The events that occurred on early Tuesday morning were devastating. As a result, accounts, clients, the team and the company were negatively affected. As a start-up, our reputation and initial service are paramount for a company’s longevity.
In the attempt to stay transparent with our members we want to expose what we discovered to be the source of the problem.
Before we go into the statement, we would like to thank our clients for being patient with us on getting this letter out to you. We would also like to thank our optimistic members for the encouraging messages we have received over the last few days and that the trust still holds.
We are sending out gratitude to each and every one of you.
Now, let’s get started.
Reflecting on the Past
The technical strategy has demonstrated to be extremely successful to date and still continues to confirm its effectiveness. However, with an impressive streak of wins, MAM team began to get slightly off the track and, as a result, we deviated from the unrefined risk management strategy that we had been executing with.
A few months ago we had refined our strategy to avoid drawdowns but were still left with the positions that were the cause of the drawdown. More on this root problem further below.
Here is a quote from our CEO in the community chat:
“I’ll take the blame for that personally for over trusting the MAM team’s decision.
This is what happened: I agree that after 5 years of trading that I sometimes see a stop loss I set being “too strict” because the way the candle forms, for example, and may at times fall/jump but would trigger S/L if I otherwise don’t move it. Those exceptions exist and when the MAM team talks about the same except for those pairs I overly trusted allowing them to deviate from the RM strategy.”
After evaluating and synthesizing the data from January to June, MAM team decided to improve the risk management strategy with an attempt to keep the P/L ratio in check. The start of July began with impressive results while maintaining a manageable 18% drawdown.
However, the lingering trades from March-May started to react intensely to the fundamental news pertaining to Brexit.
The gnawing trades had been executing months prior when we were still implementing the more relaxed risk management strategy. The trades started to negatively go against us; dwarfing the impressive results that the new risk strategy was generating.
Then, suddenly, the trades started to improve early in the week. Relieved, the team should’ve utilized this time to cut the trades with a loss, even if it was a significant hit on the account gains or new members’ principle.
However, MAM team believed that another move up was possible, so the trades were left untouched. This exposure to risk, left open during Brexit talks, was drastically affected resulting in margin calls for few clients.
We needed to make the tough decision regardless, but we should’ve made the decision on our own terms rather than submitting the whims of additional market volatility.
These trades, and by extension the old risk management strategy, were, technically speaking, responsible for this major loss. The deviation from our risk management strategy in Jan-March, as a result of the ego and streaks of wins, was responsible for the major loss, psychologically speaking. Lastly, our lack of judgment of taking a major loss (~25%) paralyzed our ability to take action.
Closed Trades, Margin Calls and Manual Closes
We would like to clarify that the MAM did not close the positions because of margin calls. The team closed trades manually to prevent bigger loss. Thus trades were closed manually to protect the equity that we had.
A few members were concerned about the closure of a few positions that were heading into the right direction (US Index and Gold). Even though that was what it looked like, it was not the case. We had to make the decision to close these trades because the risk of keeping them open was greater than closing them. These positions were fully hedged; meaning that even if they go up or down, they move without any profit. That being said, a new hedging system has been put in place. We found it is better to either win or lose (cut losses quickly), but not to stay in the middle because it simply adds much more risk.
Nonetheless, this is definitely not the end, but rather a new beginning and we are excited for the next coming months.
Our Proposed Solution
The technical analysis will continue to stay the same. The only modification will be found in abiding by the new risk management strategy that we had created, and already implemented end of June and early July.
The head Trader of PlutusX MAM team announced, “[We are] fully implementing a strict risk management strategy after our last experience. Our analysis was correct most of the time, but our risk management was not secure enough. Therefore combining our good analysis and implementing the strict risk management will lead us to more consistent results.”
The Risk Management Strategy
- Max Risk Per Pair: 5%
- Max Trades Per Pair: 5
- Hedging: Still abide by the 5% risk per pair metric, even if it means partial closing other trades.
- GBPUSD 5% Max Risk = 5 Lots
- Buy @ 1.260
- T/P @ 1.275
- S/L @ 1.250
- Risk to Reward Ratio 1:2
Martingale Strategy With Adjusted Risk:
- GBPUSD 5% Max Risk = 5 Lots
- T/P @ 1.275
- S/L @ 1.250
- Trade One: Buy 0.4 Lots @ 1.270*
- Trade Two: Buy 0.8 Lots @ 1.265*
- Trade Three: Buy 1.6 Lots @ 1.260*
- Trade Four: Buy 2.2 Lots @ 1.255 (Backloading most of the risk at the tail end of the trade)*
*The martingale strategy will not distribute the trades proportionally to each account as the quantity in lots is too small. This means that only bigger accounts will receive these trades. As the lot size increases, other sub-accounts with smaller margin will begin to receive the trades. The margin and the amount are dependant on free margin in the MAM and your personal sub-account.
We invite others to help monitor their accounts to notify us if there are trades that do not adhere to the basic modification as stated above.
If the assigned MAM Team does not execute on these strategies, the Executive Team will kick in and make the changes manually to the account.
We know that the losses can be made up rather quickly but we hope that we can restore the trust with our community as well.
The 6 Months Plan
We intend to continually modify the risk while continuously listening carefully to members’ feedback. Our mission is to break-even and starts heading back into profits.
There is definitely a lot to be learned from this situation and we will take all of the feedback into our meeting. None of you are wrong; the positions should have been closed, and we were dealing with it internally.
Risk and proper terminology will be made more clear and we are taking notes on everything.
Rest assured, we hear you and your feedback won’t go unnoticed.
Thank you for reading our July MAM Update and we hope it cleared up a few misunderstandings or concerns.
In a separate article, we will also provide guidance on how to responsibly withdrawal money so that you can have a risk free experience with us, over time. Additionally, we will dive into the margin in greater detail. The article for both will be shared in our community chat once they are completed.
If you have feedback, suggestions, questions, or we didn’t answer all of your concerns thoroughly, please message us on the community chat as well.
If you would like to see our trade updates and get an insight into how the MAM is performing in further details, please join our MAM Channel on Telegram where we post all of our trades.
Disclaimer: PlutusX does not provide financial advice and investors are encouraged to consult their personal financial advisors.
All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Historical returns, expected returns, and probability projections are provided for informational and illustrative purposes, and may not reflect actual future performance.
To stay up-to-date with our progress, and to send us feedback or suggestions, join our community chat here.