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Trading System Spotlight: PSI! eRL

May 4, 2009

 

“What new systems are you looking at these days” is a refrain heard often at Attain. We have the enviable position (or unenviable depending on how you look at it) of receiving the “next best thing” several times a week, as new trading system developers send in their programs for review and testing – with the hopes that those systems will get in front of Attains clients and readers of this newsletter.

Nine out of ten of these systems rarely see the light of day, however. Most haven’t been tested back more than a few years (then fall apart when viewed out of sample), have unrealistic slippage and commission numbers, or don’t hold up when testing them on a correlated market.

But we do like what we see every now and then, coming across new systems which we feel are worthy of making our recommended list. That doesn’t guarantee they will have success trading, or in getting clients, but it shows we’re comfortable with the testing and the trading style. The newest member to our trading system recommended list is the subject of this System Spotlight – PSI eRL.

Who is the Developer:

The developer of the PSI! ERL system is Mindaugas Benediktavicius, who resides in Vilnius, Lithuania.

Mindaugas is a full time trader and trading system developer with 5 years experience in design, evaluating and research of algorithmic based statistical full automated trading systems.  Mr. Benediktavicius has tested and developed a wide array of systems for trading on both the US and Lithuanian marketplace and is the author of several intraday and end of day strategies for the e-mini SP 500 and mini Russell 2000 markets, which are his markets of expertise. 

Mindaugas has technical scientific background and is educated in both physics and electronics. His previous work experience includes working for software development companies as well as brokerage houses. He has excellent technical skills and has experience managing databases on the ASP.NET, & SQL frameworks.

Mr. Benediktavicius became seriously interested in trading systems and trading system design in early 2000 while trading his personal accounts at Datek (Ameritrade).  He then became a self taught system programmer in a variety of languages and software packages including DeepInsight Pro, Elliot Waves, Metastock, Amibroker, Metatrader, Wealthlab, and the TradeStation platform.

Mindaugas is a lifelong student of the markets and read his first technical analysis book “Encyclopedia of Technical Market Indicators" when he was just 25.  He has been hooked ever since, devouring as much knowledge on the subject as possible.  Other technical analysis and/or trading publications he has read include those by well known authors like Alexander Elder, Bill Wiliams, Larry Williams, Harlan Platt, Vladimir Daragan, Charles Lebeau, and David W. Lucas.

“It is important to remember that trading is not an easy business “, Mindaugas says. To achieve your goals you should be enough disciplined and patient.    He adds “trading systematically with a good broker like Attain is a great option for everyone who wants to achieve their investment goals and be successful when trading.” 

How Does the System Work:

The PSI! system is fully automated trading system written in Easy Language code for the Tradestation platform.   The system is designed to day trade mini Russell 2000 futures contracts and Attain will soon have a version available to trade on the more popular E-mini SP contract.  Since the strategy uses day trading logic it is in and out of the trade within the same day and does not hold positions overnight.   

In comparison to other day trading strategies, the system logic behind PSI! is quite simple.   This is by design as Mr. Benediktavicius believes simpler strategies typically have a better chance of success over long period of time.  Also, Mindaugas has found that simple systems are typically more robust than more complicated systems that use a variety of inputs and settings.

PSI! is a very selective system that only trades on average four times per month.   It is a long only strategy and will not sell the market short (part of the reason for its below average performance last year).  For trade entries the strategy measures the underlying trends of securities traded on the NYSE looking for an overall market trend.  Then the system will look to match this trend with a current market price that is either above or below the previous bar close.  If that price is above the market the system will work a stop order, if it is below the current market price the order will be a limit.  Typically, orders will only work for a very short period of time typically 5 to 15 minutes and the period of time an order works depends on volume and the strength of the market trend.   Orders that are not hit within the specified time frame are canceled immediately.

After entering a trade the system uses protective stop loss order with a max loss of $500 per trade.  Typically, the system will not hit its max stop loss as the strategy also has a trailing stop that kicks in after a couple points of profitability.  If the system does not hit the hard $500 stop or trailing stop, it will exit MOC (market on close).  Profit targets are not used.  [Disclaimer: The use of stop orders can not guarantee that and order will be filled at the desired price]

Attain Comments:

Throughout the years Attain has worked with system developers and programmers from around the world.  We’ve had developers from New Zealand to the UK, Poland to Canada, and right back here to the US.  PSI! is the first system we have received from Lithuania, however,  and we are happy to add Mr. Benediktavicius to our global stable of system developers.  

