Introducing Long Term System Indices
March 1, 2004
How best to report performance on long term, multi-market systems turns out to be no easy decision. The model used by several firms is to report the performance of a single tracking account, which trades one of the developers recommended portfolios with the recommended starting capital and risk per trade parameters. This method does not take into account different portfolios or different start dates, however.
Another method is to report the system performance on a single contract basis, but many developers will tell you that its impossible to separate the money management (multiple contracts) from the system, thus invalidating this approach for anyone considering trading such systems using a multi contract money management approach.
The problems of reporting long term, multi-market system performance boiled down to three main issues:
1. Different start dates - One of the biggest issues and most easily overlooked is the issue of different start dates. Investors starting the system on different dates can experience substantially different equity curves, as the more recently started investor could miss out completely on a months long winning trade.
Imagine the actual Attain customer who started the Synergy system on June 4th, just twenty days after clients already trading the system had entered a long position in the LME Copper. As of the end of February on a single contract basis, that position has gone on to generate nearly $23,000 in closed trade profits and continues to hold the position long for open trade profits of over $8,000. This trade has helped pull Synergy out of a drawdown for those who started trading before May of '03, but those who started since remain in that drawdown.
2. Different portfolios - As we mentioned in last week's newsletter, long term systems come with many different portfolios, and the performance of the system can substantially differ from one portfolio to the next. Is it fair to show the best performing portfolio? The worst performing? Or a portfolio showing all markets? Sticking with the aforementioned Synergy trade, those investors without the LME Copper in their portfolio would not be experiencing such nice returns.
3. Different risk per trade settings - Lastly, some investors trade using just a single contract per signal, while some risk a fixed percentage of equity on each signal. This risk percentage can vary from one account to the next, with some investors risking 2% per trade and some risking as low as 0.75% per trade.
To address these issues, Attain Capital has developed system tracking indices which attempt to represent the effective performance of all those trading the specified system. The indices are an equally weighted index of all clients trading the specified system, no matter their start date, portfolio composition, or risk settings.
By including those investors who started trading or stopped trading within a specified month, the index takes into account the usually smaller (positive) initial returns and the usually larger (negative) ending returns experienced by investors before they quit the system. More importantly, though, the index averages the returns experienced over different starting dates, thus giving a truer representation of what returns would look like for investors considering trading the specified system.
Like all indices, the individual system indices do have biases one must consider. First, it is important to note that the index includes all accounts traded at Attain only. There are other firms and individuals out there who trade the systems as well, and may due to start dates or other reasons have much better or worse performance than those clients at Attain. For example, many of the Attain clients trading the Synergy program started after the LME Copper position noted earlier was entered, thereby skewing the results negatively somewhat.
In the end, we believe this method of tracking long term. multi-market performance will give the most realistic view of each system's performance, as it is the only method that can account for different start dates, portfolio compositions, and starting equity levels. We hope you find it easier to understand and more representative of the actual trading.
- Jeff Malec
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 based on closed out trades. Percentage gains based on developer recommended initial balances as listed at www.attainaccess.com.
After a tough month of January most of the swing trading systems rebounded with a profitable month in February. Often time’s profitable market conditions for swing trading systems are lousy market conditions for day trading systems and February was no exception. Very few day trading systems had a profitable month as a very congested SP futures market proved tough to beat.
Outside of the stock indices the long term systems continue to find profits in the metal and grain markets, while currency trading programs have reversed short after holding long since ’03. In short, the benefit of diversification across multiple markets and time frames was proven again in February, especially for those day trading SP’s.
**Day Trading**
Historically day trading systems and traders have struggled in the month of February. Why? The main reason is that most companies have already reported annual earnings in January and outside of a few economic reports the market has little to trade on. So why even trade when one knows that the market conditions will be tough? Well, all one has to do is look back at February of 2001 when most of the systems currently traded at Attain Capital had a profitable month.
However in February 2004 there was a lot of red on the board. Cobalt ND took the top spot amongst the stock index systems with profits of +$850.00 per contract in the Nasdaq, while Daybreaker SP was the top performing system in the SP with profits of +$400.00 per contract. Daybreaker has been the top performing SP system in 2004 with profits of +$4025.00 per contract.
The rest of the day trading systems suffered losses including January’s top three performers Blue Wave Zones, Compass SP, and R-Mesa 5. Blue Wave Zones was down -$4562.50 per contract, Compass lost -$3548.50 per contract, and R-Mesa 5 lost -$1628.75 per contract. Finally, LTS Breakout lost -$2875.00 per contract.
**Swing Trading**
Most people have heard the saying “One man’s junk is another man’s treasure†or “One man’s meat is another man’s poisonâ€. Compared to day trading systems most swing trading systems thrived in February’s choppy market conditions. Tzar ES led the way with profits of +$3050.00 per contract after holding long in the SP since December. I-master e-RL bounced back from a tough month with profits of +$2523.00 per contract as did I-master ES which made +$900.00 per contract. I-master NQ held near breakeven losing -$86.60 per contract. I-master e-MD was the months worst performing swing trader losing -$3512.00 per contract. DelMar NQ continues to battle its drawdown making +$330.00 per contract while DelMar ES lost -$487.50 per contract.
The Mesa swing bond trading systems took advantage of the volatile bond markets for profits in both the thirty year bonds and ten year notes. Mesa Bonds made +$2000.00 per contract nearly erasing all of January’s losses. Mesa Notes had profits of +$859.30 per contract in the 10 year notes pushing its yearly profit to +$4156.10 per contract.
**Long Term**
China is quickly becoming the long term system trader’s best friend. Huge demand for both grains and metals out the world’s most populous country has resulted in profits for long term traders. Andromeda, Aberration, Brix, and Trendchannel have all benefited. Andromeda is holding long in the Soybeans for profits of +$3975.00 per contract and long in the High Grade Copper for profits of +$9212.50 per contract. Brix is holding long in the beans for profits of +$5087.50 per contract while Trendchannel is holding long for profits of +$2110.00 in crude oil.
Synergy continues to enjoy the Copper rally, meanwhile now making over $8,000 in open trade profits on a long LME Copper position having enjoyed over $23,000 in closed profits already.
What hasn’t worked? Currencies have become very volatile with the European Union discussing lower interest rates. This coupled with intervention by the Japanese government has made it difficult for “long†currency holders. Recent system trades include Andromeda getting stopped out of a long Yen position for a loss of -$2750.00 per contract and Dollar Trader reversing short in the Swiss Franc after losing -$3087.50 per contract on a long trade.
Except where noted, all Profits/Losses above DO NOT include commissions or fees. For a detailed breakdown of performance net of all costs, please visit our website at www.attaincapital.com.
Please Login to: http://www.attainaccess.com for the latest updated statistics.
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.