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A Trading System Investment...How It all works.
June 26, 2006
We often talk in this space about measuring how a trading system investment is doing or will do, with data on correlations, probabilities, and more. But we forget to take a second and lay out just how an investor goes about getting involved with a trading system investment, and what he or she can expect from Attain once involved.
1. We assist in picking a portfolio of trading systems.
It all starts by sitting down with an investor (either in person, over the phone, or via computer) and assessing how much they are looking at putting towards a trading system investment, what type of returns they are looking to generate, and - most importantly - what amount of loss would cause the investor to consider stopping the portfolio. The single biggest reason investors lose money trading systems is their inability to stick through drawdowns, causing the dreaded 'get in at the top, out at the bottom' phenomenon. Getting this "pain" threshold out in the open before investing in a trading system goes a long way to long term success.
We then show you a library of systems we believe in - and assist you in matching the specific characteristics of each with your specific risk/reward characteristics. For example, we would show an investor with $50,000 to invest - who has shared he would abandon the investment if he lost over $10,000 - a portfolio of systems such as the example located here: Sample Report This portfolio requires no more than $50,000 in starting equity and has less than a 20% drawdown, as desired.
2. We walk you through opening a futures account: The next step is to open a futures trading account with Attain. Our Investor Relations Manager assists investors every step of the way, getting the proper account forms to investors by Fed Ex, fax, or email; then working with them personally to insure their account is set up and funded properly.
Part of opening the account is signing a letter of direction, which instructs Attain to follow a specific system - and only that system - on the client's behalf. The account is in the individual investor's name, and is a self-directed account by the investor, with no one authorized to execute any trades other than those signaled by the system. This protects the investor by insuring there are no weird Japanese Bond options or the like in the account - just the system trades and positions.
Attain also opens several "sub" accounts - for as many different systems as a client is trading. These sub accounts start at a balance of $0, but are linked to the investor's main account for margin positions. This allows investors to track positions, and more importantly - profit and loss - per system. One quick look at the "System A" account, for example, would show a client the exact profit or loss she has made trading that system.
3. We facilitate the purchase or lease of the Trading System from the 3rd Party Developer - All of the trading systems Attain operates for clients are the property of 3rd party trading system "developers". These developers charge anywhere from $50 per month to several thousand dollars to purchase their systems outright. Whatever the charge - Attain acts as the liaison between the investor and developer, reviewing invoices and deducting system fees straight out of client accounts monthly to avoid clumsy online credit card processing, or having to send money to an unknown entity. Paying for systems directly out of the account also lets a client know the true performance of a system - as the account balance will reflect the often overlooked cost of the trading system.
4. You tell us your final money management instructions and say Go!- Whether it be adding a contract for every $10,000 in profits and subtracting one for every $10,000 in losses, risking no more than 1.00% of equity across a portfolio of day, swing, and trend following systems, or implementing advanced sector filters or position limits - Attain follows your instructions to a tee.
You can also select an exact date you wish to say Go! (begin taking system signals), or instruct Attain to wait until the next signal, wait for a drawdown 25% of the tested maximum drawdown, for example, or start taking signals at new equity highs. Whatever your instructions, saying GO is as easy as picking up the phone or sending an email.
5. You sit back and watch while we do the work- Attain handles all aspects of your trading systems investment, from implementing any software or data upgrades to placing orders on the trading floor. Our offsite backups, rotating system specialists, and most of all - our experienced staff - make sure your account makes the exact profit or loss (after commissions, fees, and slippage) issued by the trading system. Should there be an error or some sort of mistake on Attain’s part in which your account does not receive the same trade the system issued - we make your account good - crediting any missed profits. We also use the average pricing system, where all clients trading a particular system receive the same price on entries and exits (an average of all the execution prices for all the clients on each order).
To see how your trading system investment is doing - you can receive daily statements via email as well as log in to a system for reviewing past and present account statements. Most clients find the easiest way to follow along is to view Attain’s daily comments and weekly newsletters - which cover all of the activity for each system seeing action that day (past week).
