Trendfinder Trading Systems

The last day new subscriptions will be available for Lion II Alt is next Friday, October 8.  I reserve the right to stop new subscriptions before that date if necessary to control the number of contracts being traded.

Thanks, gary

Jaguar Alt is now sold out.  The Wildcat Portfolios on the website have been updated to include only the systems that are currently available.

The last day new subscriptions will be available for Jaguar Alt is next Friday, August 20.  I reserve the right to stop new subscriptions before that date if necessary to control the number of contracts being traded.

Cougar Alt and Panther have been added to the website.  The systems they replaced, Cougar and Tiger, are sold out.

For the Wildcat I portfolio, Panther has replaced Bobcat II.  It is now composed of Jaguar Alt and Panther.

For the Wildcat IV and Wildcat V porftolios, Panther has replaced Tiger.

This Friday 7/30 will be the last day subscriptions are taken for Cougar and Tiger – they will be sold out.

After that two new systems will be offered – Cougar Alt and Panther.  Cougar Alt is just like the other Alt systems (offset 1 minute from “original” version – no changes to strategy code).  Panther is a completely new system, and it will replace Tiger in the Wildcat portfolios.  In case you are wondering…I can not offer an Alt version of Tiger because it runs on a 1 minute chart.

I’ve updated the performance results on the website to include $50 roundtrip for commission and slippage (up from $40 previously used).

Since the max hypothetical historical drawdowns are higher using $50, I have revised the suggested account sizes for each portfolio.

I have also included performance reports for the “Alt” systems, which are the exact same strategies placed on charts that are offset by 1 minute to not coincide with orders being sent by the original systems.  The Wildcat Portfolios now include the Alt systems where applicable.

Trading has been very fast and volatile leading to much higher than average slippage the past few weeks.  In light of this, instead of using $40, I am going to start using $50 for roundtrip commission and slippage costs.  I will be updating all results on the main website over the next 1-2 weeks to reflect this.

To help keep slippage under control, I am not allowing any more additional contracts to be traded on Jaguar, Leopard or Lion II.  I am releasing alternate versions of these systems which are the exact same strategies placed on charts that are offset by 1 minute to not coincide with orders being sent by the original systems.  The trades will be different but over time the results should be similar.  When these alternate versions are maxed out then they will also be closed to any additional contracts until further notice.  I will be updating all results posted on the main website (including the Wildcat portfolios) to include the alternate versions.  I will be taking the same actions when other systems get maxed out as well.  These limits apply to both new and existing subscribers.  I do not want to jeopardize these systems by having too many contracts being traded on them.  A note about Tiger: since Tiger runs on 1 minute bars, there will be no alternate version – when it is maxed out, it will be closed to any additional contracts.

 To simplify pricing, I will no longer be offering a discount for leasing multiple systems/contracts. I will continue to offer the discount for 3 month and 6 month subscriptions.  Pricing for 1 contract of a single system will remain the same.  The new pricing will be a 33%-60% increase over current rates depending on the number of contracts being leased. In order to give everyone sufficient notice, the pricing change will become effective July 1st. Everyone subscribed before July 1st will continue to keep the current rates.

2009 has been a terrible year for futures trader.  Quite simply, if you haven’t lost too much money this year in futures you are doing much better than most!  To quote from Attain Capital’s weekly newsletter: “In looking through the early July estimates of many popular managed futures programs, it appears July is shaping up to be the 6^th losing month out of the first 7 months of the year for managed futures. (source Credit Suisse/Tremont Managed Futures Index).”

The average of all 5 Trendfinder systems is similar – 2/7 winning months.  However, Bobcat I and Bobcat II are positive for the year with 4/7 winning months, which I am proud of given that the average of all the CTA’s only had 1 winning month and are negative for the year.

I think the following excerpt from a post in the Traders Laboratory Forum is good to keep in mind during this rough year:

“When you’re trading based on probabilities of success (any bona fide edge), you’re playing a game that I’ve told several newer traders. Pretend I have a 6 sided fair dice. If 1, 2, 3, or 4 rolls, you pay me $10. Otherwise, if a 5 or 6 rolls, I pay you $40. You’re allowed to play as much as you want. Do you play the game? I would in a heart beat: the expected value per roll is +$6.67. However, on any one roll, I’ll likely lose. Further, the outcome of any one roll doesn’t matter at all.

