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2004 Review: System by System

January 3, 2005

 

AG Xtreme: www.agxtreme.com

For a system that thrives off volatility, 2004 may have been the worst possible time for AG Xtreme to start trading. With volatility at historically low levels in the S&P futures, AG Xtreme suffered for most of the year, losing money in 7 out of the 10 months AG has been traded at Attain. The good news for AG Xtreme investors was that when it was good, it was really good; posting two huge months, +26.1% in April and +33.4% in October. AG has proven to perform best under higher volatility conditions or during large trading ranges where the market closes near the high or low of that range. If AG Xtreme is indeed one and the same with being long volatility, going long volatility at these lows by trading AG Xtreme remains an intriguing investment opportunity.

Blue Wave Zones: www.bluewavetrading.com

As mentioned above, Blue Wave Zones was the best performing system at Attain in its first full year of trading, generating annual profits of 78.7% on the developer's recommended initial capital of $30,000. The system's developer, Randy Sarrow, came out of relative obscurity in 2003 when he began trading Zones for his own account at Attain, and has produced one of the top SP day trading systems found on the market today.

Using a combination of Fibonacci analysis and well known floor pivot levels, Mr. Sarrow has developed a truly unique trading method. While many volatility breakout systems suffered in 2004 due to the low volatility, the Zones system's "zones" were able to sell resistance and buy support in the often range bound market conditions. Bolstered with an update in July of 2004 which assigned new probabilities to the different zones, the system reeled off six straight profitable months on a gross basis. (2 small losing months after commissions and the cost of the system).

The only thing Attain can see slowing down Blue Wave Zones is a large spike in volatility, which could lead to an environment favoring breakout type systems over the pivot level type trades Zones uses. However, Zones also employs logic in which it enters trades on breakouts of its zones, so it could enjoy that type of environment just as much.

Looking ahead to 2005 investors should keep an eye on Mr. Sarrow's offerings in the Russell market. Both BWT Zones Russell and BWT Rock'n'Russell began trading at Attain in November and look promising thus far given the emergence of the Russell as a great day trading market.

Clipper eRL: www.marinertrading.com

With volume and volatility both declining in the SP pit, while holding steady in the Russell, many developers have transferred their day trading strategies into the e-mini Russell 2000 futures. The Russell index has posted the highest returns among the major US stock indices in each of the past two years, and is being used more and more by many mutual funds and fund managers as a benchmark. This increased exposure has seen trading volume increase dramatically throughout 2004, giving SP day trader's an arguably better trading opportunity.

Jack Telford, the developer of the highly successful Compass SP system, recognized the potential of the e-mini Russell market and released Clipper e-RL this past summer. The system, which is based on the same strategy as Compass, has gotten off to a great start at Attain by posting profits in three out of the last six months. Much like Compass, Clipper uses market data on the breadth and volume of the market to determine optimal trading opportunities, and will usually not enter positions until a market trend has been established.

Early returns have indicated that Mr. Telford may have hit another home run with Clipper, but only time will tell as the system still has a very short track record. For those without exposure to the Russell market, Clipper is an excellent choice.

Cobalt: www.tradingvisions.net

The Cobalt ND system experienced another challenging year, and unfortunately was dropped by all investors using it by the end of the year, ending the real-time track record. Our last trade was taken early in October and the system posted a loss of 9.6% for the year. The culprit has to be the utter disappearance of the Nasdaq futures, which exhibited an even bigger drop in volatility than the S&P futures. Cobalt needed more volatility than it had, seeing no gain above 1.5%. This is a good example that not every system a developer designs will be successful. We continue to have success in other products introduced by Trading Vision, but the ability of any one system to show lackluster performance should serve as a wake up call for investors utilizing only one system to diversify themselves.

