"Sharing real experiences from decades of profitable trading. Focused on the important factors that lead to trading success.

Dedicated to the best of classical charting principles. Committed to aggressive risk management and capital preservation.”

Factor Update, February 15, 2020

Market Review
This issue comments on global stock markets (S&Ps, DJIA, *AMZN, WIG20, *Costco, *STE),
interest rates (*10-Yr Notes, T-Bonds), currencies (*NZD/CAD), grains (Corn, *Wheat), metals
(Gold, GDXJ, *GOLD, Silver, Platinum, Palladium) and *cryptos. *Signifies a position in the Factor
$200,000 Tracking Account.

Existing positions
Developing signals  10-Yr T Notes futures
 Corn  AMZN
 GDXJ  NZD/CAD
 Gold futures  Costco
 Chicago Wheat
 STE
 GOLD
The Factor Tracking Account is currently leveraged at 1.2X. Capital Utilization is at 64.9%. Note: Factor does not include the nominal
value of interest rate futures contracts.]

Contents

Global equity markets .......................................................................................................................... 1

Introducing the concept of “Leakage” ..................................................................................................... 5
Interest rates ...................................................................................................................................... 6
Metals ................................................................................................................................................ 7
Grains .............................................................................................................................................. 11
Currencies ........................................................................................................................................ 12
Cryptos ............................................................................................................................................ 14

Global equity markets

The cume
S&P A/D
line does
not show
signs of a
top. In
fact,
market
breadth is
quite
healthy
and
supportive
of further
gains.

1
DIA (NYSE)
Factor is flat. I am asked all the time how I determine the target of a chart pattern. My simple answer is this –
I ballpark targets with no intention for mathematic accuracy. I think traders take themselves too seriously
when setting price targets – for one reason, most chart patterns either fail completely or morph along the
way. Also, the same chart can provide many price targets. Take the DIA weekly chart as an example.
 The target of the continuation inverted H&S based on the distance from the left shoulder high to the
orthodox low of the head is 321.39 OR SO.
 The target of the continuation inverted H&S based on the distance from the left shoulder high to
bottom of the candlestick open the week of Dec 28, 2018 is 314.72 OR SO.
 The target of the ascending triangle serving as the right shoulder of the H&S was met at 291.77 OR
SO.
Which of the above targets is the most correct? All of them, OR SO.

WIG 20 (WSE)
For those that trade the
Warsaw exchange, this is an
excellent example of a
continuation H&S top pattern.

2
S&Ps (CME)
Factor is flat. The next target is 3524, OR SO. The market is attempting to shrug off the jitters of the
Coronavirus. There is NOTHING bearish about the weekly chart.

STE (NYSE)
Factor is long. The advance on Feb 11 completed a 7-month Cup and Handle pattern.

3
AMZN (NASDAQ)
Factor is long. I would not be surprised to see a retest of the 2050 breakout level.

Costco (NASDAQ)
Factor is long.

4
Introducing the concept of “Leakage”

I want to introduce the broader Factor community to a concept that I

have shared privately with my peer group for many years – the concept
of “Leakage.”

Trading Leakage: The amount of trading profits, expressed in basis

points, which have been given up due to:
A. The violation of specific and written risk/trade management
rules pertaining to:
 A different trade entry/sizing than those specified by the
specific master trading rules
 A loss beyond that which would have occurred had a stop
been in place (if active stops are the policy of the master
trading rules).
 Exiting at a price different than the pre-established target
price (if target exit orders are the policy of the master
trading rules).
B. Failure to enter a trade that had been pre-considered with a specific entry price/tactic.

I HIGHLY recommend that traders maintain an Excel record of all “Leakage” trades in order to discover the impact on
performance due to the lack of discipline in executing a trading plan according to SPECIFIC and WRITTEN trading rules.

Every trader who has at my encouragement taken the tracking of Leakage seriously has reported SHOCK in finding out
how much money their lack of discipline was/is costing them. I know that I was shocked many years ago when I started
to monitor Leakage. It is not unusual for Leakage to amount to 200 or so basis points PER MONTH of lost opportunity
profits. Think about this – a monthly Leakage of 200 BPs amounts to 24% ROR. A 24% annual ROR would put a trader
into the upper 5% of money managers.

There are certain trades that should not count as Leakage.