Trading is the same. With an edge, you’re playing a probabilities game. The outcome of any one trade doesn’t matter. You’ll have streaks where you lose several in a row, and you did nothing wrong. A losing trade shouldn’t bother you at all, just as a losing throw of the dice wouldn’t bother you. But you’ll never know until you form a solid plan.”

In this example the winning percentage is only 33% yet if you make enough rolls you have a very high likelihood of winning money!

Mechanical/algorithmic trading systems are a solid plan that play a probabilities game.  For example, the expected value per roll (trade) for Bobcat II is $117.63 ($77.63 after $40 for commission and slippage) with a 50% win rate based on data going back to 1/1/04.

One thing I believe you must take into consideration when looking at different systems and their probabilities is commission and slippage.  I have seen far too many people get lured into something that is a mirage.  Make sure the average trade is at least $50 after commission and slippage (or at least $90 before commission and slippage) or I don’t believe you have a chance of being profitable.  Also, be sure commission and slippage are included in the drawdown statistics.  Bobcat II has an average drawdown of $763.88 and a max drawdown of $3410 ($40 r/t commission and slippage included) – I know of no other futures system with at least 50 trades a year that has that low of a drawdown (when $40 commission and slippage are included).

Will the poor trading results continue for the rest of 2009?  In my opinion (and many others) – no.  The following excerpt from Attain Capital’s newsletter sums it up so well I am just going to quote it:

“Conclusion:

In the end – we are mired in a poor managed futures environment, as evidenced by the various managed futures indices showing losses through the first seven months of the year and several historically successful programs on Attains recommended list at new maximum drawdown levels. There is no denying the poor environment.  But time has shown that these periods eventually do end, and trendiness returns to markets singularly and in aggregate (past performance is not necessarily indicative of future results). In a perfect world, investors would patiently wait for these periods in order to start their managed futures investment and in doing so greatly increase their chances for long term success. But unfortunately most people are taking this poor environment as a reason not to invest in managed futures, or as a reason to exit an underperforming program.

In our opinion, this is a recipe for losses. It usually entails locking in losses as the investor gets out of a program near its bottom, and then entering into the next investment at or near its highs. The next investment will then likely turn over, reverting to its mean and taking a breather, just as the old one starts to perform. If you have lamented on your poor luck, saying something to the effect of “right when I get in it goes down”, you are stuck in this never ending cycle of chasing returns by getting in at the tops and out at the bottom. This poor 2009 environment thus far for managed futures is a great opportunity to break out of that defeatist cycle. This is the opportunity to cash in on the huge stock rally and put money to work with solid managed futures programs offered at a discount because they are in a drawdown. This is your chance to be someone who sells the high and buys the low, and get rid of that pesky buy the high, sell the low persona.”

Someone asked me what I look at when testing and analyzing a system.  He asked what was the minimum Profit Factor (Gross Profit / Gross Loss) I considered as a valid for trading, so I’ll start with that. 

Minimal profit factor varies depending on the kind of system.  Quite honestly I don’t really pay much attention to it.  For daytrading, which is all I do, I like to see 1.4-1.8.  Anything less than 1.4 probably has too low of an average trade and above 1.8 is probably overfit.  These are my opinions of course.

These PF’s include transaction costs (commission and slippage).  I always include transaction costs – it makes zero sense to me to not include them.  These Profit Factor’s include $35 roundtrip for commission and slippage because the trade-assist brokers that I lease my systems through charge an average of $20 roundtrip for commissions.  If you are trading in TradeStation for yourself then $20 roundtrip for commission and slippage should be plenty and the Profit Factor range might be 1.4-2.0. 

The main things I DO look at is average trade (absolute minimum $50 after transaction costs and really prefer $60 or higher) and the ratio of annual net profit to drawdown – ALL BASED ON OUT OF SAMPLE DATA.  Disregard in-sample data for system validity.  Basically if I have a system with out of sample results of an annual profit / drawdown ratio of at least 2 and an average trade of $60 or more after transaction costs then I have a tradable system in my opinion.  To confirm I’ll also look at the equity curve, Profit Factor and other things to reinforce the validity – especially the equity curve for consistency and as a check for overfitting (if equity curve chops around and then goes straight up that is not consistent, if the equity curve looks like a straight line then something is wrong somewhere in the testing!). 

Make sense?  Questions? 

gary