Compass: www.marinertrading.com

What was one of the most impressive streaks in the system business came to an end in 2004, as the Compass system failed to post a 5th consecutive profitable year in actual trading. Ending the year down just 19% and keeping its average annual ROR at 45% speaks to the consistency of Compass however. The major hurdle came early in the year, as the system entered a drawdown of close to 50% as it suffered four losing months in a row between February and May. The developer attributes the below average year to the lack of volatility and shrinking daily ranges in S&P futures, but never stopped trading the system for his own account, citing that the strongest months usually follow such times. The system did perform well later in the year as volatility picked up following the presidential election, and Attain fully expects Compass to return to profitability in 2005. For those investors who believe in statistics and the power of reverting to the mean, getting involved with Compass after a losing year represents a great opportunity.

Day Breaker: www.traderassist.com

The Daybreaker system took a lot of people by surprise in 2004 as it moved up the charts to become one of the highest rated systems at Attain. In its first full year of actual results, the system was very impressive in the 'new world' of shorter daily ranges and poor follow through. The systems ability to aggressively move its stop toward break-even and later lock in profits was almost ideal for such market conditions. Unlike some systems designed for smaller ranges (attempting to sell highs and buy bottoms), which could see severe losses should volatility shoot up in 2005, Daybreaker's only worry in a rising volatility environment will be taking profits while systems like Compass and R-Mesa ride the trade to the end of the day. But if missed profits are your biggest worry, you're having a good day.

Daybreaker has languished somewhat since May of last year by not making new equity highs, but it hasn't seen much of a drawdown, either. The system still finished the year up double digit percentage points, making the new year a very attractive time to start trading Daybreaker. With its ability to take profits, selective trading to keep drawdowns low, and ability to pay for the system with profits, there's a lot to like.

Early Bird: www.tradingvisions.net

Early Bird III has performed poorly for the second year of real-time trading at Attain. The system has elected trades only three days in 2004, two of which were reversal trades making a total of 5 trades. This year's trading activity accounts for a tenth of the system's average trading frequency. The system has entered the market on days with large overnight moves, but has ended up on the wrong side of the trade for the most part. A positive of the system continues to be the low frequency of trading, keeping commissions low for investors. Others systems trade as many times in two days as Early Bird III has for the whole year. The system is designed to capture the adjustment of an overnight move in the market-for example if the market is up in the overnight, the system will generally look to sell in attempt to 'fill the gap in the market." Increased volatility should help to bring Early Bird III back to life at Attain.

Helix: www.foundertrading.com

What a ride 2004 was for those clients trading Helix. The returns were eye popping at first as the system grossed over $22,500 per single contract in April, but besides a strong August the system spent most of the time on the losing side, ending the year with four straight losing months. Droves of investors were immediately interested in the system because of this incredible gain, but the system finishing the year in the red should serve notice that trading systems are all about risk and reward. Helix is an aggressive system, which gives it the ability to post gains of over $20 K in a month, but these large potential gains come at the expense of higher risk in the form big monthly swings and larger drawdowns on the order of $35,000 per contract.

This is obviously a system which demands investors are properly capitalized, as the potential for +$20 K months like April mean you have to be prepared for a month like October where the system lost over $15 K. Most people think this is just too much volatility, while others love it. This is why it is very important to find a system that fits your personality as well as your risk and reward parameters. Helix finished the year down only 19%, which may fit inside your acceptable loss limits, but the wild ride in between was enough to scare many investors away. It's important to know whether the system you are getting involved in is slow and steady or fast and furious, so there are no surprises once your money is on the line.

Impetus eRL: www.tradingvisions.net

Impetus eRL continues to gain attention from investors due to its consistent performance in its first year of real-time trading at Attain. Previously, the same logic was traded in the S&P contract but was not nearly as lucrative. The emini Russell market has picked up steam recently, and that increased volatility has helped to give Impetus eRL a yearly return of +25.6% with a drawdown of only -7.3 %. The follow-through of the Russell market in the late afternoon has helped Impetus eRL capture trends in the market, as it only enters the market after 1:30PM CST. The system is often leveraged with several emini Russell contracts as the full-size Russell market is not recommended due to liquidity issues. The system peaked during the summer months, but continues to perform well in a wide range of trading conditions. The system also has experienced very little slippage, because of the high liquidity in the emini Russell market and the use of stop orders as opposed to market orders.