A. You are not in a position to determine your Leakage if you do not have specific written trading rules.
B. A trade does not count as Leakage if you did not have a pre-determined specific entry strategy/price and sizing
in mind. In other words, missed trades are NOT counted as Leakage unless you had already formulated “pull-
the-trigger” criteria.
C. “I knew BTC was going up … I should have bought some.” This is NOT Leakage.

I routinely track my own Leakage. In fact, I had Leakage this past

week. Swiss Franc futures completed a H&S top on Feb 6. I saw it. I
wrote down my intent to short CHFH20 at 1.0275 limit with a stop
at 1.0327 at a sizing of 6 lots per $1MM of nominal capital and a
target of 1.0161. I did not enter the order. I would have been filled
on Feb 7. After the close on Feb 11 I revisited the order. I did not
enter it. I would have been filled on Feb 12. I know exactly what
conditions would take me out of this trade. This trade is Leakage
for me.

Are there some “Leaked” trades that would have actually been losers? Yes, of course. And these are counted as well. My
goal is to limit Leakage to 50 to 100 BPs per month. Many months I am successful. Some months I am not. As a
discretionary trader, I seek progress, not perfection.

5
Interest rates

10-Yr T-Notes (CBOT)

Factor is long. I was stopped out of half of my position on Wednesday. I am prepared to expand my leverage
back to a full position based on the coil on the daily chart. Do I enjoy getting stopped out only to buy back in
at a higher price? No, not really. I enjoy taking big losses even less. See the inset chart of TLT.

6
T-Bonds
The daily T-Bond
chart is forming a
possible
continuation flag.
Factor is flat.

Metals

Silver (NYMEX)
Factor is flat. The daily graph displays a possible 6-week flag. I am interested depending upon the nature of
the breakout.

7
Palladium (NYMEX)
The powerful bull trend in Palladium could be forming a continuation flag. My interest would be expressed in
the ETF (PALL).

8
Platinum (NYMEX)
The daily chart exhibits a possible H&S top. Could Platinum go down even if Gold and Silver? Not likely, but
anything is possible.

Gold (NYMEX)
Factor is flat. The daily chart is forming a possible continuation flag. Interested, although Gold futures have
slapped me around in the past nine months.

9
GOLD – Barrick Gold Corp (NASDAQ)
The advance on Friday in GOLD completed a continuation H&S or rounding pattern. Factor bought the
breakout.

GDXJ (NYSE)
The daily graph is forming a saucer or scalping bottom pattern. Factor is flat – but interested. I will lose
interest in this chart if the 39.60 level is penetrated on a closing basis.

10
Grains

Corn (CBOT)
Factor is flat. The Corn chart is poised to go either way. I thought Friday’s close indicated weakness to come.
In fact, I was tempted to short the close. It will be interesting to see what next week brings.

Wheat (CBOT)
Factor is short. The decline on Tuesday completed an arguable H&S top.

11
Currencies

NZD/CAD (spot)
Factor is short. I
got bumped out
of a tranche on
Wednesday rally.
I was too quick
to raise a stop.

Post Mortems

KSU
Factor was stopped out of the final tranche.
Net gain = +65 BPs

BTC
See chart herein.
Net gain =+133 BPs
T-Notes
See chart herein.
Net loss = -4 BPs
GBP/USD
Factor was stopped out of a long position.
Net loss = -15 BPs

NZD/CAD
Factor was stopped out of short tranche.
See chart herein.
Net gain = +11 BPs

12
 Post note to the early discussion of Leakage

I asked a member of the Factor community (Jeremy Sweckard @sweck3) to contribute some comments on
his experience with the concept of Leakage. I introduced Jeremy to Leakage several years ago.

Understanding Leakage has been key in problem solving. It has: 1. Forced me to define more clearly what a signal is and accept that
a signal not identified in real time is not a signal, and, 2. Helped me with a methodology to identify specifically what can cause me to
not take a trade or to take one that I shouldn’t.

Leakage for me is:

a. A trade I didn’t take and know I should have.
b. A trade I took and know I should not have.

What leakage is not:

a. Nothing seen after the fact.

b. If I’m unsure if it should count as leakage, then I do not count it.

Tracking leakage is a tool for measuring adherence to my signals. It is not a tool for measuring signal quality. It can reveal tactical
or emotional issues interfering with my trade plan execution. It is not uncommon for my leakage to exceed 100 bps a
month. Tracking and reducing leakage is a key performance indicator.

