Covenant Capital Management

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Program Description: Covenant Capital Management's (CCM) trading program is a long-term technical trend following system. CCM believes that large trends occur more often than normal probability distribution would suggest, and that these trends are often larger than they 'should be'. We do not predict trends. We do not predict when they will start, how long they will last, or how high or low they will move. After a trend has occurred, we do not seek to explain why a trend may have occurred or why it behaved as it did. The only prediction we ever make is that trends will continue to exist as a phenomenon of the market place. Trends are only identifiable in a historical context. That is to say that CCM can only recognize a trend after some, most, or all of it has already occurred. We use technical analysis to identify when a trend may be beginning and we enter the market at that point. The same technical analysis indicates to us when the trend may be ending, and we exit the market at that point. The system is set up to minimize commissions and the number of trades per market when compared to other futures trading systems. Winners usually should be held from four months to a year, and losers held from one week to three months. Initial risk will be limited to 1% of the account's core equity (core equity is the total equity in the account less the total amount at risk in other open positions). As profits accumulate in a position, a greater percentage risk is tolerated; however, at a constant pre-determined level, CCM decreases the position size to reduce risk and lock in profits. Exits are executed on trailing stops. Position size may be dramatically reduced to lower risk, but a position will not be exited until the market hits the pre-determined trailing stop level. CCM trades a diverse portfolio of markets and market sectors in order to diminish the importance of any one position in the portfolio. The individual positions kept small and the stops are kept wide to avoid multiple entries and exits that increase the commission burden on an account. Larger initial risks per contract minimize the effects of large gap moves through the stop levels as a percentage of the original risk.