Volume, Trix Indicator, divergences, and pattern analysis. In general, the Advisor tries to locate points where to buy in markets that have fallen and where to sell in markets that have risen. By this the Advisor is trying to buy when prices are low and to sell when prices are high. This approach is trend anticipating but not really counter trend. When a position is established the Advisor attempts to let the profits run and attempts to exit when the market gets to a point where a reversal in the trend could be expected.

A Ouija board might be better?

10 thoughts on “The Trade that Killed Dighton Capital?

  1. 1. Morningstar got that one right

    2. If you don’t learn to keep losses in check, one day they turn the lights out on you.

    3. Anyone who looks at a chart of Swissie would be a complete fool to get short in front of that, rest assured Trend Followers were on the right side of that trade…

  2. Larry is right.
    (1) at least there they were correct here.
    (2)Absolutely, you “just go down with the ship”.
    (3)Yes, we certainly did.

  3. from Morningstar…

    “In the end, Dighton followed their usual discretionary trading pattern of taking a contrarian stance against an outlier move – and adding to the position as the trade went against them”…

    how utterly ridiculous does it sound to be “adding to the position as the trade went against them”…


    and they were able to raise money with that strategy…

  4. How ’bout that ddoc. Does anyone really understand what they were doing? More importantly, did they understand what they were doing? I understand a ddoc is full of legalize type language, but the trading system (at the very least) should be clear to the client. Trix indicator? Like the cereal? Silly Dighton…..

  5. Wasn’t there someone who experimented with flipping a coin to enter a market?

    If I recall the story correctly he had a good position sizing algorithm and very strict extit rules and made a good deal of money doing it.

  6. Mike, Tom Basso and Van Tharp ran a test using a coin flip entry method to get long/short and used strict position sizing and risk mgmnt.

    It did not produce outsized returns, but they were able to generate positive returns in some tests.

    It is in Van Tharp’s book, Trade Your Way to Financial Freedom, which is an excellent trading book. One of the best.

  7. wonderful… averaging down on a long and up in a short. ace greenberg termed that the single dumbest idea ever invented. he said the good news is that you will be the biggest shareholder when the company goes Ch 11.

  8. I guess I have to take back my comment about the ddoc not being clear. I was on the phone yesterday with an IB, and they told me some of their clients were in Dighton (on their own). The IB told me not only did these clients invest on their own, but also agreed with the Swiss Franc trade. They kept cheering as Dighton would put on more against the trend. I guess those clients understood the ddoc clearly. Win or lose…..

  9. I have warned people about this guy.

    What a joke. From his returns it seemed that he was just doubling up, and the strategy made no sense whatsoever.

    Who made the money he lost? TREND FOLLOWERS.

    No matter what, there will always be people like him unfortunately.

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