Jason Dekker: Systemizing Trades Will Generate High Returns
While not as yet so famous as some of his contemporaries, Jason Dekker, ex CEO of Decker Capital Management, and a founding partner and Chief Investment Officer of Incline Investment Management, the private investment firm specializing in managing client assets with systematic methodologies trading both futures and equities.
In 2004-05 he developed a method of system trading to generate profits that made him the envy of many of his peers. He has taken twelve years of discretionary trading experience and systematized his activities to realize excellent profit levels. His Global Diversified Futures fund, based in Nevada, finished up 10.03% in its first year (2004), while the 3X program finished up 38.09%. By mid 2005, these new programs were up 3.39% and 9.88% respectively. Decker Capital shut down in 2006.
His desire to play this very competitive game stems from his athletic background. An accomplished hockey player all of his young life, in 1995 he served as a key member of the University of Maine hockey team, which made it to NCAA championship game. While a serious injury effectively ended his hockey career, Dekker already knew that he wanted to pursue a career in trading. He often compares the discipline necessary to be an accomplished athlete with the dedication necessary to be a successful systematic trader.
As he so colorfully stated in an interview, “Trading is a very competitive field; you eat what you kill.” He always wanted to go into a competitive field that would challenge him on a consistent basis. He and his clients are thrilled he made the correct choice.
After earning a degree in Finance from the University of Lethridge (Alberta, Canada), Jason Dekker landed a position at the brokerage firm NDX, based in Minneapolis. While apprenticing there, he learned a short-term breakout strategy from the firm’s principal that targeted securities that were enjoying new apex prices. He learned so well that in a matter of months he was earning more than his teacher. Almost as soon as he started his own trading, he began earning $500-$700 per trades wherein the principal was making $10-$30,000 on identical trades. Dekker notes, “I knew quickly I was on the right track.”
In 1999 he opened his own firm after multiplying his original capital by 40-fold in only 18 months of trading at NDX! On his own, he continued concentrating on the short-term breakout philosophy he developed while at his former employer. He credits his original mentor for launching his career, but he quickly outperformed the teacher.
Less than 2 years later, he connected with another mentor at a Caribbean hedge fund conference. His name is Ed Seykota who suggested Dekker to modify his trading philosophy and shift his focus from short-term to a long-term systematic trading mentality. As professionals in all industries are either happily or, sometimes, painfully aware, timing often plays a major role in their careers. Dekker’s situation at this time was no different. He was not only open to new avenues; he was actively looking for something different.
Jason was looking to become more scientific with respect to his risk control, Ed Seykota suggested he take everything Jason does . . . and plug it into a computer; then test it. Learn what works and what does not.” After exhausting analysis, he already knew that the volatility experienced by recent markets was beginning to flatten and short-term, quick hit opportunities were decreasing at the same time. Dekker’s solution was to systematize his entire operation.
After testing the longer time frame called for with his new philosophy, he realized that profits increased. In addition, these gains occurred using lower drawdowns and with an almost 50% reduction in the number of trades. Disregarding short-term trends and lengthening his trade time horizon, his results were much more consistent. He proudly states, This methodology seemed to work across all markets. He actively began live testing of his systemization with his proprietary capital, waiting an additional 4 months to begin trading client assets.
Not content with merely developing a new time horizon strategy, he also created his own list of “global money management” rules. Dekker does not use a “value at risk” matrix or define a “maximum risk component” for a variety of sectors. He does digest and process every signal offered by the markets he studies. When he enters a trade, he has a money management ‘stop’ and he already has a trailing exit strategy. This allows him to analyze each market sector with an action plan in place for timely implementation. As a sector evolves and moves forward and as he gets more and more signals from the sector, he keeps adding exposure. When that exposure reaches a certain limit (either a percentage of the total asset mix or as a percentage of the total equity at risk), he then restricts and tightens up his exit methodology. As an example, if he were using a 150-day moving average as his index and exit frame, he might “tighten” his index to a 10-20 day index when he finds potential overexposure in a particular sector. The system, the system, the system.
He believes he is giving himself the opportunity to accept increased exposure without the normal inherent incremental risk. Instead of using most competitors’ philosophy of restricting risk, he keeps taking positions and adjusting the risk. He is trying to capture profits in a parabolic market. In so doing, he allows himself to get overweighed in a sector and the markets that turn down first are the ones he gets out of first. He finds this a very effective manifestation of his theories.
So what market sectors does Dekker favor? He trades currencies, energies, grains, metals, meats, softs, and stock indices. He has a deep affection for futures as they are a) very liquid, and b) he believes they “trend” better than the other markets. While some may disagree with that theory, it has worked for him.
Jason Dekker believes in effective leverage on drawdowns. His theory states that the best time to invest with a trend follower is in a drawdown environment. Like his mentor Ed Seykota, Jason is now a very strong proponent of systemization. A long-term trend following strategy is one of the hardest strategies to trade, but if you stay with it consistently, the results will also be consistent from year to year. Jason strongly feels that the most consistent traders are those that choose to adopt a systemized approach to their trades and money management philosophies, as he believes he has proven in the recent past.