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Trading System Spotlight: BAM 90 ES

September 21, 2009

 

Thanks to all of our readers who answered our survey last week and let us know what they want to see as an upcoming topic in the Attain newsletter. We received many great responses with ideas for new topics, format changes, and more – and can’t wait to bring those to you over the next few months. The winner of the $500 credit was Keith of Ontario, Canada.

Moving on to this week – we’re highlighting a newly released (mid 2009) e-mini S&P 500 swing trading system named BAM 90 ES whose backtested results made us take notice.

Who is The Developer:

The developer of the BAM 90 ES trading system is an outfit called C&B Trading, after its owners Chris Urner and Brett Markinson.  Mr. Urner is the head programmer for C&B and is responsible for all coding and Tradestation programming.   Chris graduated from the University of Southern California in 1992 with a business administration degree with an emphasis in finance.  After graduation Chris began a career as a retail stock broker, eventually moving up to the role of branch manager. In early 1996, Mr. Urner left the retail stock business for the allure of trading on his own with a small proprietary trading firm.

Chris became interested in trading systems and systems development as part of his prop trading firm gig.  In a bid to make himself a more efficient trader, he programmed the market set up patterns he looked for and resulting technical analysis into computer code.  This type of “market setup” analysis is now widely known as pattern recognition, something the developers say was not a familiar concept to most system investors 9 years ago.  Mr. Urner emphasizes that all his trading systems are the result of detecting patterns of behavior in the market and are not the result of advanced math or quantitative analysis.

Brett Markinson is the second half of the C&B team and is a self described serial entrepreneur. His activities include reinventing business processes and strategies across a number of different industries. Mr. Markinson is a graduate of Babson College where he received a Bachelors of Arts degree in entrepreneurship.

Brett began his career as an entrepreneur in the early 1990's when he founded not one, but two of the leading digital post production service companies in the United States.  In the mid 90’s Mr. Markinson founded a holding company through which he continues to develop and build scalable business enterprises.  Among his current portfolio is a commercial real estate company that is invested in over 4000 multi-family units in Texas and California, and an internet company called HauteLook.com.  When not working on his business portfolio, Mr. Markinson has been an avid trader and investor in equity and futures markets over the past 15+ years.  

Five years ago Brett and Chris teamed up to bring their entrepreneurial and trading skills together to launch C&B trading. The goal has been to develop various trading strategies and tools that leverage both cutting edge technologies as well as traditional arbitrage techniques.   According to Mr. Urner, C&B has worked and consulted on a number of trading related projects over the past few years - including StockMood LLC (a Reuters award winner in TechCrunch 50 08) and Market Probability  LLC, which used advanced statistics to facilitate a prediction engine for large scale US equities.

Currently, C&B is focused on developing trading strategies for the US stock index futures markets, such as BAM 90 ES.

How Does the System Work:

BAM 90 is a 100% systematic pattern recognition trading system for use swing trading (holding 1-3 days) the emini S&P 500 futures market.  BAM 90 was originally designed as a day trade system which would trade a single contract either long or short in the first 2 hours of the market session (day session), and according to the developers this system actually did pretty well. But they felt the system did not trade enough, skipping additional patterns because the system was already in an existing trade.

The original code was developed using a price pattern formula that analyzed market activity during the first two hours of trading (US day session) in the E-mini S&P, while also considering what occurred at the end of the prior trading session.   Mr. Urner first noticed the price pattern that the BAM 90 system is based on while looking at shorter term time frames (including 3, 5, and 10 minute bars).   However, initial testing showed that the system may have been unable to execute each trade at the prices the developers expected, even if the market pattern was correctly identified. Eventually, Mr. Urner and Mr. Markinson decided to look for their pattern on much less “noisy” time frames, settling on a 90 minute intraday bar. 

So, while walking forward the original model, C&B simultaneously began to work on expanding the time frame the system looked at (90 min bars) and additional contract entry rules in an attempt to capitalize on any additional patterns forming after trade entry which would signal a stronger pattern.

The result was BAM 90 in its current form, a short term swing style system with the ability to trade multiple contracts on different entries if needed.   BAM 90 can trade up to six ES contracts per signal based on the pattern strength, but most trades start out with two e-mini contracts on the initial entry, before looking to add additional contracts on subsequent 90 minute time frames should the pattern hold or strengthen.