What I’ve learned from tracking leakage:

 There’s an emotional spectrum. On the left side is fear of losing. On the right is fear of missing out. In the center is
acceptance that no one trade or series of trades matter.
 Fear of losing is stronger in me than fear of missing out, but I can get carried away is both directions. In 2019, there were
periods spent on both sides and in the center of the spectrum.
 I had a degree of variability in what a trade was for me that needed to be addressed.
 Put the order in.
 Get away from the screens.
 Don’t move stops intraday.
 My chart reading skills and execution tactics are sufficient.
I will regularly get it wrong. I need to allow room inside my belief for regular missteps.

plb

###

13
The Factor Crypto Corner
Cryptos

Bitcoin

Factor is flat. The swing trade target of 10287 was met this past week. The dominant trend remains
up. I believe that BTC is in a secular bull trend. At the present time there is no classical chart
construction that supports a long position. You will note a rising wedge drawn on the chart. I believe
this pattern will morph.

ETH/USD

The weekly Ether chart has

completed a massive symmetrical
triangle. The trend looks powerful to
me.

plb
###

14
Factor Tracking Account, February 14, 2020
A complete listing of the Factor Tracking Account trades for 2020 is issued monthly.

Factor LLC 2/14/2020

Model Tracking Account Trade History and Portfolio
Constant nominal capitalization: $200,000
(See disclaimers and notes below)
Entry Pattern Exit
BP Stop Trade Capital to Value of trade
Market Date L/S Price Size Initial stop risk Current Stop Date ∆ Target Weekly Daily date Price Net carry trade (entry)

Positions open as of 12/31/19

EQH AXA Equitable 11/14/19 L 23.17 300 22.19 15 24.28 12/31 29.87 r 28-mo cont H&S 28-mo cont H&S 3-Jan 24.28 $ 333 Closed -
DIA DJIA ETF 12/4/19 L 277.06 100 273.37 19 290.88 1/21 314.79 r Retest 15 wk asc tri Island 23-Jan 290.74 $ 1,368 Closed -
ZCN20 Corn 12/12/19 L 3.895 2 3.8275 36 3.9575 1/3 Open Long-term bottoming Poss 4-mo dbl bttom 8-Jan 3.9575 $ 615 Closed -
KWH20 KC Wheat 12/16/19 L 4.530 1 4.42 27 4.715 1/3 5.19 Historic support H&S w/ rectangle 6-Jan 4.715 $ 920 Closed -
SLV Silver ETF 12/23/19 L 16.170 500 15.77 10 16.73 1/3 26.48 Possible 5-yr dbl bottom 15-wk wedge 9-Jan 16.69 $ 260 Closed -
SLV Silver ETF 12/23/19 L 16.170 500 15.77 10 16.42 1/22 18.36 r Possible 5-yr dbl bottom 15-wk wedge 28-Jan 16.41 $ 120 Closed -
MGCG20 Micro Gold 12/24/19 L 1490.1 4 1478.8 24 1574.8 1/8 1667.4 6-yr H&S 15-wk wedge 8-Jan 1574.6 $ 3,369 Closed -
MGCG20 Micro Gold 12/24/19 L 1490.1 3 1478.8 18 1549.8 1/8 1667.4 6-yr H&S 15-wk wedge 9-Jan 1549.3 $ 1,767 Closed -
AMZN Amazon 12/26/19 L 1830.23 30 1792.97 52 1831 1/10 Open Poss 16-mo C&H 5-mo H&S 27-Jan 1818.88 $ (341) Closed -
G6MH20 Peso 12/26/19 L 0.05221 2 0.05184 19 0.05259 1/13 .05987 r 3-Yr sym tri 3-Yr sym tri 13-Jan 0.05258 $ 360 Closed -
EUR/USD EUR/USD 12/30/19 L 1.12010 110k 1.1133 40 1.1168 12/31 1.1548 16-mo wedge 10-wk cont H&S 2-Jan 1.11673 $ (371) Closed -

Total -- Carry in positions $ 8,400 $ - $ -

2020 forex roll charges and FX losses on foreign margin deposits; day trade P/Ls on repositioned trades $ (224)

