Our Trading Approach

Claughton Capital LLC manages client accounts using its unique fully systematic trading strategy on futures and currencies we call Auto-Reactive Positioning (ARP). In addition to providing returns that place us among the best performing advisors within our peer group, our ARP strategy provides the additional benefit of non-correlation, on both a monthly and daily basis, with most other managed futures strategies and traditional investments. The ARP system uses market behavior to determine what strategy is most appropriate to trade at any given time. The strategy is designed to dynamically allocate capital between a predominantly employed probability based pattern recognition strategy and an occasionally employed strategy of following the trend. Market conditions dictate when this transition occurs on an intraday basis. This is what separates the ARP strategy from traditional strategies and results in reduced drawdowns, enhanced performance and non-correlation.

The ARP strategy was originally developed in 1992 and was the main algorithm behind Brookville Investments, a CTA, which traded client funds from August 1993 until July 2000. During that seven-year period, Brookville achieved a 17% annualized compounded average return after fees, while trading up to $15 million in client assets. This performance placed Brookville in the top 10% of advisors within its peer group.

The ARP strategy was originally the result of an extensive research program undertaken by one of Claughton's principals, Mr. Keith Ganzer. He began by examining traditional approaches to determine their benefits and drawbacks. One problem with these techniques is that significant portions of major price movements, mainly at the beginning and end of the movement, is lost in the recognition of the move. The distance between the buy signal and the sell signal is often significant, resulting in a large cost to reverse the position. ARP uses a strategy of trading within the range that confirms trades each trading day, and employs money management strategies to selectively emphasize certain classes of trades that are often profitable. The contraction and expansion of that range occurs on a dynamic basis by recognizing similar patterns that have proved to be successful in the past.

ARP's ability to trade within the range also provides the additional benefit of non-correlation. Unlike most traditional startegies that must wait for substantial range breakouts to cover and reverse their positions, Claughton's Auto-Reactive Positioning algorithm allows us to uniquely confirm reversals. This results in superior performance and non-correlation during choppy markets, exactly when you need it the most. Thus, making an investment with Claughton is most likely risk reducing for those following a multi-advisor approach.

In 2003, Claughton's principals, Eric Schreiber and Keith Ganzer, undertook an extensive research project to review the performance of the trading strategies of Brookville Investments. Brookville implemented a combination of two strategies in its systematic approach. A two thirds weighting was given to the Auto-Reactive Positioning (ARP) algorithm and one third to a well researched volatility breakout strategy. The first significant finding of the 2003 research was that by far, the more profitable of the two strategies and what led to Brookville's overall outperformance was the ARP strategy. The second significant finding was that there was a high correlation between the liquidity of a market and ARP's performance. Therefore, Claughton Capital LLC's approach is to take the exact same ARP approach that was successfully used by Brookville Investments and with the addition of a "liquidity filter" in its market selection process, improve the results.

The following chart shows the cumulative performance of actual client accounts for Brookville Investments.

This chart shows the cumulative return since inception for Claughton Capital — institutional program versus the Newedge CTA Index and the S&P500 Total Return.