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System Spotlight: ATB TrendyBalance v2
February 23, 2009
System Spotlight: ATB Trendy Balance v2
As we did in highlighting one of the top ranked CTAs after 2008’s numbers were in, and as is tradition in this newsletter, it’s time this week to take a closer look at one of the top ranked trading systems from our 2008 year end Top 15 rankings newsletter (read it here).
This month’s system spotlight is on 2008’s 2nd ranked system, ATB TrendyBalance v2. If you’re looking at the Top 15 rankings and asking yourself why this system spotlight isn’t on top rated Strategic ES, that’s because we just ran a spotlight on that system a few weeks ago (read it here). So we moved down one very small notch to the next highest ranked, a Dax day trader new to Attain in 2008, but traded in real time in Europe since 2006.
Who is the developer?
The developer of the ATB Trendy Balance v2 system is the company behind the ATB acronym in its name, which stands for Auto Trading Bot.
The brains behind AutoTradingBot belong to Jose Ramon Diaz Serrano of Almeria Spain, which is a small beach city on the southeast coast of Spain. Jose Ramon, as he goes by, first caught the futures trading bug in 1998 after reading an article which mentioned futures. He always liked to follow stocks via technical indicators and charts, as well as paper trading them, but didn’t get his first real opportunity until he began working at a company called Visual Chart. Three months later he developed his first trading system and began trading it on behalf of Visual Chart´s founders. A few months later, he began offering his trading systems to some friends and family and since then, and has been developing and improving his trading systems catalogue ever since. Though Jose Ramon studied Economics at the University of Almeria, his main technical skills are on statistics and econometrics, which have helped him a lot on trading systems research and development.
In 2002, Jose Ramon met Jon Berrojalbiz, of Tradingmotion.com. Jon had developed a complete execution platform for automated trading systems and was looking for systems developers to use his technology. Jose Ramon, meanwhile, needed a 100% automated execution platform for his trading systems, and so began a fruitful business relationship which today supports hundreds of systems and clients. For more on this relationship and how Attain trades Eurex systems, click here.
In 2004 Jose Ramon went “pro” so to speak, founding Autotradingbot.com, a company focused exclusively on trading system development. 5 years later, he has roughly 80 systems on the website, and clients actively trading about 60 of them (including many Attain clientele).
Apart from his programming of new trading systems and running of autotradingbot.com, Jose Ramon enjoys spending time with his family (2 kids and 1 on the way), playing football (soccer for us in the US), and travelling. He is also lecturer at the University of Almeria, where he has taught classes on Information Technology since 2003.
How does the system work?
The ATB TrendyBalance v2 system is a short term intraday trading system developed for use on the German DAX future. Dax futures are derivatives on the Dax stock index (the German “market”), and can be thought of as the German equivalent of S&P 500 futures, with the Dax being a broad index of European blue chip stocks on the German Bourse (stock exchange). Dax Futures are valued at 25 Euros per point (approx. $37.50) and begin trading at 12:50 am CST — well before most of us get out of bed. And they do about 150,000 to 250,000 contracts per day - meaning plenty of volume and liquidity.
The system itself is ‘a very simple system’, in developer Jose Ramon’s words. Part of its simplicity is its setup. The system is rather selective on when it will trade – seeing only about 8 trades per month on average, and scans the market continuously for a unique trade setup which sees both a directional bias and volatility breakout. Using a version of the classic Bollinger Bands on 10 minute to 60 minute data feeds, TrendyBalance looks for a series of several consecutive closes higher than previous closes for Buy Signals, and vice versa for sell signals.
One thing unique to most of Jose Ramon’s systems is that they operate on the European + US sessions, meaning the system is crunching data and looking for trades from 12:50 AM CST to the US market close at 3:15 PM CST (nearly 14 hours)
Once the market displays the proper setup and a trade is allowable, TrendyBalance uses a momentum indicator to signal the trade once the current momentum is higher than a dynamically updated value. It also has a time filter to allow entries only up to a certain point; for fear that the setup which presented itself may no longer be valid after a certain amount of time passing.
