Bill Dunn is a Long Term Trend Follower Just Like the Turtles
William Dunn as photographed by Red Morgan
Futures Magazine, March 1999. Number 3
March 1996, Number 3
Dunn: Slow reversal pays off
Managed Money Top Traders of 1995
By Jack Reerink
With the exception of John Henry, veteran trader Bill Dunn of Dunn Capital Management in Stuart, Fla., probably made the most money last year: His World Monetary Assets program, with $340 under management, was up 97.11%.
While many traders scramble to adapt their systems to changing market conditions, Dunn by-and-large has stuck with the long-term trend-following reversal system he conceived in the early 1970s. It paid off handsomely last year, also seen by the showing of Dunn Disciple Frank Simons of Simons Capital (up 174.38%) and by Dunns other CTA, Orion Futures (up 75.68%).
Dunn, 61, grew up in Kansas City and Southern California. After high school, he signed up with the U.S. Marine Corps for three years. His "head cleared," Dunn received a bachelors degree in engineering physics from the University of Kansas in 1960 and a doctorate in theoretical physics from Northwestern University in Chicago in 1966. After a brief teaching spell, Dunn worked for research organizations near Washington, D.C., from 1967 to 1974, developing and testing logistical and operational systems for the U.S. armed forces.
In 1970, Dunn came across a newsletter touting a commodities trading system, "which almost sounded too good to be true." Upon testing it, that turned out to be the case. His interest aroused, however, he started trading $337,000 with his own system three years later making 35% in 1975.
Using daily data, the system looks for big trends, as defined by a percentage of a price move from a recent low or high. It trades each market three to five times a year, automatically reversing if the trend moves in the other direction. Dunn determines position size by risking 2% to 6% of equity under management on each trade.
"Money management is the true survival key," Dunn says. The system adjusts position size during rollo9vers, using a measure of recent volatility, Dunn uses discretion to take profits in rare cases, such as when gold soared past $800 in early 1980.
"It just looked unbelievable, like somebody should take profits," says Dunn, who was long gold. As a result, he rolled over 10 days earlier than normal. With the increased volatility, Dunn kept only 20% of the original position, effectively selling 80% a few ticks from the $873 high.
The World Monetary program currently trades 13 markets: four currencies, gold, crude oil, T-bonds, Eurodollars, gilts, sterling, bunds, the FT-SE 100 and the S&P 500. Back testing 10 to 12 years (each year has equal weighting), Dunn annually adjusts the parameters of trading signals and each markets weighting. In February - just as the grains were about to take off - he dumped the entire grain sector. But Dunn has no regrets.
"For the last six to seven years, the grains have been difficult and less liquid than they used to be. They were more trouble than they used to be. They were more trouble than they were worth." Dunn says. By contrast, the currencies "have been good as long as theyve been around."
Copyright (c) 1996, Futures Magazine