The PSI! mini Russell system has been paper traded at Attain for over  18 months now and has been generating consistent hypothetical returns since day 1.  But despite the strategy’s hypothetical track record it has not seen much interest from clients.  We believe this is because the system was released just before the largest global financial meltdown the world has ever seen.   It was simply a case of wrong place at the wrong time.  Regardless, despite the lack of clients, 2008 was a great year to forward test a strategy due to the obscene amount of volatility in the mini Russell marketplace.  To hold up well in that environment says something about PSI! eRL in our opinion. The system has also continued to test well in 2009 and this performance in the first 4 months of the year while many managed futures programs have struggled is again impressive.

What many investors may like most about PSI! eRL, however, is the affordable price tag. It has an initial risk of just $500 per trade, $50 per month cost to use the signals, and a minimum investment of just $10,000. At those levels, this is a program someone new to managed futures and trading systems can “test the water” with.   The system doesn’t hold any positions overnight, as well, which can be comforting to some investors during these uncertain times.  

Not every system is perfect and there are a few concerns we have on PSI!.   First, it is a “long only” strategy which is sometimes a red flag to Attain.   In our opinion, a strategy that makes money when the market is trading higher should be able to apply the same indicators and be successful in downward market conditions as well.  Also, at times the system seems a little bit “too” selective in its trades which can frustrate investors if the system misses out on a long trade when the stock market has a big day.   Finally, as with any system that uses a trailing stop, there are times when you wish the trailing stop wasn’t there as the market rallies to new highs right after the system exits the trade.  

Overall, as far as day trading strategies go, we believe PSI! should hold its own over time.  The system has tested very well and has now been forwarded tested for over a year (very rare) without any major issues or revisions.   What the system lacks is a real time track record, but we feel that this should not preclude customers from investing as the amount of testing this system has endured goes above and beyond our normal standards.

-          John Cummings

IMPORTANT RISK DISCLOSURE


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Feature | Week In Review: Month in Review - Stocks post 2nd straight winning month, as CTAs continue 09 struggles

Overview

First quarter earnings announcements were the main focus in April, and mostly better than expected results was a strong catalyst for market movement not only in stock index futures but commodities as well.  The broader stock index sector added to March’s best monthly performance in seven years helping the complex post the first consecutive positive monthly closes since Apr/May ‘08. Upside momentum was aided by the release of the Treasuries preliminary stress test results and was furthered by the April announcement from the FOMC in the U.S. which indicated Fed governors would continue to be aggressive if they saw a need to pump more liquidity into the system to stabilize the economy.

For the month the Small Cap sector showed the way as Russell 2000 futures +15.52% posted the strongest rally followed by the Mid-Cap 400 futures +14.78%. The large cap sector rally was led by the tech heavy NASDAQ futures +12.61% followed by S&P 500 futures +9.46% and Dow futures +7.46%.             

The Food and Ag sectors seemed to forget about activity in the stock sector and focus more on their own supply/demand situations during April.  Activity in the grains with Soybeans +11.01%, Wheat -1.61% and Corn -2.70 traded with expectations of more planted acres in corn on ideas of better profitability due to the decline in planting inputs over the past couple of months. The livestock sector Lean Hogs -11.07% and Live Cattle +0.67% were hampered by the spread of swine flu in several countries late in the month despite assurances consumption of pork would not lead to catching the virus. Soft commodities were mixed with Cotton +19.61% on stronger demand with lighter planting expectations.  Sugar +7.73% and OJ +5.51% posted nice rallies as well.  Cocoa -8.83% and Coffee -1.53% both declined to lower demand and plentiful supplies.                       

Most metals were under pressure during the month of April as recent safe haven buyers have moved out of the sector and back into the better-yielding stock market as investor confidence starts to gain momentum.  Copper +10.44% was the lone sector in the complex that posted gains on ideas that a global recovery led by new infrastructure building would lead to a run on copper supplies. The rest of the sector activity for the month saw losses across the board led by Gold -3.65%, Silver -3.29%, Platinum -1.87% and Palladium -0.27%.    

Energy sector price action in April was mostly lower due to burdensome supplies and weak demand, but RBOB Gasoline +2.46% found upside momentum on seasonal buying ahead of the Spring/Summer driving season. The rest of the sector ended with Natural Gas -3.84%, Heating Oil -3.82% and Crude Oil -0.49% with pressure stemming from an end to the heating season.  

Activity in Currency futures was mixed during April as ideas of further U.S. Dollar liquidity helped set the tone for selling in the Dollar index -1.30%. The Swiss Franc -0.19% and Euro -0.22% were hampered by worries of more fallout from some unstable institutions. The British Pound +3.20% followed U.S. stocks higher.  The Japanese Yen stayed almost even +0.27%.