UGA Gas ETF 1/3/20 L 33.45 500 32.14 33 Open 8-mo sym tri 2nd completion 8-Jan 32.11 $ (670) Closed -
XLI Industrial ETF 1/6/20 L 82.51 200 80.88 17 Mkt 1/10 95.61 r 20-mo cont H&S 9-wk pennant 10-Jan 82.74 $ 46 Closed -
XLI Industrial ETF 1/6/20 L 82.51 200 80.88 17 Mkt 1/10 95.61 r 20-mo cont H&S 9-wk pennant 10-Jan 82.74 $ 46 Closed -
BTC BTC (GDAX) 1/6/20 L 7608.50 1 7260 17 9058 2/7 10287 r Poss 6-mo channel 8-wk H&S 11-Feb 10287 $ 2,673 Closed -
BTC BTC (GDAX) 1/6/20 L 7608.50 1 7260 17 8273 1/17 9145 Poss 6-mo channel 8-wk H&S 13-Jan 9145 $ 1,532 Closed -
BTC BTC (GDAX) 1/6/20 L 7608.50 1 7260 17 Mkt 1/8 TBA Poss 6-mo channel 8-wk H&S 8-Jan 8241.25 $ 628 Closed -
KSU KC Southern 1/7/20 L 156.44 100 152.72 19 162.87 1/17 170.47 r Major trend 9-wk pennant 29-Jan 170.47 $ 1,403 Closed -
KSU KC Southern 1/7/20 L 156.44 100 152.72 19 169.54 2/7 177.48 r Major trend 9-wk pennant 12-Feb 169.51 $ 1,307 Closed -
EQH AXA Equitable 1/8/20 L 25.37 500 24.73 26 25.44 1/22 27.88 r 8-mo inv H&S 6-wk pennant 23-Jan 25.43 $ (31) Closed -
EQH AXA Equitable 1/8/20 L 25.37 500 24.73 26 24.88 1/9 30.97 r 8-mo inv H&S 6-wk pennant 24-Jan 24.87 $ (250) Closed -
CADH20 Canadian Dollar 1/8/20 L 0.7672 1 0.7623 25 0.7669 1/8 0.7882 5-mo sym tri Retest 9-Jan 0.7668 $ (45) Closed -
CADH20 Canadian Dollar 1/8/20 L 0.7672 1 0.7623 25 0.7644 1/8 0.7882 5-mo sym tri Retest 9-Jan 0.7643 $ (295) Closed -
MMM 3M 1/8/20 L 180.51 100 174.49 30 177.64 1/22 202.37 r 8-mo H&S 8-mo H&S 23-Jan 177.06 $ (345) Closed -
XLI Industrial ETF 1/13/20 L 83.44 300 82.24 18 82.98 1/17 88.45 20-mo cont H&S 2nd completion 22-Jan 82.98 $ (138) Closed -
XLI Industrial ETF 1/13/20 L 83.44 300 82.24 18 82.47 1/17 95.82 20-mo cont H&S 2nd completion 27-Jan 82.02 $ (426) Closed -
ICE ICE Exchange 1/16/20 L 96.73 100 93.87 14 95.77 1/23 100.84 Major trend 4-mo rectangle 27-Jan 95.68 $ (105) Closed -
ICE ICE Exchange 1/16/20 L 96.74 100 93.44 16 98.97 1/31 106.88 Major trend 4-mo rectangle 4-Feb 98.664 $ 192 Closed -
COST Costco 1/21/20 L 310.41 100 302.89 38 304.28 2/2 347.88 4+ mo asc tri 4+ mo asc tri 3-Feb 304.27 $ (614) Closed -
TLT 20-Yr Notes ETF 1/23/20 L 139.92 200 138.58 13 144.77 1/31 145.87 r 5-mo wedge 5-mo wedge 3-Feb 144.75 $ 966 Closed -
TLT 20-Yr Notes ETF 1/23/20 L 139.92 200 138.58 13 142.84 2/4 148.77 r 5-mo wedge 5-mo wedge 5-Feb 142.29 $ 474 Closed -
ZNH20 10-Yr Notes 1/24/20 L 130^09 1 129^25 25 130^265 1/31 131^29 r 6-mo H&S failure 12-wk rectangle 4-Feb 130^265 $ 542 Closed -
ZNH20 10-Yr Notes 1/24/20 L 130^09 1 129^25 25 130^215 2/4 133^24 r 6-mo H&S failure 12-wk rectangle 5-Feb 130^215 $ 386 Closed -
MGJ20 Micro Gold 1/24/20 L 1575.60 3 1560.8 45 1569.3 2/3 1672 Major trend Half-mast flag 4-Feb 1569.1 $ (210) Closed -
ICE ICE Exchange 1/27/20 L 97.77 100 95.47 12 98.27 1/31 106.77r Major trend 4-mo rectangle 4-Feb 98.213 $ 44 Closed -
ICE ICE Exchange 1/27/20 L 97.77 100 95.47 12 97.77 1/31 100.84 Major trend 4-mo rectangle 4-Feb 100.840 $ 307 Closed -
GBPH20 British Pound 1/31/20 L 1.3221 1 1.3108 44 1.3148 2/2 1.3587 8-wk sym triangle 8-wk sym triangle 3-Feb 1.3146 $ (469) Closed -
AMZN AMZN 2/4/20 L 2022.47 10 1927.87 50 TBA 16-mo Cup and Handle BA gap $ 20,225 $ 20,225
NZD/CAD Kiwi/Loonie 2/6/20 S 0.8589 90k 0.8639 19 0.8554 2/7 0.8431 9-wk H&S Re-completion 12-Feb 0.85560 $ 224 Closed -
NZD/CAD Kiwi/Loonie 2/6/20 S 0.8589 90k 0.8639 19 0.8611 2/14 0.8431 9-wk H&S Re-completion $ 2,582 $ 51,640
GBP/USD GBP/USD 2/6/20 S 1.2954 40k 1.3053 20 1.2993 2/12 1.2683 7-wk sym tri 7-wk sym tri 13-Feb 1.29940 $ (161) Closed -
GBP/USD GBP/USD 2/6/20 S 1.2954 40k 1.3053 20 1.2986 2/11 1.2752 7-wk sym tri 7-wk sym tri 12-Feb 1.29860 $ (128) Closed -
COST Costco 2/6/20 L 308.35 160 304.34 32 308.87 2/12 328.48 4+ mo asc tri Re-completion $ 49,336 $ 49,336
ZNH20 10-Yr Notes 2/7/20 L 130^245 1 130^08 26 130^22 2/11 133^19 6-mo H&S failure Retest of BO 12-Feb 130^22 $ (83) Closed -
ZNH20 10-Yr Notes 2/7/20 L 130^245 1 130^08 26 130^17 2/12 131^30 6-mo H&S failure Retest of BO $ 1,495 NA
ZWH20 Chicago Wheat 2/11/20 S 5.46 1 5.5325 19 5.52 2/13 5.110 8-wk H&S 8-wk H&S $ 1,375 $ 27,300
ZWH20 Chicago Wheat 2/11/20 S 5.46 1 5.5325 19 5.495 2/13 5.110 8-wk H&S 8-wk H&S $ 1,375 $ 27,300
STE Steris Corp 2/11/20 L 157.72 120 153.47 25 156.77 2/14 174.070 7+ mo Cup and Handle 9-wk asc triangle $ 18,926 $ 18,926
STE Steris Corp 2/11/20 L 157.72 120 153.47 25 174.070 7+ mo Cup and Handle 9-wk asc triangle $ 18,926 $ 18,926
GOLD Barrick Gold 2/14/20 L 19.47 800 18.47 40 21.470 5+ month rounding 5+ month rounding $ 15,576 $ 15,576