Investors often want to know what system has the best return for the lowest amount of risk. Well, the Sharpe ratio tells us exactly that, and points squarely at Impetus eRL.

R-Mesa 5: www.mesa-systems.com

The R-Mesa system picked up in 2004 right where it left off in 2003 and 2002 - making money. The system repeated as one of the top performing day trading systems at Attain, hitting new equity highs in January, April, and again in October. While other day trading systems struggled with low volatility conditions throughout much of the year, R-Mesa seemed to handle them with few problems. While it outperformed others last year with its reversal strategy, this year it relied on its filters and selective nature to remain profitable. The system traded a bit more often in 2004 (about 10 trades) and was a bit more accurate (54% profitable in '04 vs 49% in '03), but the smaller ranges led to lower overall profits. With over 30 months of actual performance, an average annual return of more than 40%, and an average annual DD of just 29.6% - why isn't R-Mesa in your portfolio? No - I asked you first.

RC Success ES: www.rc3200.com

RC Success was one of the most consistent systems in its first year of trading at Attain before hitting a slight drawdown in the last two months of the year. The system can be traded on both the SP and ES charts, but Attain has seen the most success on the ES. The system trades less frequently than the newer RC Miracles, also by developer Rickey Cheung of RC Trading Education, and has posted better returns with less drawdown so far. The system tends to jump on an intraday trend in the market, and uses three different exit strategies depending on the market conditions. The breakeven stop is the alternative to a reversal strategy, and attempts to take the system out of the market on days where there is the potential for a move in both directions. For those interested in Rickey Cheung's systems, the slow and steady consistency of RC Success may be the best place to start.

RC Miracles: www.rc3200.com

Heralded as "potentially the best day trading system ever developed" on the developer's website, RC Miracles has been anything but remarkable in its short career at Attain. Granted the system began trading in very stale market conditions this summer, and could see returns improve as volatility returns to the markets in early 2005. To his credit, the systems developer Mr. Rickey Cheung never wavered in his support of RC Miracles, stating all along he believes it to be his best system. Additionally , the system never threatened its back tested statistical stop trade levels; showing that the losses may simply be a drawdown phase like all systems have. For those investors that are interested in a very aggressive SP day trading system, now is the time to begin trading RC Miracles as it has recently begun to climb out of its drawdown. While RC Miracles has had a rocky start to its career at Attain, the system and its investors should see better returns in the New Year.

Swing Trading: (listed alphabetically)

Axiom Index: www.tradingvisions.net

Axiom is one of three new swing trading strategies traded at Attain in 2004. Originally developed as a long term trading strategy by well known developer Lincoln Fiske, the strategy was adjusted to trade stock indices earlier this year. The original long term logic has allowed Axiom to catch most large intermediate market trends across all four stock indices. Axiom also employs the popular Fibonacci numbers in an attempt to limit any curve fitting possibilities. According to the developer Axiom's robustness is also demonstrated in its ability to trade foreign stock indices such as the KOSPI and NSE (India) index, although these markets are not traded by Attain. Axiom's actual trading performance was impressive despite the choppiness found in the US stock indices in the third and fourth quarters of '04. Overall, the jury is still out on this system as it has only been traded for a relatively short period. However, the systems strong fourth quarter performance, along with the fact that it was developed by one of the most well respected developers in the industry, leads us to believe the system should be successful across all US stock indices in 2005.

Delmar: www.ontheclose.com

Much like I-Master and other swing traders, Delmar found the 2004 market very difficult to navigate. The system is designed to exploit the short term daily volatility of the SP, ND, MD, and RL markets, however in a year where day to day follow-through was next to impossible to come by, Delmar found profits very scarce. Unfortunately for the system, the lack of positive real-time performance between Sep 2003 and April 04 forced the few customers trading the system to suspend trading by mid 2004. As of the end of the year, the only market to post profits (hypothetically) on the system was the RL. An encouraging aspect of the systems past performance is that it has performed well when the index markets has a larger range. The question is how long will investors have to wait to see the system return to its profitable ways?