The interest rate sector trended down the entire month with investors fearing over-supply as the U.S. government continues to issue debt to finance economic recovery plans.  30-year Bonds ended the month -5.55% and 10-year notes finished -3.00%.    

Managed Futures

April proved to be another challenging month for systematic multi-market managers.   Continued price consolidation in the commodity sector is to blame as most markets are trading in very tight ranges day after day.   The good news is that commodity prices have started to decouple from stock market activity and we hope that more trading opportunities will arise now that commodity prices are not as tightly linked to stock market activity.    Plus, with summer driving season and prime grain growing season upon us, we should start to see more trading activity in the commodity sectors.  Finally, there is also the possibility that Swine Flu will continue to play a role in the prices of not only hogs and cattle but grains as well.   

There isn’t too much good news to report this month as the lack of commodity volatility left most managers on the sidelines, while those that did trade had a tough time making money.  One manager who did do well was Dighton USA +1.46% est. who began trading again after an extended layoff.  Hopefully this is a sign of good things to come for the program.

Unfortunately, the balance of multi-market manages did not fare as well.   Mesirow Financial Commodities had a little bit of success with the Absolute Return program +0.07% est. and Low Volatility program +0.02% est. posting numbers in the black.   Clarke also saw small gains in the Global Basic program at +0.03% est. Elsewhere everyone else was in the red including Clarke Global Magnum -0.56% est., Lone Wolf -0.74% est., DMH -1.30% est.,  Attain Portfolio Advisors Strategic Diversification -2.31% est., Robinson Langley -2.78% est., Hoffman Asset Management -3.58% est., Futures Truth MS4 -4.41% est., Attain APA Modified -4.98% est.

Single market stock index traders had a great month as the $VIX traded (market fear index) in the more manageable 35 – 40 range.   Pere had one of his best months ever with estimated gains of +29.19%! Congrats to Mr. Pere!  Paskewitz was no slouch either at an estimated +2.93% for the month.   MSLO did not see as much success at approximately -0.11%.

On the heels of a very impressive start to 2009, many Option Trading Managers continued their positive momentum in April.  Leading the way was ACE Investment Strategist which earned an impressive +17.58% (estimated).  ACE has a long road ahead of them to recoup the losses from 2008 where they lost a staggering -61.27%; however for those investors properly diversified into long volatility strategies in conjunction with ACE - or for those looking to aggressively forge into their first option based investment -  ACE promises to provide plenty of excitement. The question with ACE remains, “at what potential cost”?

For those of you looking for potentially slower paced Option Trading Manager here are a few other estimates from April: Cervino Diversified Options +0.15%, Cervino Diversified 2x +0.38%, Crescent Bay PSI +1.58%, Crescent Bay BVP +0.68%, FCI OSS +2.50%, FCI CPP +1.25%, Raithel Investments +0.08%, and Zenith Index +0.10%.

As if on cue from our comments in this section over the past few months, Agriculture and Grain Managers are starting to see new and unique opportunities emerging as we move deeper and deeper into this year’s planting season…not to mention the “Swine Flu” which sent Hog prices dramatically lower.  For April, the top performing manager was Rosetta Capital Management which earned an estimated 2.5% brining their YTD total to near breakeven.  NDX was inactive up until the last day of the month – their estimated returns for the month were as follows: NDX Abednego -0.46% and NDX Shadrach -0.70%.  We’ll be looking forward to tracking the outcome of the “Swine Flu” and its potential effects on the markets.

Trading Systems 

For the second consecutive month, trading systems were able to thrive in April’s economic environment despite the continued decline in stock index volatility throughout the month.  After a slow start to the year, it’s been encouraging to see trading systems be able to adapt the changing market conditions and take a step in the right direction (especially as trading systems ‘rich uncle’ managed futures have underperformed thus far this year). Swing systems nearly had a clean sweep with just one system finishing in the red, while day trading performance was more mixed.

Starting with the swing trading systems, Strategic ES was far and away the top system up + $4,565 for the month of April.  The majority of the April result came from the first and last trades of the month, two trades that accounted for roughly 75% of the performance.  Elsewhere, AG Mechwarrior ES was up +$1,117.50 for the month on nine trades while Ultramini ES was up +$265.  Leaving the index sector, Jaws US 60 and Jaws US 400 were up + $1,282.50 and down -$481.4 respectively trading the 30 Year Bond.

Moving on to the day trading systems, Rayo Plus Dax and ATB TrendyBalance v2 Dax were the top performers + €2,327.50 and €2,205 respectively.  BetaCon 4/1 ESX was next in line + €160 while Waugh eRL and Compass SP finished the month down -$2,079 and -$6,010 respectively.

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.