Trades as of $ 14,976 $ 129,817 $ 229,230

Indicates open position value as of Levered at 1.15
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE ROR YTD 7.49% Cap utiliz. 64.9%
r = revised RO = Rollover A = Alert = Margined d = Day
The Factor Service $200,000 Tracking Account represented herein is a proxy representation of the trading executed by Peter Brandt for the Factor LLC's proprietary trading accounts. There are some major differences between the trading
activity conducted in the Factor Service $200,000 Tracking Account and trading in the Factor LLC’s proprietary accounts. Peter’s trade sizing and trade management tactics in the proprietary account is sized and managed per $1MM of
proprietary capital. There may be trades Peter believes are not suitable for a $200,000 block of capital, and these trades are not executed in the Factor Service $200,000 Tracking Account. Factor LLC’s proprietary account trades multiple
contract trades wherein Peter layers into and out of a position at different prices and on different dates. The Factor Services $200,000 Tracking Account may hold a single futures contract in a trade whereby layering is not possible. Factor
LLC’s proprietary accounts may also pyramid some trades not pyramided in the Factor Service Tracking Account. Because the Factor Service Tracking Account represents how Peter would trade a $200,000 block of capital in contrast to the
actual trading of Factor LLC’s proprietary account, the Factor Tracking Account should be considered as hypothetical. Hypothetical trading performance is subject to the following disclaimer required by the Commodity Futures Trading
Commission.

15