6. We notify you with Custom Reports - Attain constantly monitors individual client performance, from individual systems within portfolios to correlations between portfolio components. Should a system move outside of its tested risk parameters by eclipsing its stop trade level (usually 1.5 times its pre-release max DD) or the correlation between a pair of systems in a clients portfolio start to increase dramatically - Attain notifies clients by phone or email. In addition - we send a custom performance report to all clients annually showing performance by system, monthly percentage gains, and statistical measures such as the Sharpe ratio. Clients with accounts greater than $250,000 receive a custom performance report monthly. .
7.Transparency, Liquidity, and Interest- Three big advantages a trading system investment has over alternative investments in vehicles such as hedge funds or real estate are 1.full transparency, 2.nearly instant liquidity, and 3.ability to hold the account in interest bearing T-Bills. Investors can see all of their positions at all times, and per the limited letter of direction will not see any surprises. Should an investor need cash for any reason, wires can be processed the same day if received by 11 AM. T-Bills can be purchased for nearly the entire account value, earning investors an extra 4-5% per year.
IMPORTANT RISK DISCLOSURE
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The US Stock and Bond markets were very slow this past week with most traders preferring to stay on the sidelines rather than taking a position ahead of this weeks FOMC meeting. Most of the hesitation is a result of uncertainty about exactly what the Fed is going to do this time around. Unlike past months where a ¼ point raise was almost a sure thing, many traders and analysts are speculating that the Fed will raise interest rates by a ½ point this month in an attempt to curb inflation as energy and commodity prices have not relented despite the Fed’s consistent ¼ point hikes.
For the week SP futures fell slightly down -0.37% while NASDAQ futures fell only -0.44% with both markets trading on very light volume. Trading in the small caps was uneventful as well with Russell 2000 futures remaining nearly unchanged from the week before while SP Midcap 400 futures rose +0.35%. US Bonds were also quiet with 30 year bond futures dropping 0.91% and 10 year note futures falling -0.68%.
Speculation that the fed will raise rates by a ½ point has been good for the US Dollar as a larger rate hike is seen as a sign of strength for the greenback. Dollar Index futures responded to the rumor by rallying +1.09% higher last week while Eurocurrency (-1.06%), the Swiss Franc (-1.59%), and Japanese Yen (-1.28%) all moved lower.
Metals were also in the news with Gold and Silver finding their footing after moving lower for most of the month, Gold futures climbed +1.08% for the week while Silver futures were up +1.53%. The other metals were also moving with Platinum futures rising +1.23%, Palladium futures were up +1.23%, and Copper futures fell -2.19%.
Energy prices continue to climb slowly even though crude oil supplies are their highest levels since May of 1998. This week Unleaded Gas futures led the climb gaining +3.80%, Heating Oil futures were up +1.85%, Crude Oil futures jumped +0.95%, while Natural Gas futures fell -1.39% for the week.
Grains were also mixed last week with Wheat futures climbing +1.26%, while Corn (-2.30%), and Soybeans (-3.27%) both moved lower. Tropicals were also up and down with Coffee prices falling -1.13% and Cotton futures dropping -7.14%, while Sugar futures gained +3.78%.
It was a slow grind higher last week as investors remain cautious ahead of this week’s FOMC announcement, and slow grinding is not the best of environments for day traders, unfortunately. Monday and Wednesday were the most active days of last week domestically, with a steady decline on Monday and a big rebound on Wednesday, while Tuesday the most active day for the European day trading systems.
Weekly results were led by the Rayo Plus Dax system, which is ranked in our Top 5 for the 7th consecutive week - and is ranked #1 for the third consecutive week. Rayo had just one trade last week, but made the most of it with a well-timed entry on Tuesday that made +$1,333.62. There was more success in the DAX last week, with Kappa Dax posting a gain of +$1,230.87 on 6 trades, and Theta Dax trading three times for profits of +$1,093.88. Rounding out the DAX winners was Beta Con 4/1 Dax, which had one trade from Tuesday that made +$987.53.
