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A Trading System Investment...How It all works.

July 25, 2005

 

We often talk in this space about measuring how a trading system investment is doing or will do, with data on correlations, probabilities, and more. But we forget to take a second and lay out just how an investor goes about getting involved with a trading system investment, and what he or she can expect from Attain once involved.

1. We assist in picking a portfolio of trading systems.

It all starts by sitting down with an investor (either in person, over the phone, or via computer) and assessing how much they are looking at putting towards a trading system investment, what type of returns they are looking to generate, and - most importantly - what amount of loss would cause the investor to consider stopping the portfolio. The single biggest reason investors lose money trading systems is their inability to stick through drawdowns, causing the dreaded 'get in at the top, out at the bottom' phenomenon. Getting this "pain" threshold out in the open before investing in a trading system goes a long way to long term success.

We then show you a library of systems we believe in - and assist you in matching the specific characteristics of each with your specific risk/reward characteristics. For example, we would show an investor with $200,000 to invest who has shared he would abandon the investment if he lost over $50,000 a portfolio of systems such as the example located here: Sample Report This portfolio requires no more than $200,000 in starting equity and has less than a 25% drawdown, as desired.

2. We walk you through opening a futures account: The next step is to open a futures trading account with Attain. Our Investor Relations Manager assists investors every step of the way, getting the proper account forms to investors by Fed Ex, fax, or email; then working with them personally to insure their account is set up and funded properly.

Part of opening the account is signing a letter of direction, which instructs Attain to follow a specific system - and only that system - on the client's behalf. The account is in the individual investor's name, and is a self-directed account by the investor, with no one authorized to execute any trades other than those signaled by the system. This protects the investor by insuring there are no weird Japanese Bond options or the like in the account - just the system trades and positions.

Attain also opens several "sub" accounts - for as many different systems as a client is trading. These sub accounts start at a balance of $0, but are linked to the investor's main account for margin positions. This allows investors to track positions, and more importantly - profit and loss - per system. One quick look at the "Compass" account, for example, would show a client the exact profit or loss she has made trading that system.

3. We facilitate the purchase or lease of the Trading System from the 3rd Party Developer - All of the trading systems Attain operates for clients are the property of 3rd party trading system "developers". These developers charge anywhere from $50 per month to several thousand dollars to purchase their systems outright. Whatever the charge - Attain acts as the liaison between the investor and developer, reviewing invoices and deducting system fees straight out of client accounts monthly to avoid clumsy online credit card processing, or having to send money to an unknown entity. Paying for systems directly out of the account also lets a client know the true performance of a system - as the account balance will reflect the often overlooked cost of the trading system.

4. You tell us your final money management instructions and say Go!- Whether it be adding a contract for every $10,000 in profits and subtracting one for every $10,000 in losses, risking no more than 1.35% of equity across a portfolio of day, swing, and trend following systems, or implementing advanced sector filters or position limits - Attain follows your instructions to a tee.

You can also select an exact date you wish to say Go! (begin taking system signals), or instruct Attain to wait until the next signal, wait for a drawdown 25% of the tested maximum drawdown, for example, or start taking signals at new equity highs. Whatever your instructions, saying GO is as easy as picking up the phone or sending an email.

5. You sit back and watch while we do the work- Attain handles all aspects of your trading systems investment, from implementing any software or data upgrades to placing orders on the trading floor. Our offsite backups, rotating system specialists, and most of all - our experienced staff - make sure your account makes the exact profit or loss issued by the trading system. Should there be an error or some sort of mistake on Attain's part in which your account does not receive the same trade the system issued - we make your account good - crediting any missed profits. We also use the average pricing system, where all clients trading a particular system receive the same price on entries and exits (an average of all the execution prices for all the clients on each order).

To see how your trading system investment is doing - you can receive daily statements via email as well as log in to a system for reviewing past and present account statements. Most clients find the easiest way to follow along is to view Attain's daily comments and weekly newsletters - which cover all of the activity for each system seeing action that day (past week).

6. We notify you with Custom Reports - Attain constantly monitors individual client performance, from individual systems within portfolios to correlations between portfolio components. Should a system move outside of its tested risk parameters by eclipsing its stop trade level (usually 1.5 times its pre-release max DD) or the correlation between a pair of systems in a clients portfolio start to increase dramatically - Attain notifies clients by phone or email. In addition - we send a custom performance report to all clients annually showing performance by system, monthly percentage gains, and statistical measures such as the Sharpe ratio. Clients with accounts greater than $250,000 receive a custom performance report monthly. .Sample Monthly Performance Report

7.Transparency & Liquidity - Two big advantages a trading system investment has over alternative investments in vehicles such as hedge funds or real estate is full transparency and nearly instant liquidity. Investors can see all of their positions at all times, and per the limited letter of direction will not see any surprises. Should an investor need cash for any reason, wires can be processed the same day if received by 11 AM.

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.

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Chart of the Week : Jaws Narrowneck Portfolio - Performance Summary

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It has been said that traders buy the rumor and sell the fact. Well, if no one knows the rumor - traders aren't afraid to act on the news - and last week most of the investment world was caught flat footed when China decided to undo its currency peg to the dollar, instead letting its currency, the Yuan, float in a small band relative to a basket of currencies and moving away from the US Dollar.

No one really knows what the exact basket of currencies the Yuan is pegged to or what effect it will have on the US economy. However, the decision did create a wave of trading opportunities across the currency, bond, and stock futures markets.

The foreign currencies rallied on the news - led by the Japanese Yen, which gained +2.07% on the day of the announcement. In the treasuries: 30 year bonds sold off in anticipation of decreased dollar denominated investments by the Chinese, falling -1.15%.

