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Call us at 800.311.1145 to speak with one of our alternative investment specialists. We answer the phone in One Ring. Try It.Sign up to view performance on 100s of Managed Futures Programs, Trading Systems, and Managed Forex Programs. Sign up FREEWhat are Managed Futures? Is this the same as CTAs? How do I invest? Click here  to learn all of this and more on our extensive managed futures education pageHow to set watchlists? Build portfolios? Find correlations? and more. Click here to take a tour of our advanced toolsUse our most popular tool to create custom multi-program portfolios. Click here to get started today by signing up for FREE ACCESSClick below to learn how attain can assist your CTA in everything from back office creation and trade execution to finding a lawyer to create your D-DocNo upfront fees for managed futures funds is one of the unique benefits of a managed futures account at AttainOur alternative investment books list includes some of the most thought provoking and interesting books on alternative investmentsLearn how family offices outsource the managed futures research, due diligence, data collection, and ongoing monitoring of accounts to AttainWhat is a trading system? Who develops them, and how are they executed for client accounts? Our trading system education explains this and moreWe assist talented traders in getting their trading ideas into an automated trading system, do testing, marketing, and more

System Spotlight: Mesa Notes

November 13, 2006

 

There are a lot of swing trading systems out there which attempt to hold positions for a few days to a week, but nearly all of them concentrate solely on stock index futures. Despite the importance of diversifying a portfolio with a swing trading system operating on markets other than the stock indices, it's rare to find a swing trading system that works on different markets. One system that continues to defy those critical of swing trading outside of stocks is the Mesa Notes swing trading system. As its name suggests Mesa Notes trades the 10 year note futures contracts using the famous Mesa cycle strategy developed by renowned technical analyst Mr. John Ehlers.

Besides owning a fantastic track record Mesa Notes has been one of the most consistent trading strategies ever traded at Attain. We would like to take this opportunity to congratulate Mr. Ehlers on establishing one of the longest consecutive trading periods ever at Attain as Mesa Notes has now completed its 40th consecutive month of trading in October 2006. Congratulations John!

Who is the Developer?

Mr. Ehlers received his BSEE and MSEE from the University of Missouri and did his doctoral work at The George Washington University, specializing in Fields & Waves and Information Theory. John has been a registered Commodity Trading Advisor since 1997. He is a recently retired electrical engineer and has been a Senior Engineering Fellow for some of the largest Aerospace Companies in the world.

As far as his career developing trading system, Mr. Ehlers has been selling popular MESA technical indicator package to active traders since 1984. His software has received 25 Readers’ Choice Awards from Stocks & Commodities magazine, and been ranked in Futures Truth Top Ten rankings several times.

Mr. Ehlers is continuously researching and testing new theories and methods of approaching the stock and futures markets, and is not shy to share his insights - having been a frequent speaker at conferences and seminars worldwide and penning many articles and books.

He has been a contributing writer for Stocks & Commodities, Futures, and Active Trader Magazines, and authored three books on technical analysis based trading: “Mesa and Trading Market Cycles†(first and second editions), “Rocket Science for Tradersâ€, and his newest release, "Cybernetic Analysis for Stocks and Futures". Attain Capital is happy to send copies of all three books to any newsletter readers interested in opening an account to trade any of the Mesa systems.

John Ehlers is currently the President of MESA Software and continues to actively trade using the various systems and indicators he has developed. His newest venture is www.eminiz.com where Mr. Ehlers uses his cyclical indicators to predict the future direction of the various e-mini markets.

How does it Work?

The Mesa Notes system utilizes the MESA cycle logic present in all of developer John Ehler’s systems. The developer believes many natural events and processes are cyclical, including seemingly random market prices.

The mathematical engine in MESA cycle theory is the Burg algorithm. (Ph.D.. Thesis by John Parker Burg, Stanford University, 1975) This algorithm has been used in MESA programs since 1978. The mathematical procedure is rather complicated and the MESA programs compromises some generality to achieve ease of operation. For example, the order of the mathematical filter is fixed relative to the data length.