Once in a trade, the system places a hard stop equal to 1500 Euros (about $2,000), then uses a trailing stop based on volatility bands to protect profits and/or exit if conditions change significantly (market stops moving). [Disclaimer: The use of stop orders can not guarantee that and order will be filled at the desired price] There is no profit target, which can be frustrating at time when the system has large open trade profits and you want to just book them and go on with your day. Finally, being a day trading system, the system of course closes all open trades before the market closes as well.
A unique aspect of many AutoTradingBot systems is that they stock to an optimization schedule, re-optimizing parameters once per year, or once per quarter, etc. This schedule is reflected in the name of many of the systems, so "Epsilon 12/12 Bund", for example; uses 12 months of data ending December 30th to determine the trading parameters for the next 12 months and then repeats the same exercise in each of the following years for the year ahead.
ATB TrendyBalance v2 is somewhat unique in this regard, as it does not have any auto-updating of the code. The set of parameters used for the system has been fixed since inception and there will be no change of them in the future either. The ATB TrendyBalance v1, v3, and so on you see on the website are indeed different versions of the same system, which use slightly different parameters to generate slightly different order entries.
We have had a long relationship with Jose Ramon and TradingMotion in trading Eurex systems, with some great successes (Beta Con 4/1 eSX) and some notable large drawdowns (Rayo Plus Dax). But such a range of returns can be expected out of 80+ systems.
The fact that ATB Trendy Balance v2 system has been trading live according to Jose Ramon in TradingMotion clients´ accounts since January 2006, and has been tracked by Attain since Jan. 2008 are both great signs that this is one AutoTradingBot system here to stay. Attain clients actively started trading it in October of 2008.
The system is a classic long volatility-type system which is designed to risk a relatively small amount (1500 Euros) in hopes of hitting a few home runs. And it has done just that as the volatility has spiked not just here in the US, but in Europe as well. The best environment for this system is this type of high volatility market with directional market. Low volatility periods such as 2003 and 2004 is where the system will find its worst performance.
Other pluses we see include similar performance across the other versions of the system ( V1, V3, etc) in hypothetical testing, as well as good performance for other ATB systems.
All in all, we think any of the ATB systems are a nice fit for a portfolio with a core set of CTAs who are looking for a way to play the volatile market conditions which don’t seem to be going away, and willing to take on some risk in exchange for some higher potential returns.
IMPORTANT RISK DISCLOSURE
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It was Oct/Nov 2008 all over again last week as stock indices saw significant weekly declines for the first time in a few months. For the week Russell futures ended -7.88% lower, Mid Cap futures lost -7.45%%, S&P 500 futures fell -6.27%, Dow futures finished down -5.59% and the tech heavy NASDAQ shed -4.79%.
Positive Supply/Demand scenarios did little for the energy complex during the past week as a surprise draw in Crude inventories was more than offset by tumbling world stock markets that dampened the hope that healthy energy demand was returning. RBOB gasoline futures led the way down with a decline of -9.99%, followed by Natural Gas which shed -9.13%, Heating Oil lost -9.11%and Crude Oil was down -7.32%.
The commodity and food sectors also fell ill to the ongoing worldwide economic turmoil as ideas that future demand estimates would continue to be cut by the USDA helped keep a pall over the marketplace. Grain price action was very disappointing considering continued weather problems in the Southern Hemisphere might induce further damage to the maturing crops. The grains were again led lower by Soybeans -9.83%, Corn fell -3.68% and Wheat ended down -3.23%. The soft sector also posted losses with Cocoa -9.16% leading the way followed by OJ -7.69%, Cotton -3.96%, Sugar -3.86% and Coffee -3.39%. In the livestock sector Lean Hogs ended the week -9.83% followed by Live Cattle down -4.21%.
The metals sector remained as the safe haven sector during the past week with gains sparked by investors looking to put their money in hard assets in this time of turmoil. The passage of the stimulus in the U.S. also sparked support as the package includes a hefty amount of capital for infrastructure investment in the U.S. This led to decent gains in Copper +6.33%, followed by Silver up +5.32%, Gold gained +4.92%, Platinum was 1.67% higher and Palladium ended slightly higher +0.31%.