Once the system is in a trade, it will then monitor the trade and look for potential reversal levels based on market pivot points, entering orders to reverse at predetermined levels.  There are various real time stops that go in as well including a trailing stop to lock in profits,  a stop that will exit on a gap up or down if profitable, as well as protective stops to limit losses.   All stops and targets used by BAM 90 are variable and there is not a hard max loss stop in the code.   However, the system will try and exit positions as necessary based on the level of loss on each trade, i.e. a larger loss could result in a quicker exit. [Disclaimer: Stop orders can not guarantee an order will be filled at the desired price]

Before releasing Bam 90 to the public, C&B continued to watch the system in real time and conducted additional walk forward testing  for a few months, adding a few minor filters when the development team saw something that was not contemplated (market does X,  but the code does not have a condition for that and should, and so on).  Mr. Urner notes that he and Mr. Markinson “set the bar very high” for any additions to the code.  It was necessary that all iterations of any optimization should be 100% profitable, and generally be linear in nature when looking at the results.  Anything that did not meet these criteria was thrown out. Additionally, every time C&B added anything, they double checked all the prior inputs to make sure the behavior was not affected by the new code to prevent curve fitting.

Mr. Urner also stresses that despite the system evolving from a day trade to a short term swing trading model most of the original system code is still intact.   For example when the system is 100% flat, the only way it can enter the market long or short is via the original market pattern formula which looks at the first 2 hours of price activity.  If this pattern does not happen, it will not trade.

Attain Comments:

When describing certain trading systems or other managed futures investments to existing and prospective clients, we often use a car analogy to break down the risks involved with a program into laymen’s terms.

I’m sure some of you have heard one of the Attain team remark that a manager is either a “Ferrari” or a “Mini Van” when describing the aggressiveness of a trading system or manager.  Not all investments fit all investors, as some people want to go fast and risk crashing and burning in a Ferrari, while others are content to play it safe in a min van. Managers we may label ‘Ferrari’s’ are typically the more aggressive traders while less aggressive traders are the mini vans. 

Along these lines, the BAM 90 ES system is definitely a Ferrari; meaning the system is a very aggressive trader when compared to the average single contract trading system (think Compass).   

The key to BAM 90 ES is its ability to trade multiple contracts per trade based on signal strength and/or market activity.   The system takes a minimum of two contracts per trade and will look to add more as the trade dictates.   It is not uncommon for the system to enter long or short 2 contracts and then add 1 or 2 additional contracts in the same direction over the course of the next day or two, before reversing in the opposite direction.   This type of trading is what makes BAM 90 unique when compared to so many run of the mill 1 contract per signal systems that are available in the system trading universe.   However, as mentioned above; that ability to add contracts also ratchets up the risk and aggressiveness on the system. Sometimes trading multiple contracts per trade with additional entries (up to six contracts total) can result in large winners, but losing on multiple contracts is will result in large losers as well.

We like the uniqueness of BAM’s pattern recognition logic, where the developer is looking for market patterns to repeat themselves over time versus volatility breakout systems which dynamically generate orders based on indicators and statistics up to that point in time. These patterns can be boiled down to looking for support and resistance levels, or pivot points, where the market has historically reversed course (for a short period). We’ve all looked at markets and thought they look overbought or oversold, and BAM is designed to recognize such pivot levels.  (Chris and Brett have remarked that they wish they had named the system “Pivot Eater” as this essentially what the system designed to do.)  

Like many systems that look to pick tops and bottoms, BAM 90 ES has proven to be most successful during periods of market consolidation.  The perfect trade setup is when the market trades in a limited decreasing trading range before heading back in the opposite direction.   Likewise, the system will tend to struggle when there is a significant change in volatility leading to increased trading ranges and market breakouts.   For this reason we think it is a good idea to pair BAM 90 with systems that tend to thrive during periods of increased volatility.  A good example would be trade Compass SP or AG Mechwarrior ES in a portfolio with BAM 90 ES.

Moving forward, we are excited to add BAM 90 ES to the stable of available trading systems at Attain to see just how it can do moving forward. The system has proven to be unique and has seen successful hypothetical results in the current market conditions where some other trading systems have struggled.  

Another positive is that the developer has opened multiple trading accounts with Attain and is trading BAM 90 ES right alongside clients.  Any time a developer is willing to trade his own funds right alongside customers gives us more confidence in the product he or she is selling.  BAM 90 is still a newer trading system to Attain and should be approached with caution (ideally we would have at least a year of real time trading), but we’ll be cheering the system on over the next few months and look forward to potentially adding BAM 90 ES to our list of recommended trading systems down the road.

-          John Cummings

 

IMPORTANT RISK DISCLOSURE


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Feature | Week In Review: Stocks hit fresh 2009 highs, as Dollar dive helps most CTAS | Chart of the Week

Overview

Stock index futures saw further advances last week as investors interpreted data in housing and unemployment as well as new merger activity as positive signs of a global recovery. Commodity markets were also on the rise last week with the energy, metals and soft sectors seeing the largest appreciation.  Of the U.S. stock index futures, the Russell 2000 small cap index was the top performer up 4 % on the week while the S&P Midcap 500 was + 3 %, S&P 500 + 2.28 %, Nasdaq 100 + 2.24 % and Dow Jones + 2.12 %.

