After the Perfect Storm, six months later
March 15, 2004
Six months ago, on September 15th, 2003 - things looked pretty bleak as a huge bond market sell off combined with historically low stock index volatility caused multiple systems to enter new drawdowns. Long term, multi-market systems were suffering some of the worst returns we had ever seen. Day trading systems were just as bad as they had trouble rebounding from double digit losses in July. Attain used this doom and gloom environment as the backdrop of our 9/15/03 newsletter article, titled, "The Perfect Storm"
View Article: http://www.attaincapital.com/alternatives/alt_sep1503.htm
It was our contention that while troubling, things were not as bad as they seemed. After running some quick data, we found that the drawdowns, as measured by an index of three long term systems and a similar index of three day trading systems, were bad, but not so bad as to have qualified as a 1 in 100 year event. In short, the drawdowns being experienced were commonplace for this type of investment, and we recommended to stay the course.
Well, we thought it would be insightful to revisit these indices 6 months later, to see where investors stood today. The results were telling, with the long term index having pegged September of '03 as the bottom of its drawdown phase. The long term index, made up of Aberration, Andromeda, and Synergy has rallied smartly in the past six months behind strong moves in the metals and grains markets, but still remains below its all time high in February of '03. (A sneak peek at the index midway through March would see it close to or above those highs, however).
The importance of the long term index's move off of the drawdown levels seen six months ago can not be stressed enough. Trading system investments have drawdowns. That is a fact of life, which will not change. Knowing those drawdowns will happen and being able to stick to your investment through those drawdowns are paramount to success. The multi-system drawdown period which hit bottom six months ago scared away many investors, who now looking back realize they got out at the bottom The lesson to be learned is not that one need greater intestinal fortitude, rather that one needs to be more analytical.
The drawdowns six months ago were bad, but they were not outside the scope of the systems they occurred in. The analytical investor, who predetermined a "line in the sand", and didn't panic when the drawdown got near that "line", knowing they would only stop trading the system when drawdowns went past that "line", has proven to be the successful investor. The investor who let emotion slip into their trading system investment and got out at an arbitrary drawdown level because they "didn't feel comfortable" was lost from the beginning. It is imperative that anyone weighing this type of investment predetermine the drawdown levels they will cease trading a system at, and not budge until that level is breached.
The day trading index was not as fortunate to have rebounded as smartly as the long term index, but this is mainly due to the fact that the index created in September of 2003 was comprised of R-Mesa 5, Early Bird, and LTS Breakout. These systems being included are an issue because LTS Breakout no longer exists in its previous form, being upgraded to a reversal system and as of last month no longer traded at Attain. The Early Bird III system meanwhile, has not had a single trade since August of 2003.
To compensate for the negative skew to the index both LTS Breakout and Early Bird III introduce, we recalculated the index to include Daybreaker SP and LTS Barracuda as well. Even with these systems added, the index has continued to underperform since last September, which could be attributed to the continued low volatility environment which has persisted for some time now in US stock indices. The inset of the day trading index chart shows how an index of R-Mesa 5, Daybreaker, and LTS Barracuda has done quite well in the past 12 months.
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.
Feature | Week In Review | Chart of the Week |
Feature | Week In Review | Chart of the Week |
Except where noted, the below Profits/Losses are based on closed out trades. $50 per R/T commission included ($30 per emini) Percentage gains based on developer recommended initial balances as listed at www.attainaccess.com.
What started out as another nondescript week for trading systems ended with a flurry last week. Unfortunately, it was a terrorist attack in Spain rumored to be linked to al Qaeda that set the volatility wheels in motion but it was a rally sparked by Mutual Fund buying that dominated the markets on Friday. It the end, the CBOE’s VIX index, which measures market volatility, closed the week 4 points -or 28% - higher after opening at meager levels on Monday. Both day trading systems and swing trading systems enjoyed the action as almost all index traders that traded were profitable. The long term systems remained quiet with most systems content with their existing open positions after being very active a week earlier.
**Day Trading**
Blue Wave Zones SP continues to battle for the top day trading system of the month with Daybreaker SP. Last week was Blue Wave’s week to shine, making +$1100.00 per contract after trading 4 times. The system is now up +$3550.00 in the Month of March. Daybreaker SP did not trade last week, but has accumulated +$2525.00 in profits this month.
R-Mesa 5 SP had another up and down week, but the system was able to end the week in the black with profits of +$415.00 per contract after making +$2680.00 per contract on Thursday’s down move.
Compass SP scratched back to near breakeven after losses early in the week to post a small loss of $-70.00 per contract including profits $1100.00 per contract during Friday’s rally. Compass’ reversal filter Sextant was active last week, entering the market short on Thursday as Compass’ original long trade was stopped out. Sextant was able to catch most of the downward move for profits of +$3050.00 per contract.
Finally, LTS Barracuda continued its struggles losing -$1150.00 per contract.
**Swing Trading**
Swing trading systems continued their winning ways last week, Tzar, Delmar, I-master, and Mesa Notes all taking profits. Tzar ES was the weeks to performer taking profits of +$1382.50 per contract after holding short for exactly on month. Delmar ES was next with profits of +$1135.00 per contract followed by I-Master NQ which made +$360.00 per contract, I-Master ERL which made +$198.00 per contract and I-master EMD which made +$170.00 per contract. On the downside I-Master ES was unable to continue it’s comeback losing -$145.00 per contract and Delmar NQ lost -$120.00 per contract.
In bond swing trading Mesa Notes took profits of +$2254.69 per contact. The system held long for most of the recent run up in the Ten Year Notes and ended the week with a short position. Mesa Bonds did not trade and remains short as well.
**Long Term**
As mentioned above it was a quiet week for long term systems which continue to accumulate open trade profits across several markets. Systems including Andromeda, Aberration, and Trendchannel continue to hold long in the bonds, which were less volatile last week but continue to inch higher.
The foreign bond markets have also proved to be profitable with Andromeda, Checkmate, and Synergy holding long the Eurobund for open trade profits of +$3110.00 per contract, +$3100.00 per contract, and +$3410.00 per contract respectively. Other markets that have provided profitable trends include Cotton and Foreign currencies which have traded lower and Soybeans which continue to trade higher on supply and demand concerns.
Finally, a rally in the Sugar market late last week off of six month lows stopped out Synergy and Aberration, while at the same time signaling a long trade for Checkmate.
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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.