A veteran market beater returns to the trade

January 30, 2018 08:00 AM

Kenneth  M. Jakubzak had been involved in futures markets for five decades, and after a short hiatus he has returned with his hybrid forex strategy Currency Program that produced a compound annual return of 16.02% over more than 20 years. 

Jakubzak had been interested in trading ever since taking a job with Clayton Brokerage in St. Louis in the 1970s. “I found something that I really enjoyed,” Jakubzak says. So much so that he moved back to the Chicago area, where he grew up and earned degrees from Loyola and DePaul, to trade on the Mid America Exchange. He traded soybeans, bonds and gold and would go on to lease a membership on the Chicago Board of Trade. 

He continued to trade while he and a partner opened a restaurant, and in 1987, he returned to the markets full-time as head of managed funds for First Commercial Financial Group. While there, he worked on trading systems and in 1989 became a commodity trading advisor, trading a trend- following system based on the Richard Dennis turtle methodology taught to him by an original turtle. 

It was a long-term trend trading following system, which he traded from 1989 to 1999, but closed after a significant drawdown. During that time, he developed his own system that traded currency futures for his CTA KMJ Capital. 

Jakubzak was drawn to the global macro aspect of currency markets and launched a standalone program in 1994. “I combined the best of the Richard Dennis turtle system — which was purely technical — with discretionary elements, which are very important in trading currencies.” 

He says the G7 currencies he trades respond better to global macroeconomics and geopolitical situations. 

“I had a niche for the currencies, [which are] difficult to trade from a purely technical viewpoint,” he says. “At that time, money supply [and] capital flows would affect markets; now central bank policies can affect the market dramatically, and certain geopolitical events like [what’s going on in] North Korea.”

Jakubzak combined the technical elements of the turtle systems with his own fundamental analysis of the currency markets. 

“I am evaluating time, price and volatility for a specified currency market, I am looking at past historical pricing and then I am looking at certain time frames searching for price disparities that can prove a market opportunity,” Jakubzak says. “Along with that, I am looking at market momentum, key support and resistance areas, overbought/oversold conditions, Fibonacci levels that are the same on a day-to-day basis.”

Once he finds a positive trade from the technical perspective, he looks at the fundamentals. In order to initiate a trade both the technicals and fundamentals must agree. 

Every trade risks 0.25% to 0.4% of an account, which works out to 40 to 60 basis points. His margin to equity ratio runs at 4-5% but can go as high as 11% in exceptional markets. 

Most of his trades last between one and 12 days, but he will take longer-term positions if the opportunity dictates it. “There are certain trades that are going to be longer term because of market momentum, the breakout period is longer and the fundamentals are stronger,” Jakubzak says. 

“What I look for once the trade is initiated, is momentum gaining or waning. I will look at supporting fundamental factors—is there any financial report coming up that could affect it? I look at global macroeconomics and relative pertinent data that comes out on a weekly basis,” he says. 

The program is out of the market 30% of the time and never has more than three trades on. “That is not by design but because the technicals and fundamentals have to be positive, if not I will not take a trade,” Jakubzak says.

“During that time, I am doing research and looking at the markets, looking for the next trade. It can be kind of tedious, but that is one of the risk management [elements] that allows me to have low volatility and small drawdowns,” he says. 

Jakubzak suspended the program due to a family illness in 2015 and relaunched in May 2017 as PAK Capital LLC. The program had a compound annual return of 16.02% from 1994 through March 2015, and is up 2.39% through November. 

Jakubzak is glad to be back in the saddle.   

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.