Hedge Fund Market Wizards

Chapter 5

Jaffray Woodriff

The Third Way

Jaffray Woodriff knew three things: He wanted to be a trader; he wanted to use a computerized approach; he wanted to do it differently from anyone else. The majority of futures traders, called CTAs, use trend-following methodologies.1 These programs seek to identify trends and then take a position in the direction of the trend until a trade liquidation or reversal signal is received. A smaller number of systematic CTAs will use countertrend (also called mean reversion) methodologies. As the name implies, these types of systems will seek to take positions opposite to an ongoing trend when system algorithms signal that the trend is overextended. There is a third category of systematic approaches whose signals do not seek to profit from either continuations or reversals of trend. These types of systems are designed to identify patterns that suggest a greater probability for either higher or lower prices over the near term. Woodriff is among the small minority of CTAs who employ such pattern-recognition approaches, and he does so using his own unique methodology. He is one of the most successful practitioners of systematic trading of any kind.

Woodriff grew up on a working farm near Charlottesville, Virginia. Woodriff’s perceptions of work were colored by his childhood experiences. When he was in high school, Woodriff thought it was sad that most people loved Fridays and hated Mondays. “I was going to make sure that wasn’t me,” he says. “I really ...