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System Spotlight: Tzar eRL
June 12, 2006
We love systems that hit new equity highs well after their release and subsequent trading in actual accounts, and love it when it happens two years after trading even more.
In a perfect world, that's how it is supposed to work. An investor looks at the risk and reward of a system based on its past performance, then decides to trade it, and then it keeps making new equity highs for years and years to come. Of course, we don't live in a perfect world, and some systems never see new equity highs again - as the disclaimer 'past performance is not necessarily indicative of future results' is true. But I guess we love new equity highs so much because they signal the system is making money, and show that
The latest system to hit new equity highs, doing so for the twelfth time after 30 months after actual trading began at Attain is the Tzar eRL system. In fact, Tzar has hit new equity highs in each of the last three months and has made over $10,000 per e-mini Russell contract so far this year This month's System Spotlight is on the Tzar eRL system.
Who is the Developer?
The Tzar system was developed by Alfaranda CTA, a long time system development company owned by Ziad Chahal. Ziad, began writing systems in 1996 after his interest in the futures market was sparked in 1993 by the possibility of returns uncorrected with the stock market. At that time he was running his own consumer electronic business and was seeking some type of diversification.
He ended up losing money on discretionary trading, but immediately challenged that outcome through the research of systematic trading approaches. Only through a systematic approach, Ziad concluded, could traders avoid falling prey to their emotions where trading decisions are made by simply "shooting from the hip".
While researching for his trading systems he studied and obtained his CTA license in 1996. While studying he became a fan of the book “The Futures Game: Who Wins, Who Loses and Why”, which he recommends to all traders. Mr. Chahal's system research has resulted in over 20 systems over the years, with the most recent batch of AlfaMaxx, Brixx, and Tzar considered by Ziad to be the culmination of his years of effort.
Ziad currently resides in Lebanon with his wife of 26 years and his four children. He equally attends to his business as a trading system vendor and CTA. He continues to research and develop more trading systems which he hopes to release in the future.
Visit the Alfaranda website for more information on the developer: www.alfarnada.com
How does it Work?
TZAR is a swing trading program based on technical trend and contra-trend models. Technical indicators are used to inform the system-logic that it should treat an ongoing market move as part of a consolidation pattern that should be reversed or as part of a trending situation that should be followed with trades placed in the same direction.
The switch between both functions is 100% mechanical and can happen in as little as 48 hours. Whether it is a trend or a contra trend consideration, TZAR does not carry any long or short bias. The conditions set to go long or go short are 100% symmetrical.
TZAR uses end-of-day bars. Only one set of orders is issued each day and that's done as soon as the traded market has closed its main pit-session. These orders are then placed for execution and potentially filled during the normal (pit) hours of the next trading day. There is no need to wait for the market to open and then calculate a price of entry that is an offset of the opening price like many other swing trading systems. New entries ( flat to long or flat to short ) and position-reversals ( long to short or short to long ) are handled with orders that can be issued targeting fills at Market-On-Open prices or fills done at specific predetermined LIMIT prices.
Exit-wise, the system carries a double protection layer: First, there is normal stop-loss order that is meant to protect against "catastrophic" moves. This stop is usually far away, meaning as much as 50 to 75 points away in the S&P futures. Similar adverse moves might occur while the system has failed to take an earlier exit. The second exit type is a price-based trigger that activates a market-on-open exit. This trigger is based on an adaptive volatility function, yet does not change during the life of the ongoing position. On average, TZAR takes about 20 trades per market per year ( excluding rollovers ) and is in the market around 94% of the time.
Tzar is the latest in a long line of good looking systems from Ziad Chahal and Alfaranda CTA, having been released in Spring of 2003 and actively traded since 2004. Tzar seems to work particularly well on the more volatile e-mini Russell 2000 futures market, where the mini trends and spikes higher and lower have fed right into what Tzar likes to do. The proof of that is in the results, where Tzar is working on its third consecutive year of positive performance since trading began in actual accounts, and profits of nearly $18,000 per contract, or 59.9% on the recommended starting balance of $30,000, in the last 10 months.