Beginning with the energy sector, Natural Gas reversed its yearlong down trend in a big way by adding 27 % last week which now puts it almost 50 % off its recent lows. Crude Oil tacked on + 4.62 % last week keeping it congested around the $70/barrel level while Heating Oil and RBOB Gasoline were also up 5.61 % and 4.13 % respectively. The metals complex saw upward pressure particularly early in the week with Gold holding above the key $1000 level up .39 % and Silver up 2.19 % trading just north of the $17 level. Soft commodities were led by Orange Juice + 15.68 % and Coffee + 7.51 %. Grains were mixed with Soybeans + 4.21 %, Corn -.50 % and Wheat – 2.14 % for the week.

Managed Futures

On the whole, Option Trading Managers continue to remain mostly ahead so far in September.  Following last Friday’s index option expiration the leading Option Trading Manager MTD is Ace Investment Strategists who is ahead an estimated +3.63%.  Ace is ahead 16.83% YTD through August and is one of 2009’s top performers after dropping -61.27% in 2008. ACE continues to have significant downside risk; however for investors broadly diversified across multiple time frames, markets and models ACE has definitely added value so far in 2009.

Other Option Trading Manager estimates for September are as follows: Cervino Diversified -0.24%, Cervino Diversified 2x -0.47%, Crescent Bay PSI +1.49%, Crescent Bay BVP -1.67%, FCI OSS +1.29%, FCI CPP -2.91%, and Raithel Investments +0.63%.

In the Specialty Manager arena (spread and agriculture trading) September has covered the full spectrum of returns with Rosetta leading the way +2.88%; to Emil Van Essen trading near breakeven (+0.02%); to NDX Abednego and Shadrach falling behind -3.88% and -4.79% respectively.  For Rosetta this month is the most active they have been all year as they successfully timed the near term bottom in Corn earlier in the month and took profits near the high – Rosetta’s manager, Jim Green, has continued to emphasize the need for the agriculture markets to “get back to fundamentals” in order for their strategy to participate effectively…who knows, the current month advances could be the start of a new trend…stay tuned.

A late rally by the US Dollar last week caused commodity prices to pull back slightly resulting in small weekly losses for most multi-market managers.    Many are still up for the month however as trading conditions have been beneficial with a defined short US Dollar trend.  Clarke Capital Global Basic is the leader thus far in September with an estimated MTD performance of +11.52%.  Clarke has struggled throughout the last few months and it is nice to see the Global Basic program bouncing back.   Other managers that have been doing well in September include Quantum Leap Capital Management +2.25% est., Integrated Managed Futures Global Concentrated +2.05% est., Lone Wolf Investments Diversified +1.84% est.

Managers just north of breakeven include Dominion Capital Management Sapphire +0.46% est., APA Strategic Diversification Program +0.35% est., Hoffman Asset +0.21% est., and Emil Van Essen and APA Modified just a tick or two in the black around +0.02% est.

Elsewhere, those in the red include Mesirow Financial Commodities Low Volatility -0.10%, DMH -0.35% est., GT Capital -0.45% est., Mesirow Financial Commodities Absolute Return -0.50% est., Futures Truth MS4 -2.75% est., Robinson-Langley Capital -2.80% est., Dighton Capital USA Aggressive Futures -2.85% est., Clarke Global Magnum -3.10% est., Futures Truth SAM 101 -6.77% est.

In short-term stock index trading Paskewitz Asset Management Contrarian 3X St. Index is down -1.46% est. in September.     

 

Trading Systems 

Trading activity was limited to the first three days of the week for the most part, with equities consolidating on Thursday and Friday after strong advances Monday through Wednesday. Despite the run-up early the week, results were fairly modest though they favored the day trading systems. This week the FOMC committee has a two day meeting with the announcement on Wednesday so look for trading activity to pick up following the announcement, although the last couple of announcements have been non-events.

Beginning with the day trading systems, Rayo Plus Dax was the top performer + €667.5 on a pair of trades midweek. Clipper traded three times for +$310 for the week. Waugh ERL and Compass SP both had two trades a piece for +$214.67 and +$100 respectively. On the losing side, ATB TrendyBalance v2 Dax lost - €367.5 on three trades. It followed up a winning trade on Wednesday with two losing trades on Friday to end the week on the wrong foot.

Moving on to the swing trading systems, AG Mechwarrior ES finished the week +$715 on two closed out trades. Bam 90 ES closed out a pair of short trades from the week prior for a loss of -$1,475 on the closed out trades while Strategic SP and ES were -$2,250 and -$485 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.