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Is it time to Give Up on I-Master (I-Master Plus)?

July 19, 2004

 

What happens when you mix the growing popularity of e-mini futures, the well known developer of Aberration, and six months of great trading results. You get the phenomenon of I-Master.

The story of I-Master is well traveled these days. It all began when well known system developer Keith Fitschen teamed with Murray Ruggerio and came out with his first swing trading system in 2001, working on the four popular stock index futures. The program was a natural fit for the thousands of investors utilizing e-mini futures on these markets, and the program quickly became one of the most popular systems of all time.

The system remarkably set new equity high after new equity high with virtually no drawdowns through its first 12 months of trading (Nov 01 to Nov 02), but has since done very little to impress investors. I-Master ES,(trading e-mini S&Ps) the most popular market followed, lost over $4,000 in December of 2002 and has not seen new equity highs since. I-Master NQ followed suit two months later, setting an equity high in January of 2003 which hasn't been seen since.

These losses prompted Attain Capital to write a newsletter in February of 2003 detailing our concerns about the popularity of the system and the possibility it was being over-traded Use the following link to access that article: http://www.attaincapital.com/alternatives/alt_feb24.htm

The story continued in October of last year, as developer Keith Fitschen attempted to answer those asking if I-Master was broken by releasing an upgrade to I-Master for $500 called I-Master Plus. Attain tested the upgraded version and concluded it was too early to tell if it was worth the upgrade fee.

Regarding I-Master Plus, a quick scan of the numbers nine months later tells us investors utilizing I-Master Plus on the mini Nasdaq fared about $700 BETTER, while those investors trading the e-mini Russell with I-Master Plus fared $2,323 WORSE. (Comparison data only available on NQ and eRL) Suffice it to say the jury is still out on I-Master Plus.

So where does this leave the venerable I-Master program. The system can't seem top buy a break. It made new equity highs in the eRL market last month, but saw new equity lows in the S&P at the same time. In between these two extremes lie the e-mini Mid Cap and e-mini Nasdaq; markets which the system has done very little in as the equity curves of those markets have been sideways for nearly a year now.

With the system at or very close to new equity lows in the e-mini SP and e-mini Mid Cap markets, having not made new equity highs in the ES in 22 months, investors are again asking if I-Master is broken. One thing for certain is that the system is not suffering from over-trading and too much popularity as may have been the case in early 2003. After a down year in 2003, only the stoutest and most disciplined investors remain trading the program.

With I-Master Plus not proving to be the answer so far, the question remains of whether or not I-Master's run is over. Is it time to give up on I-Master? Don't Bet on It. As mentioned in Keith Fitschen's letter to investors last October, the system does well in periods of high relative volatility, and we have remained at nearly all time low levels of volatility. This has undoubtedly hurt the system and been a main catalyst for its move towards new equity lows.

But the one certainty about any market condition is that it will not last forever. Should volatility reemerge when catalysts such as the US presidential election get out of the way, I-Master is one program which should benefit greatly.

It is also a positive sign that in the midst of this unfavorable, low volatility environment; I-Master eRL just made new equity highs last month. In addition, the diversification benefits of trading all four markets with I-Master have never been clearer. While I-Master as a whole has been down, the four market portfolio has stayed well within its tested drawdown levels, and remains one of the least volatile systems when traded as a four market portfolio. The charts below show individual equity curves for each market, as well as the four market composite performance. Please note that the composite performance does not begin until September of 2002, as the actual trading results for the eMD market were not tracked by Attain until that time.

The main drain on performance has been I-Master ES, which just recently eclipsed our calculated 1 in 100 yr drawdown limit of $13,718 by posting new drawdown levels of just above $15,000. But the system remains within our secondary stop trade level of 1.5 times tested max DD. The tested Max DD for I-Master on the e-mini SP was approximately $12,500, making 1.5 times that level $18,750.

As for the four market portfolio, the current drawdown is approximately $23,590. This is compared to the tested hypothetical max drawdown of just over $34,000, the 1 in 100 yr calculated Max DD of $34,000, and the 1.5 times max DD of just over $50,000. Clearly, the system remains within tested parameters on all accounts when looking at the four market portfolio.

I-Master may simply be biding its time, so to speak, in the current low volatility environment, awaiting the inevitable increase in volatility and potential profits associated with that. Investors who have stayed with I-Master this long would be doing themselves a real disservice to cease trading the system now, with volatility possibly having nowhere to go but up. Based on the system remaining within its risk parameters on a four market basis, the recent equity highs of the I-Master eRL, and the potential for volatility to increase leading up to and after the US presidential election - we have concluded its not time to give up on I-Master just yet. The system could have a few good runs left in its storied legs.