Another positive we see in Tzar is its very robust hypothetical testing across over 100 markets. Alfaranda has gone beyond what most long term system developers test on, and way, way beyond what most swing trading developers test on. The results of the 100+ test are very encouraging, with just 10 or so markets seeing negative returns over that period. That would be an impressive number for a long term system designed to work on many markets, but gains extra props for being accomplished with a system designed solely for stock index futures.
Another positive sign is its impressive testing across 18 different stock index futures markets. By contrast, many swing trading stock index systems test very poorly on any markets outside of the US stock indices. Tzar was positive across all 18 global stock index futures markets in testing. Attain currently trades Tzar on the Dax (German stock index futures) and Hang Seng (Hong Kong stock index futures) markets. Click on the market names for results.
Tzar, and Tzar eRL in particular, is an easy choice in our opinion to be in any trading system portfolio. It has the pedigree, the robust backtesting, and the real time performance - making it one of the top systems at Attain.
IMPORTANT RISK DISCLOSURE
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US Stocks continued their correction last week as traders continue to speculate that the Fed will indeed raise interest rates for the foreseeable future, and in doing so greatly weaken the economy and in turn corporate profits. Fed Governor Bernanke continues to pledge to be an inflation fighter, which, along with rising tensions in the Middle East, continues to scare the stock market. For the week SP futures fell -2.87%, NASDAQ futures were down -3.31%, Russell 2000 futures were hit the hardest falling -5.29%, and Midcap 400 futures dropped -4.85%.
Commodities are also in the midst of a price correction as energies, metals, grains, and meats all moved lower last week. The metals markets led the fall with High Grade Copper dropping -8.90%, Silver futures fell -7.24%, Gold futures dropped -4.40%, Platinum was down -4.39%, and Palladium lost -9.15%.
The energy markets were mixed with Natural Gas falling -6.81% and Unleaded Gas dropping -2.03%. Crude oil was also down for the week (-0.97%) but the market was very choppy. Heating Oil was the only energy market to end the week in the black climbing +1.56%.
Grains moved lower due to bullish reports and late week liquidation. Wheat futures led the way falling -7.74%, corn dropped -6.05%, Soybeans fell -1.99%, Soymeal fell -4.75%, and Bean Oil dropped -2.24%. Meats were mixed with Live Cattle falling -3.01% while Lean Hogs rallied +2.61% higher.
Finally, the US Dollar gained in it’s counterparts as the EU raised interest +0.50% last week. Dollar Index futures finished +2.04 higher while Eurocurrency fell -2.17%, the Japanese Yen fell -2.07%, and Swiss Franc futures dropped -1.99%.
While some might call it semantics – there is a fine line between good volatility and bad volatility for trading systems. The good kind was on display two weeks ago when stock markets around the world were down anywhere from -1.5% to -3% and many systems rode the move to nice profits. The bad type of volatility was on display last week as the market displayed higher intraday volatility, which occurs when prices see sharp reversals during the day.
Day trading systems do best if the market continues in one direction or another during the day, and indeed last week’s wild intraday swings made it difficult for day trading systems to turn a profit. Only five systems were able to keep above water for the week and those profits were modest for the most part. But if a few bad volatility days are the price we must pay for more of the big up or down “Good Volatility” days, that’s a price worth paying.
One system that took the sharp reversals in stride was RC Miracles eRL, which made +$1,966.50 for the week on a total of 9 trades. The system traded every day of the last week and had reversal trades on 4 out of 5 days. Other winners included Beta V2 Dax, which needed just one successful long trade on Thursday to book profits of +$1504.12 for the week. Tanker CL bounced back last week with profits of +$950 on two trades. The system can also be traded on the EMINY Crude Oil which is worth ½ of the full-size contract. All NYMEX energies were also dually listed on CME Globex as of 6/12/06 which should only benefit the system from an execution standpoint. Moving back into the equities, RC Miracles eMD made $500 following a similar pattern as the eRL, while Rayo Plus Dax had just one trade that made +$126.85.
