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Monthly System Spotlight: AG Mechwarrior ES
February 12, 2007
If you've never heard of this system - join the crowd. Despite our best efforts at Attain and commendable post- release performance, the AG Mechwarrior system has not garnered much interest in the past two years. But with a b year last year and continued performance this year AG remains a bit of a hidden gem that should deserve your attention. This month's system spotlight is on the AG Mechwarrior ES system.
Who is the Developer?
The developer of AG Xtreme is Andrew Gibbs, of Auckland New Zealand. Mr. Gibbs path to system development is a familiar story. He read his first technical analysis book when he was 20, and has been hooked ever since, devouring as much knowledge on the subject as possible. A user of TradeStation since it was known as Omega Supercharts, Andrew has become self taught in system programming. Andrew attributes much of his knowledge to Larry Williams, whose book, "Long Term Secrets to Short Term Trading" has some fantastic ideas according to Andrew. He is quick to point out, however, that the book could be the best book ever written on data mining (curve fitting), so care needs to be taken.
Mr. Gibbs has a bachelor degree in Business Economics and Accounting, and a Post Graduate Diploma in Applied Finance and Investment. Andrew worked for Goldman Sachs in one of their New Zealand offices, before moving on to an equities and derivatives advisor position with Australian firm Tricom. When not doing his day job, he continues to work on his systems.
Andrew firmly believes that any trading system needs to be looked at as a long term investment which can outperform the stock market over time. But, he says most will only outperform if they accept that there will be losing months, and even losing years from time to time - and stick through those times.
How Does the System Work?
Mechwarrior is a short term trading system designed for the S&P 500 futures contract. The system holds positions for 24 hours and is made up of 8 different subsystems. Mechwarrior fills the gap between day trading systems and swing trading systems, as it is really a day trading system which can choose to hold on to a trade for an extra day in an attempt to get a bit more profit or less loss. Because of this, it can be described as a very short term swing trading system which holds positions a maximum of 24 hours. Pushing the trade over to the next day also expands the average trade amount, meaning the system can take fewer trades. The system is very selective in the "battles it takes", as the developer says, and only "picks a fight" 3-8 times per month.
AG Mechwarrior runs on 205 minute bars of data, which means each trading day is broken into two bars for the system to act on. This two bar strategy is unique in itself, being the only system running on this timeframe at Attain. The individual buy and sell signals for AG Mechwarrior incorporate several different features all built into one of the 8 different sub-systems. There are two Seasonal Trades per month, one which is based around the end of the month/beginning of the month rally, the other which is based around what happens leading up to options expiry. AG Mechwarrior also looks to profit from overnight gaps, both up and down. A gap is when the market opens significantly higher or lower than where it closed the previous day.
Similar to a lot of day trading systems - AG Mechwarrior does have a volatility breakout feature as well - and utilizes the range of the previous 1-7 days in looking for a breakout opportunity after a series of narrow ranges. While volatility breakout systems have not performed well in the day trading space, because the market doesn't move enough by the end of the day - AG has the benefit of an extra 24 hours for the move to happen, and for that reason has seen better success with this component.
Finally, AG Mechwarrior contains oscillator based signals which seek to take advantage of both overbought and oversold markets - entering the market in the opposite direction when it appears to be overdone, and incorporates several short term patterns to identify a directional bias and opportunity to get in line with the short term trend. As for exits, the system looks to exit after being in a trade during the entry bar and the following bar (24 hours), and then looks to exit for a profit. The system also incorporates several other exits which trail the stop and exit the trade early should the market reverse against the original position.
The AG Mechwarrior program has now been tracked hypothetically at Attain for just over two years and has been one of the top performing swing trading systems that we follow during that time period. However for one reason or another, the system has never had a steady following in real time trading. Perhaps it is because Mechwarrior is not the flashiest system and typically looks to exit winning positions quickly rather than hanging on too long in hopes of a home run trade. Or maybe it is because Mr. Gibbs is from Australia and has yet to seriously market the program. No matter what the reason the system has performed and deserves a serious consideration for any trader’s portfolio.
The only negative aspect to consider is that the system performs best on the e-mini SP and full size SP 500 contracts. It could be argued that the lack of similar performance in the other US stock indexes is a sign of curve fitting; however after 24 months of tracking the program without one major update it appears that this is not an issue.
Perhaps the most impressive aspect about the program was its ability to rebound from drawdown in 2005 and hit new equity highs in 2006. This is another sign that the trading logic behind Mechwarrior is sound and robust. Plus with a lease fee of only $39 per month it is very easy to trade without breaking the bank.
Call us at 800.311.1145 or email firstname.lastname@example.org to see how the AG Mechwarrior ES program could fit in your portfolio.