The currency and interest rate sectors ended the week near unchanged levels despite being quite volatile. Investors seem unsure of which way to turn while waiting on possible further bank bailouts in the U.S. The largest move in currencies came in the Japanese Yen which lost -1.59% with the other currencies ending marginally higher or lower. The interest rate sector did post modest gains during the week due to falling stock markets, although the gains were kept in check from worries of a heavy offerings in the future 30-year Bond futures ended up +0.97% and 10-year Notes futures gained +0.81%.
Systematic Multi-Market managers have had a slow month in February as commodities have settled into a more range bound period of trading, first rallying off the 2008 lows, then retreating from those highs. Systematic traders have struggled a little more than fundamental traders as the systems are still adjusting to the new market environment and getting chopped up a bit. Meanwhile, the flexibility provided to fundamental / discretionary style mangers allows them to pick and choose their trading opportunities in a more liberal fashion than systems. This flexibility has allowed managers like Lone Wolf +4.07% to outperform systematic traders to this point. Thus far in February the top systematic manager has been Hoffman Asset Management with approximate returns of +1.20%.
Other profitable multi market managers include Robinson-Langley with estimated returns of +1.06%, newcomer Mesirow - Absolute Return at +0.21% est., and Clark Capital Magnum which is just above breakeven at approximately +0.10%.
Managers in the red include APA Strategic Diversification which is just below breakeven at -0.10% approximately and the APA Modified program which is losing and estimated -1.25%. Finally, DMH futures management is down approximately -1.90% for the month and Clarke Capital Global Basic is down an estimated -3.32%. Dighton USA has remained quiet and has not traded this month.
Elsewhere, Diversified Option Selling managers have performed well in February with managers like Cervino Diversified returning an estimate +1.85% and Cervino Diversified 2X making approximately +2.06%. FCI has also done well with estimated returns of +2.30% this month. Stock Index Option sellers continue to grapple with extremely high vol and have a done a good job of hanging near breakeven for the month. Zenith Index is in the black with estimated returns of +0.29% as is Raithel Investments at +0.20% est. Managers in the red include ACE SIPC at -1.25% est., Crescent Bay PSI at -1.67% est. and Crescent Bay BVP at -0.72% est.
In the AG Complex Rosetta is near breakeven for the month while NDX Shadrach and NDX Abedengo are both down an estimated -0.20%. Livestock CTA trails the pack at -0.98% est.
Finally, in short term stock index trading Paskewitz Asset Management 3X Contrarian is up approximately +0.36%, while MSLO is down and estimated -1.88%.
Despite the sharp declines in global stock index futures last week, most trading systems were unable to finish above water. While an uptick in volatility is usually beneficial to trading systems, particularly the shorter-term programs, wild intraday swings usually have a negative impact on results. The ideal situation is when a market opens on one extreme and closes on another. But last week we saw large overnight moves causing for “gaps” up or down, systems entering in the direction of those gaps, and then a reversal at some point in the day stopping the positions out.
While the day trading performance was less than spectacular, a few systems were able to escape the week with minimal losses. BetaCon 4/1 ESX had one short trade on Tuesday for a loss of -$238 while Waugh eRL had three short trades that lost a combined -$308. Bounce EMD MOC had a long signal on Thursday that lost -$806, while Compass SP and Rayo Plus Dax lost -$2,170 and -$2,330 respectively.
Elsewhere, swing programs didn’t fare much better than their day trading counterparts. AG Mechwarrior was a diamond in the rough last week, trading three times for +$442.50. Two of the three trades were long trades, but the majority of the gains came from a short trade sandwiched in between those longs. Ultramini ES had one long trade on Wednesday that was stopped out for a loss of -$422.50. Bounce eMD had nearly the same result as the MOC system down -$800 on the long trade from Thursday.
In long-term trend-following, the decline in global stocks sent commodity prices tumbling, adding to open trade equity for short positions in energies, grains and softs.
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.