Among the otehr Eurex based day traders - Epsilon Bund was active trying to find direction in the Eurobund market, but lost -$192.43, BetaCon 4/1 ESX and Dax were both on the losing side of the coin with losses of -$266.99 and -$505.28 respectively, Kappa Dax traded five times last week for a loss of -$476.05, Theta V1 Dax gave back -$615 for the week, and Phi Plus Dax traded three times for a loss of -$2,311.73.
Elsewhere, Impetus eRL pulled back from its recent peak with a loss of -$516.60, Compass eRL and Compass SP were down -$620 and -$1,010.72 by the end of the week, and RC Success eRL, ES and eMD all were hit hard with losses of -$1,642.50, -$1,887.50 and -$2,469.50 respectively.
After a sluggish start to the month, most swing trading systems bounced back with a vengeance during last week’s equity market sell off. Topping the charts last week was this year’s top performing swing system and subject of this month's system spotlight (above) Tzar - which earned +$8,629.50 across its 4 domestic markets (eRL, eMD, ES, and NQ). As noted above, the system is also available to be traded on the Dax, Hang Seng and other foreign indices.
Also bouncing back last week was Ping Systems, which earned +$4,050. The system has struggled through the recent market downtrend, with its longer term daily component only just now reversing short after holding long since late last year, but appears to now be back in phase with both of its Russell components holding short.
Other profitable strategies last week included the following: Delphi eMD +$2,869, Pivots Weekly SP +$1,850, Delphi eRL +$1,715, Hourly eRL +$740, Seasonal ST eRL +$550, Gettess US +$512.50, Mesa Bonds +$500, Eclipse +$445, Pivots Weekly ES $345, Seasonal ST ES +$250, Axiom ES +$157.50, Axiom eRL +$137.60, Axiom eMD +$123.30, and Mesa Notes +$15.625.
Other trading included small losses from Targets eRL -$384.68, AG Mechwarrior ES -$445, Delphi GBPUSD -$740, and Pivots Weekly NQ -$1,300.
As commodity markets begin to go through corrections such as the large down moves in the metals markets, most trend following systems are beginning to exit positions they have held over the last few months in the energies, grains, and metals as they are designed to do. This is the natural cycle that a trend following system goes through. As markets begin to trend it is not uncommon to see systems load up with multiple positions in the same sector and then exit the sector all together as the market begins to consolidate again and wait for a new trend.
A great example of this cycle is what has occurred in the sugar market over the last 12 months. It was about this time last year when Sugar began its huge rally due to its use in ethanol production. Most trend following systems entered the market long and followed this upward trend until the rally ran out of steam in January. Then Sugar traded in a tight consolidated range in February, March, and April before beginning to break out towards to downside in mid-May. Now, as you may have guessed, the same systems that were long Sugar last June are now reentering the market on the short side in hopes of catching an equally big downward trend in the market. This is a great example of the cyclical nature of both commodity markets and trading systems.
Systems with short Sugar trades include Aberration Plus which is making $896.80 per contract and Brix which is making $1944.40 per contract. Other systems with trades on in the softs (tropicals) include Trend Simplicity which is making +$5125.00 per contract in Coffee and Axiom LT which is making +$1690.00 per contract in Cotton.
Closed out trades from last week include Trend Simplicity exiting Corn for a loss of -$825.00 per contract, Eurocurrency for a loss of -$1525.00 per contract, and the British Pound for profits of +$4743.75 per contract. Aberration also exited corn for a loss of -$712.50 per contract. Finally, Andromeda exited the Japanese Yen for a loss of -$750.00 per contract.
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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.