On a weekly basis, the markets acted almost exactly the same as the week before. Energies moved a little lower, stocks rallied, and bonds were nearly unchanged. The one big difference this week was in the grains which sold off hard. A week after gaining +8.94% in corn, +6.32% in soybeans, and +3.34% in wheat, the grain markets did a complete 180 degree turn with corn falling -8.67%, soybeans dropping -7.11%, and wheat falling -5.16%. It was certainly a tough week to be a long in the grains.

Elsewhere, SP futures gained +0.04%, NASDAQ futures were up +1.42%, and Russell 2000 futures and SP Midcap futures hit all time highs, with weekly gains of +1.96% and +1.22%. But we don't hear anyone talking about a small cap bubble yet.

*Day Trading**

The majority of the day trading systems struggled last week as the market continued higher for the fourth straight week. Technically, it appeared that we were past due for a sell-off, but the market held firm and eventually the sellers were squeezed out of their trades.

There were a few systems that were able to capitalize on the bullish trend of the week. BWT Zones Russell has been spectacular in the month of July and profited an extra $1243.30 per contract with several successful reversal trades. BWT Rock N Russ settled for some smaller winning trades that totaled gains of $537.90 per three contract money management unit for the week. RC Miracles traded a handful of times last week as well and was up by $137.50 per contract.

As most of us are aware of, trading is a zero-sum game and whenever someone is making money on a trade someone else is losing. Unfortunately, several other day trading systems were caught on the losing end of the deal. Helix ES wasn’t as active as usual, trading between one and two times a day for a loss of -$106.25, while Impetus eRL traded a very active four times last week for losses totaling -$306.70 per contract. RC Success couldn’t catch a break last week and was unprofitable by -$437.50 after trading on all five days. Compass, meanwhile, was stopped out by just a few ticks on Wednesday before the market rallied in its direction going into the close, ultimately dragging the system into the red for the week for a loss of -$557 on three trades.

Elsewhere, BWT Zones SP couldn't recover from two losing trades on Wednesday, losing -$975 for the week despite some winners. In a similar manner, Clipper eRL took two full stop-outs on Thursday and lost -$1,129.10 per contract for the week despite other wining trades. AG Xtreme has struggled a bit with the tighter trading ranges this month, and lost -$1,150 on three trades including a reversal on Wednesday.

Rounding out the week's activity - Day Breaker had three small losing trades amounting to a total loss of -$1,225 for the week, while the Electric Day Breaker Portfolio had another tough week losing -$1,705 trading one contract on each of the four markets. Finally, R-Mesa 5 continued its recent drawdown, losing -$2,425 last week (a peek ahead to today saw the system gain about half that loss back).

**Swing Trading**

Both Eclipse eRL and Axiom eMD seemed unstoppable around the middle of last week as they each rode their respective Russell 2000 and S&P Midcap indices to yearly and all time equity highs…Unfortunately, yet another bomb scare in London late in the week spooked the market and ate into each of their profits. For the week Axiom eMD gained +$830 on its open position which is earning +$2,680. On the other hand Eclipse hit new equity highs in open trade equity only to reverse short before the market could recover from Thursday’s sell off. Eclipse ended up +$430 on the week.

The trade of the week, however, could go to Axiom NQ, which hit its windfall profit target of 100 points, gaining +$1,950 on the closed out trade after commissions.

In other index trading Tzar eRL gained +$1,310, Tzar eMD gained +$890, Tzar NQ gained +$450, and Tzar ES lost -$287 in open trade equity on the week. The system is currently holding all positions.

The bond market was not quite as friendly to investors as the indices; bond prices continued to fall throughout the week sue in no small part to the revaluation news out of Beijing - causing Mesa Bonds to be stopped out for a loss of -$1,885.22 per contract on the closed out trade. Mesa Bonds is now flat the bond market, while Mesa Notes continues to hold its long position, losing -$281.25 on the week.

**Long Term**

It was a tough week for long term systems and their investors. The sell off in the grain markets hurt many as most systems entered long in at least one grain market last week. Systems with long positions include Aberration Plus which is long in corn for a loss of -$1187.50 per contract and long in bean oil for a loss of -$980.00 per contract. Axiom LT is long in corn for a loss of -$1187.50 per contract, long in Minneapolis Wheat for a loss of -$450.00 per contract, and long in soybean oil for a small gain of +$28.00 per contract. Andromeda and SEMA4 Symmetry are both holding long in corn as well for losses of -$1187.50 per contract and -$1475.00 per contract respectively. Andromeda was also stopped out of a long KC wheat trade for a loss of -$800.00 per contract.

Those that are still holding onto long bond trades also felt pain as the bond markets continued to head south moving ½ a percent lower for the week. Axiom LT was the only system to reverse short in the US 10 year notes. The system lost -$96.88 per contract on the short trade. Elsewhere, Andromeda was stopped out of the Aussie 10 years for loss of -$1850.00 per contract. In Europe rumors of decreasing interest rates has allowed European bonds like the Bund, Schatz, Bobl, and Swiss Conf to continue trending higher. Systems with long positions in at least one of these markets include Aberration Plus, Axiom LT, and Andromeda.

Finally, sugar continued its rally last week gaining +1.57% as the commodity finally looks to be trending after a long stretch of choppiness. Systems holding long include Andromeda which is making +$319.90 per contract and Aberration Plus which is making +$62.80 per contract. Overseas, Axiom LT is holding long in London sugar for profits of +$1945.00 per contract.

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.

Feature   |   Week In Review   |   Chart of the Week   |