- John Cummings
IMPORTANT RISK DISCLOSURE
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It was a slow week for traders in general last week as both US stock and commodity markets suffered through very deliberate market conditions last week. Despite record high prices the stock market has become very unattractive to traders as almost all volatility has been sucked out of the market. The issue plaguing the market is that stock prices continue to sit at near record high levels and there are relatively few traders who want to buy at these levels. Likewise on the other side of the market each attempt at a correction has been quickly snuffed out by bargain hunters. Therefore the markets remain stuck and will likely need at least a moderate correction before having the strength to move to higher prices. Last week SP futures fell -0.70%, NASDAQ futures were down -0.82%, SP Midcap 400 futures gained +0.53%, while Russell 2000 futures remained unchanged for the week.
Trading in the commodity markets has also slowed down with only energies and metals remaining real active. Energies rallied last week as very cold temperatures swept across the US. As expected the two commodities used in heating homes, Natural Gas (+4.70%) and Heating Oil (+2.44%) led the rally higher. Crude Oil futures also were up gaining +1.47%, while RBOB Gas futures climbed +2.66%. Metals also traded higher for the week with Silver futures gaining +4.04%, Copper futures climbed +3.90% higher, Gold futures moved +3.19% higher, Platinum was up +3.29%, and Palladium was up +1.01%.
Other markets on the move last week include Coffee which was down -2.92%, Cotton which fell 2.10%, and Lean Hogs which were down -2.12%. In the grains Soybeans had the only significant move, gaining +1.70%.
***Commodity Trading Advisors (CTAs)***
It is option expiration week for the stock index futures, and it looks to be an uneventful one, barring no unforeseen events, in looking across the range of managers specializing in short option selling. Every option expiration date that goes by with their short options expiring worthless are a good thing for the option selling CTAs.
With volatility down over the past few months, most option sellers have been ratehr slow, although steady – one exception has been Argus which primarily sells S&P Option calls. Argus focuses on aggressively selling calls and was faced with some very difficult market conditions in October and November of 2006 where markets were running straight up. Since experiencing a 24.3% drawdown the program appears to be back on track earning +2% in December, +5% in January, and is on track for a profitable expiration this Friday.
Looking ahead any spike up in volatility should bode well for Argus as well as all option sellers…last spring was a great example of what sustained volatility can offer to the Option selling subset of the CTA market.
***Day & Swing Trading***
Last week day trading systems took a back seat to swing systems due to congested trading ranges and lack of follow-though. Equities showed early signs of weakness on several occasions last week only to rebound in the afternoon leaving day traders short at bad prices. The only sign of a clear move in either direction came on Friday when S&Ps fell about 10 points. Now that we’ve finally broken out of the consolidation pattern, there should be some new opportunities for day trading systems to get back on track.
As previously mentioned, day trading profits were few and far between but some of the most aggressive programs like BWT Zones Classic SP came out on top. BWT traded three times for profits of +$1,250. Similarly, Russell Daytrade traded three times for weekly gains of +$870. Sticking with the theme of three trades last week, OPXP eRL profited +$325 on three trades. Elsewhere, systems trading the Dax market all suffered losses ranging from $493 to $1,830.
The few swing programs that were in short positions benefited from the sharp sell-off on Friday. Seasonal ST eRL / ES both reversed short on Thurs after holding long for over a month and couldn’t have timed it any better. The system took profits of +$3,520 and +$1,607.50 respectively on the closed out long trades, then made another +$740 and $495 respectively on the one day short trades and now is holding long again. Tzar ES has been holding short for over a month and finally got back into the black on Friday and made +$500 in open trade profits last week. Tzar NQ entered into a new short position on Wednesday which paid dividends on Friday.
Interest rates have had a bit of a bid come back into the sector during the past few weeks as foreign investments have started to filter back into the marketplace mostly sparked by the recent rally in the U.S. Dollar especially against the Yen. Despite this new stream of investment the market continues to have a problem sustaining rallies mostly due to ber than forecast U.S. economic data which has led to market pundits to predict the Fed will hold steady for the foreseeable future. The Trend bias for long term systems still favor the downside as Aberration is Short TUH +$168.75 (open trade) and TYH -$643.75 (open trade). Andromeda is short USH with -$18.75 (open trade) and also covered its short TYH position for a small loss of -$65.63. Pegasus is short TYH with open trade equity of +$168.75 and short USH with open trade equity of -$50.00.
The continued string of b economic data in the U.S. during the past week helped spark the U.S. currency to new 4-year highs versus the Japanese Yen and multi week lows versus other continentals. Market participants look for this trend to continue as long as the Fed holds rates steady for the intermediate term. Long Term systems still have a downside bias in the Yen and Swiss. Systems Short JY are Aberration with an open trade profit +$3237.50, Andromeda +$2962.50 (open trade), and Pegasus +$3637.50 (open Trade). Pegasus is short SF with a -$25.00 loss (open trade).
Grains and Oilseeds moved higher last week as support was seen from a positive USDA release showing supplies will tighten from now until the new harvest this fall. Despite tighter U.S. supplies the report world stocks remain quite plentiful heading into the South American growing season, which as of now has been ideal and also a kept a cap on a spirited rally. Systems with long corn positions include Andromeda +$4,350.00 (open trade), Axiom LT +$5,975.00 (open trade).
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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.