The MESA logic models the market as a generalized filter. This filter is driven by a white noise generator. (White noise consists of all frequencies with a uniform power amplitude.) The output of the filter is compared with the samples of actual market price data. The result of the comparison is fed back to adjust the filter so that, ultimately, the filter output is a good replica of the true data in the time domain, within the constraints of the filter. The length of data used to tune the filter can be selected independently from the filter characteristics.

The robustness of MESA NOTES arises from the simplicity of the Burg algorithm mentioned above combined with the following two constituent components.

  1. Volatility Measured as the position of the current closing price relative to the highest high and the lowest low over the last “N†days look back.
  2. Cyclic Component Filtering which is accomplished by a second order Gaussian high pass filter.

The trading principle is that, in the short term, prices will revert to the mean after they are at a cyclic peak. The buy signal is a limit order to further capture the maximum price swing and to often get negative slippage. The sell signal is symmetrical except that the upper threshold is independent of the lower threshold.

If enough traders ask themselves "Will the market go up today?â€, the random variable is direction. Thus, conditions are established for the solution of The Diffusion Equation. On the other hand if enough traders ask themselves 'Will the trend continue?', the random variable is now momentum. You could then expect the conditions to be established for the solution of The Telegrapher's Equation. That is, the market is ripe for short term cycle activity. MESA attempts to measure these short term cycles as they form.

Mesa Notes utilizes daily data for their signals, and has a "pay with profits" plan available where new investors don't have to pay for the system until they have made the $1,995 system cost in closed trade profits. Please contact your Attain representative for more information.

Attain Comments:

Typically, investors and newsletter readers expect to only see high flying and exciting systems, with huge returns and lots of trades in this space on a monthly basis. Those readers are quite surprised when we post a system that is as simple as Mesa Notes. See, Mesa Notes will never be the home run hitter in your portfolio, preferring to grind out returns with slow but steady results. So, if excitement is your cup of tea this may not be the system for you. However, if making money is the primary objective than there are few better systems to stabilize your portfolio with than Mesa Notes.

One common question we receive from prospective new Mesa Notes clients is how has the system performed lately in these very slow and range-bound trading conditions? Like many of his investors Mr. Ehlers noticed the slowing of the interest rate market in mid 2005 as the Federal Open Market Committee became very transparent in its decision making and began monthly 0.25% interest rate hikes. This transparency led to lower market volatility as traders knew exactly what the Fed was planning and thinking on a month to month basis. Essentially all the speculation was sucked right out of the market by very conservative FOMC making it very hard for speculators and system traders alike from making money.

To help combat the less than optimal trading conditions Mr. Ehlers added a new volatility based filter to Mesa Notes. As our clients and developers know, Attain frowns on system updates and discourage them as much as possible. There is not a bigger red flag warning us of curve fitting than the flag that waves when a developer updates his code. However, after considering Mr. Ehlers’ track record for having his customer’s best interests in mind and the obvious fundamental changes in the slowing t-note market, it was obvious that changes were necessary to continue generating the consistent returns investors had become accustomed too. The market range just became too narrow to justify sticking with the old setup. With this in mind, Mr. Ehlers returned to the drawing board with the original Mesa Notes code and added a filter that took the less volatile market conditions into consideration.

The result has been nice gains over the past ten months, in addition to those achieved since we began tracking the system in April of 2003. In addition to volatility awareness the system generally follows the market trend and will hold long positions when bonds rally and short positions in downward years. But it also has some counter-trend logic and has been known for its uncanny ability to predict trend reversals throughout the years.

System detractors will undoubtedly mention that the core strategy used in Mesa Notes was also used in the Mesa Bonds strategy that was suspended from trading earlier this year, and those comments are accurate. It is a concern to us that the “sister†strategy of Mesa Notes was forced to the sidelines, however we feel that the system changes implemented in late 2005 will help prevent a similar situation from occurring with this system. Plus, it is also worth noting that Attain has continued tracking the Mesa Bonds system and it has rebounded nicely in the last 6 months with profits of $6925 per contract (including $100 slippage and commission per trade). Proving once again that systems don’t break they only get more risky!