Dollar Trader: www.dollartrader.com

2004 marked the end of the Dollar Trader system as far as Attain Capital was concerned, as the system blew through several stop-trade levels, including 1.5 times the tested Max DD and the Max DD expected to occur with a 1 in 100 yr frequency. Attain recommended all clients put the system on hold and it is no longer traded at Attain. If ever there was a system which embodies the saying, "systems don't break, they just get more risky", it is Dollar Trader. The main issue that came to light over the past two years for Dollar Trader was its lack of per trade risk management. The system would have you enter into a trade with the risk being the difference between the 20 day high and low, but that risk may be $500 per contract at one point, and $5,000 per contract the next time around. With a developer recommended starting balance of just $20,000 - the system's ability to risk over 25% ($5k / $20K) of capital on a single trade didn't bode well for its long term prospects.

I-Master: www.trade-system.com

We were asking whether it was time to quit I-Master in the middle of last year, and that question burns as bright as ever heading into 2005. The I-Master portfolio which consists of ES, NQ, eRL, and eMD has struggled for the year, as only the eRL portion has shown profits. The good news is that I-Master eRL had a great year despite a poor December, making +15.2% on the year. The bad news is that I-Master last made an equity high in the ES in December of 2002, in the NQ in January of 2003, and in the eMD in December of 2003.

Part of the blame for swing trading systems performing poorly in '04 was the low volatility experienced in all index futures. It is simply difficult to make money when the markets don't move much from one day to the next. 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 and again in 2004, only the most disciplined investors remain trading the program.

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 in 2005, 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.

Mesa Bonds & Notes: www.mesa-systems.com

The Mesa Software bond trading duo acted more like oil and water in 2004; as Mesa Bonds and Mesa Notes nearly offset one another for the second consecutive year, with Notes ending positive and the Bonds negative. Throughout the year, the Bond program actually reached and exceeded all of the previously calculated drawdowns and Max DD expected to occur with a 1 in 100 year frequency. As a result, Attain advised those clients trading the system to put it on hold for reevaluation. For some customers who had just begun trading the system and did not experience the full drawdown they were willing to give the system a little more room to work before following suit…the extra risk paid off for them and Mesa Bonds has since recouped close to $7,000 of the $13,000 drawdown. At the end of the day Mesa Bonds still has a long way to go before returning to profitability and for those still involved there is a definite line in the sand where it is advisable to reconsider the system in your portfolios. Mesa Notes, meanwhile, has proven to be the safer pick of the two as it has produced modest returns with much lower drawdowns.

Tzar: www.alfaranda.com

The Tzar swing-trading system continues to thrive since its inception at Attain. Tzar is very robust across all markets it has been tested on, but we have recommended our clients trade the portfolio of ES, NQ, and eRL. As with the majority of the swing trading systems, the eRL has been the top performing market, returning +24.8% on the year. The three market portfolio is only up 2.5% on the year, but has been invaluable in providing stability to investors heavily invested in day-trading systems. The system's ability to enter the market using both trend-following and counter-trend logic has been effective for the current market conditions. Most new portfolios designed at Attain have Tzar as the swing trading component.

Multi-Market, Long Term: (listed alphabetically)

Aberration: www.trade-system.com

The more things change, the more they stay the same. Aberration continued chugging along as the old dependable trend follower in 2004, suffering right along with billion dollar trend following CTAs and other systems this summer in a "trendless" environment, then rebounding to close out the year as the best performing trend following system at Attain.

All of Attain Capital's clients are now switched over to the Aberration Plus version of Aberration, which uses time based stops in an attempt to lock in more open trade profits. Aberration Plus is designed to provide a little smoother equity curve than the original Aberration. Moving forward, Aberration continues to be a fine choice for any investor looking to gain exposure to trend following. We liken it most to an index tracking fund such as the QQQs, which will closely mirror the performance of the Nasdaq index. In the case of Aberration, an investment in that system will be like investing in a trend following index tracking stock, which will do quite well when global markets are trending, and do poorly when they are not.