Elsewhere, RC Success eRL recouped some of its monthly losses with profits of +$1,071.20 last week in a bid to get back to its very successful ways form early in the year. Bounce eMD had another profitable week with a gain of +$480 from two trades, propelling it into our Top 5 along with its sister system Bounce eRL - which made +$130 for the week. Omega3 v1 Dax is a newer system and made +$421.20 on Tuesday, while Beta Con ESX followed the pattern of many of the other Spanish systems with just one trade on Tuesday for profits of +$146.19. Overall, the conditions have been very ideal for a system like Bounce that looks to capitalize on oversold conditions in the market.
A handful of systems did not like the market action last week, ending up in the red. Epsilon Bund got caught long on a few occasions and lost -$251.32 due to falling treasury prices. Impetus eRL lost -$310.20 after starting the week with a winning trade but losing that amount and then some on Wednesday. Compass eRL only salvaged one winning trade out of four all week to lose a total of -$386 per contract, while Compass SP had a disappointing week with five losses totaling -$5,078.17.
For the second week in a row, swing trading systems operating on the FOREX market were the leaders as several b down trends emerged amongst foreign currencies. The trade of the week goes to Delphi GBPUSD which locked in +$3,460 after hitting its profit target on Friday. Also having a good week in the Pound was SC Forex GBPUSD which closed out trades today for a profit on 2 contracts (200,000 Pounds) of +$4,120. SC has a unique position sizing element which allows it to trade up to two contracts during certain market conditions, and last week was one such situation.
Other profitable strategies last week included the Ping Systems portfolio, which continues to fight back from a tough May with profits of +$690, and the Bounce systems (Bounce eMD +$450, Bounce eRL +$110), which continue to profit in their ideal environment of oversold conditions setting up relatively big "bounces" higher once or twice a week.
Other winners included Hourly eRL +$340, Tzar ES +$225, Tzar NQ +$140, Targets eMD +$123.75, and Tzar eRL +$120 - the top performing swing system this year.
Unfortunately for many of the swing strategies the second 1/2 of June has lacked consistent trends like those seen in May and early June; as such several strategies have found themselves giving up some recent profits. Examples include SC Trader eRL -$2,404, Delphi eMD -$1,722.50, Russell Targets -$1,578, Delphi eRL -$1,575, Axiom NQ -$975, and Axiom eMD -$533.20.
With an FOMC meeting ahead of the market this Thursday it is prudent to examine the bond positions that long term system traders are currently in. If the Fed raises rates by either a ¼ point or ½ point the bond futures markets should continue to sell off as bond yields rise. However, if the Fed does nothing and leaves interest rates exactly where they are at than the bond markets will most likely rally as this would be a sign the Fed is done raising rates for the foreseeable future. Most, analysts expect the Fed funds rate to increase by a ¼ point however a more extreme move in either direction (1/2 point increase or a pause in rate hikes) could create a feast or famine situation for long term traders.
Current systems with short bond positions ahead of the announcement includes Aberration Plus which is short in the 5 year notes for open trade profits of +$1879.69 per contract and in the 2 year notes for profits of +$1923.13 per contract. Andromeda also has two short interest rate positions and is holding short in the 5 year notes for open trade profits of +$293.75 per contract, and open trade profits of +$168.75 per contract in the 10 year notes. Brix also has multiple short positions on for open trade gains of +$700.00 per contract in the 30 year bonds and $450 per contract in the 10 year notes. Trend Simplicity is holding short in the 5 year notes for open trade profits of +$465.63 per contract, in the 10 year notes for open trade profits of +$387.50 per contract, and short in the 30 year bonds for a open trade loss of -$143.75 per contract. Finally, Axiom LT is holding short in the 10 year notes for open trade profits of +$2751.56 per contract.
Other positions of note ahead of the FOMC announcement include Andromeda’s short Eurodollar position for open trade profits of +$200.00 per contract. Also inn the Eurobund (German 10 year Note) Axiom LT’s is short with open trade profits of $4260 per contract, Brix is short with open trade profits of +$760.00 per contract, and Trend Simplicity is short for open trade profits of +$600.00 per contract.
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IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.
Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques. Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this website.
Please read carefully the CFTC required disclaimer regarding hypothetical results below.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.