In conclusion, with most portfolios heavily weighted towards stock index futures in the swing trading portions of their portfolios, the Mesa Notes program offers valuable diversification in the swing trading space and nice performance to boot. With a pay with profits plan and well respected developer behind them, there's a lot to like.

- John Cummings

IMPORTANT RISK DISCLOSURE


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Feature | Week In Review: Equity Rally Slows, Volatility Returns | Chart of the Week

***Overview***

US stock indexes started out the past week nearing or scoring new record highs (DJI) sparked by continued b economic growth, but the results of the mid-term elections dampened investor enthusiasm taking some of the froth out of the market late week. The coming week will be dominated by a slew of economic reports, which could give the market a pulse on the health of the economy. For the week SP gained +16.60 or 1.22%, The DOW was +122.39 or 1.02%, and the NASDAQ was +58.92 or 2.53%. Small caps also staged a nice comeback with Russell 2000 futures adding 2.23% and SP Midcap 400 futures +1.89%.

Energy prices again remain fixed in their 5-week trading range during the past week as the tug-of-war between OPEC cuts and forecasts for a warmer winter in the U.S. Northeast remained a constant. For the week Crude Oil futures did manage a slight gain +0.7%, Unleaded Gas futures moved +2.54% higher, Heating Oil futures were up 1.12%, and Natural Gas futures gained 1.15%.

Metal prices were a mixed bag this week, but the leading mover was High Grade Copper coming under pressure from a combination of rising inventories and ideas of weaker global demand. High Grade Copper dropped -7.6%, Palladium was down -1.33%, Platinum was fractionally higher, Gold gained slightly +.20%, and Silver rallied +3.6%.

Currency Futures forged ahead with the recent rally during the past week as the Euro headed to a 19-month high against the U.S. Dollar. The main market moving news in the sector came from reports that China, the world’s largest holder of foreign reserves, announced that they are working on a plan to diversify their reserves. Last week foreign currencies including Eurocurrency, Swiss Franc, Japanese Yen, and British Pound posted decent against the US Dollar.

The agricultural sector was a mixed bag. Lean Hogs ended down -1.9% for the week on lower cash and product markets. Live Cattle prices were virtually unchanged as the volatility in the grain market kept higher cash prices at bay. The grains while quite volatile ended the week fractionally higher in corn and soybeans which were supported by a friendly USDA monthly report, but the wheat ended -2.5% on weaker cash prices sparked by softened demand.

***CTA Trading***

New to our weekly newsletter, we will be reporting on some of the Managed Futures programs (CTAs) we track at Attain, showing week to week activity and results. CTA investments, while transparent to the actual investor, are more obscure to the prospective investor in that results are reported monthly instead of on a daily basis and that actual trade by trade records are not readily available.

November has been off to a hot start for CTA’s across all sectors (Options selling, Energies, Commodities, etc.)

After a slower October several option sellers are getting closer to locking in November profits heading into Option Expiration this Friday and most have even begun to initiate several new December trades. For the month World Capital is ahead aprox 3.3%, Zephyr Asset Aggressive is earning aprox 1.39% (+0.42% in the Moderate), Argus is earning arpox 1.48%, and Zenith Diversified is ahead aprox 0.25%.

Elsewhere Phoenix Energy is up aprox 2.14% MTD and Dighton Futures 2x is ahead aprox 10% representing the most impressive gains for the month. Dighton’s current open trade gains push the strategy above the 30% level for the YTD.

For more information on any of the above CTA’s please visit the “Performance Page†of our website at http://www.attaincapital.com/performance.php or e-mail invest@attaincapital.com.