Andromeda: www.andromedafutures.com

Like most long term trend following trend following systems, Andromeda is rarely in the spotlight. But after rebounding from a disappointing '03 with gains of 25% in 2004, Andromeda has begun to attract the attention of investors again. Andromeda has taken advantage of bullish trends in the foreign currencies, foreign bonds, energies, and metals markets, while shorting the grains and US dollar for gains throughout the year. The end result was the best year on record at Attain for Mr. Peter Waite's system. Looking ahead to the first quarter of 2005, long term trend following systems should continue to see success, as the dollar's slide against foreign currencies has shown no signs of stopping any time soon and China's continued presence should keep commodity markets moving one way or another. Ultimately, it may be the US Federal Reserve and their European/Asian counterparts that influence any returns in the currency and bond markets as market intervention has been mentioned on more than one occasion.

Brix: www.alfaranda.com

While the Brix system enjoyed the favorable trend following environment which surfaced late in the summer, the system was doing quite fine up until that point, and would have been head and shoulders better than its trend following counterparts should the year have ended in September. While other trend followers were suffering large drawdowns and multiple losing months in a row, Brixx had just two losing months through November, with neither greater than -0.4%.

In the end, the system was a model of consistency, returning 25% on the year with just a 3.9% drawdown. This was truly an achievement in the poor trend following environment present this summer. The systems success was due in large part to its participation in the Crude Oil and Cotton Markets. Brix earned $15,970 per contract being long the Crude and is currently earning $13,850 in open profits in the Cotton market. The above success is yet another example of the importance of sticking with system signals. You just never know when the next home run trade will occur, and when Crude Oil will shoot up to nearly $60 per barrel.

Checkmate: www.traderstech.net

We applauded Checkmate for its slow and steady nature last year, and 2004 saw more of the same from Checkmate, as the system didn't move very much one way or the other and finished the year down just slightly. Although some investors utilizing the system may be feeling it was too deliberate over the past year, it's important to bear in mind how the system avoided the "bad times" this summer. While other trend followers were suffering double digit drawdowns, Checkmate was down only 6% to 8%. As the trend's emerged this fall and winter, however, Checkmate wasn't fully involved either. This highlights the risk averse nature of this intermediate term trend follower, as it will exit losing trades quicker and avoid large drawdowns, but also take profits quicker than other trend followers (thus missing out on very big moves). Checkmate remains an excellent choice for those needing exposure to the intermediate term segment of trend following.

Synergy: www.traderstech.net

Much like Andromeda and other trend followers, Synergy rebounded from a poor 2003 to post favorable returns in 2004. Mr. Dean Hoffman's system caught most of the trends in the currency, bond, grain, and metals markets. However, the systems best trade may have been its short position in the cotton market, which has racked up open trade profits of +$7350 per contract. This trade is not remarkable in terms of its profits but rather the fact that Synergy was the one of the only long term system traded at Attain to catch this impressive market move. Synergy has maintained a far more diversified strategy than other trend followers, meaning it does not rely too heavily on foreign currency and bond positions. The systems ability to catch trends in a variety of markets should serve investors well in 2005 if foreign currency and bond prices don't continue rocketing higher.

TrendChannel: www.trendchannel.com

For the second straight year, strong fourth quarter returns are propelling Trendchannel into the New Year. Last year's strong end of the year performance vaulted Trendchannel into the top spot amongst trend followers. However, Mr. John Tolan's system was unable to climb from the back of the pack in 2004. Unlike most trend followers who simply take signals in the direction of the market trend, Trendchannel also employs a counter trend strategy to further diversify its investors. This portion of the system's strategy allowed Trendchannel to post gains in '03 as other trend followers suffered, but also led to the drawdown in 2004 as markets like crude oil and Euro currency simply did not turn around. One can't help but be impressed with the system's rally off its drawdown levels, however, as the system climbed nearly all the way back from a -42% drawdown. Looking ahead to 2005, investors should expect Trendchannel to build on its strong fourth quarter performance and post positive gains again in the New Year.