***Day & Swing Trading***

Last week’s trading conditions were equally favorable for both day and swing programs with equities trending higher on the week but also showing some increased intraday volatility. Day trading systems took advantage of the sharp moves both on the long and short side of the market while swing programs were mostly content with a buy and hold approach for both equities and bonds last week.

BWT Zones Classic SP was in a league of its own last week with profits of +$6,450 on five trades. The highlight trade for the system came on Thursday when the system went short and captured almost the entire trading range for the session. Another trade worth singling out came on Tuesday when the system entered long and reversed short catching both sides of the move despite a small trading range that day. Beta v2 Dax made a nice recovery last week with profits of +$1,946.10 after going long three contracts on Monday. Other Spanish systems trading the Dax were also on the rise with Phi Plus +$1,073.09, Rayo Plus +$1,062.10 and Beta Con 4/1 + $807.70. Other domestic systems adding to the bottom line were Russell Daytrade +$550 and Tanker CL +$150.

Swing programs that were long equities inflated open trade profits while a few of the contrarian systems were able to reverse short near the top of the charts last week. For example, some of the longer terms programs such as SeasonalST eRL and Spartan ES added +$1,730 and +$812.50 respectively to their open trade equity by holding their long positions. Tzar took the opposite approach and reversed short in the NQ, ES and eRL for closed trade profits of +$2,660, +$1,745 and +$1,108 and is now well positioned for a correction to the downside. Systems that rely on a shorter time frame such as Axiom eMD were busy exiting short positions early in the week and entering into new long positions that added to open trade equity.

Systems swing trading bonds were profitable while Forex systems took a step in the other direction last week. Jaws Narrowneck capitalized on a bargain buy from Tuesday in bonds adding +$968.75 in open trade profits heading into the weekend. Mesa Notes reversed to long on Monday and tacked on +$875 in open trade equity for the week.

***Long Term***

Price action in the Interest Rate sector continued to favor the upside last week as ideas of a cooling economy in the coming months supported prices. The upcoming week of economic reports could give the sector a good idea of futures direction with most markets sitting near 1-year highs. Long term systems continue to have a bias to the long side at this time. Some systems with long positions are Andromeda +$3,321.87 (open trade) and Vivaldi +$1,668.75 (open trade) in USZ. Axiom LT is Long TYZ with open trade equity of +$371.88. Aberration is long TUZ with open trade equity of -$292.50.

The major currencies ended the week posting gains on reports of China looking to diversify foreign exchange reserves along with ideas the U.S. economy my be ready to take a breather. Systems with short positions in SFZ and JYZ include Andromeda making +$462.50 per contract (open trade) and +$2,168.75 per contract (open trade), Pegasus making +$375.00 per contract (open trade) and +$1,343.75 per contract (open trade). Aberration is short SFZ with an open trade loss of -$2,000.00 and Axiom LT exited short SFZ making +$162.50 per contract.

The energy sector posted modest gains during the past week, but remained fixed in a 5+ week sideways range as the market continues to try and digest the OPEC production cuts versus forecasts for a warmer winter in the U.S. battle. Systems with short Crude oil positions include Pegasus which is making $+15,500.00 per contract (open trade) and Trend Simplicity which is making +$13,910.00 (open trade).

Grains and Oilseeds were again a mixed bag last week with corn and soybeans ending with fractional gains as support stemmed from a favorable USDA release on production coupled with b U.S. basis levels. Wheat continued lower as pressure stemmed from subtle demand and ideas the upcoming U.S. crop will be large. Heavy downtrend pressure from oversupply and lagging export business continued to hamper the cotton. Systems with long corn positions include Aberration making +$2700.00 (open trade), Andromeda +$2012.50 (open trade), Axiom LT +$3637.50 (open trade), and Trend Simplicity +$1900.00 (open trade). Systems with short cotton positions are Andromeda +$1845.00 (open trade), Axiom LT +$6880.00 (open trade) and Vivaldi +$3985.00 (open trade).

Please Login to: http://www.attainaccess.com for the latest updated statistics.

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.