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Day Trading European markets -

June 19, 2006

 

Attain clients are constantly searching the world for more systems, better performance, more diversification — and enlist Attain to assist them in finding investments that deliver such. We are happy to report continued progress assisting clients in such searches with the introduction of 16 different systems which day trade European futures markets.

While day trading systems are among the most popular types of systems because they are easy to understand and don't have overnight risk because they are out by the end of the day - the grand majority of day trading systems are concentrated on US stock index futures, and the S&P 500/ e-mini S&P futures in particular. This concentration leaves day trading systems with one problem - no way to diversify amongst multiple markets.

And with US Stock Indices seeing lower volatility readings in each of the last three years, the need for diversification into other markets for day trading systems has become greater and greater. We've tested day trading systems on all types of different markets - from Gold to Crude Oil to Treasury Bonds, but for one reason or another (usually because of too much slippage in these less liquid markets) day trading systems don't perform well on these traditional markets.

European Futures Exchange - Eurex

Enter the very liquid futures markets of the Eurex Exchange. Eurex is the world’s leading futures and options exchange, with trading volume at Eurex exceeding 1.25 billion contracts in 2005. Some other highlights:

02 Jun 2006 - Record Trading on Eurex With May Volume up 80 Percent Year-on-year

19 May 2006 - New daily trading record of 11.9 million contracts on Eurex

With its all electronic trading, record volumes and very liquid markets - Eurex futures markets became the easy answer for Attain in its search for different market to day trade on. And the star of the Eurex exchange as far as day trading systems are concerned is the Dax Futures market.

Dax futures are derivatives on the Dax stock index, and can be thought of as the German equivalent of the Down Jones Industrial Average being an index of blue chip companies' stock prices traded on the German Bourse (stock exchange).

From a future market perspective, Dax futures are best thought of as the European equivalent of S&P 500 e-minis. Dax Futures are valued at 25 Euros per point (approx. $31.75) and begin trading at 1:50 am CST — well before most of us get out of bed. And they do about 150,000 to 250,000 contracts per day - meaning plenty of volume and liquidity.

With the Dax index value right around 5450 - one Dax futures contract represents control of about 136,250 Euros worth of stock, or about $170,000. Compare that with the e-mini S&P which controls about $62,500 worth of stock, and you can see it has roughly the same nominal value as 3 e-mini contracts.

It is not all about the Dax market however, as Attain is also executing systems on the Euro Stoxx (pan European stock index) and Euro Bund (European 10 yr note) markets. For more on Eurex, visit their website at www.eurexchange.com.

Trading Motion

Attain has partnered with a firm named Trading Motion, one of the leading futures brokerages in Spain, to seek out and execute trading systems working on the Dax and other Eurex markets. Similar to Attain, TradingMotion has built a futures brokerage firm focused exclusively on trading systems, and is constantly working with different 3rd party developers whose expertise and focus is on Eurex traded markets. Upon meeting with Trading Motion's founder and owner in Chicago twice over the past year, our philosophies lined up so much we began to think of them as a Spanish Attain.

Through our strategic execution partnership with TradingMotion, clients of Attain now have exclusive access to a range of systems designed specifically for the European markets via their existing Attain account. These systems are only available to US clients through Attain.

One of the advantages of working with TradingMotion is their unique system execution methods, where all systems are auto-executed for client's accounts using server based execution with a direct link to Eurex. What does that mean? Well, for one thing there is no TradeStation or other type of platform that must get a price feed, create a chart, then spit out an order which is then transferred to the exchange for execution.

TradingMotion loads the programming code of each trading system onto their servers, and runs through the code in real time as price data feeds in. There is no processing power wasted in building charts, displaying indicators, and generating orders. Because TradingMotion has a direct link to Eurex - the logic and price feed are tied in together - meaning the system's orders are at Eurex and executed at nearly the exact same time the logic computed whether to buy and sell and at what price.

Trading Motion currently offers hundreds of systems to its clients to trade, but Attain worked with TradingMotion to focus on just one developer and the best systems in their opinion to introduce to the US market. That system developer turned out to be another Spanish company called AutoTradingBot Systems.

AutoTradingBot Systems:

AutoTradingBot is the developer of each of the 16 systems below. And while we may think they lack creativity with their liberal use of the Greek alphabet in naming their systems - there is actually some reasoning behind that.

You see - AutoTradingBot operates on little different philosophy than their American systems developer counterparts, in that they believe a system may need to be updated from time to time to reflect current market conditions. Following this philosophy, they offer clients the opportunity to invest in systems that have either fixed parameters or time adjusted parameters. A fixed parameter system is one that uses the exact same logic today as it did when it was first developed; while a time adjusted parameter system is one that uses different parameters that are optimized over time.

Systems that do not adjust with current market conditions are labeled as merely the system plus a version number if not the original version (Kappa Dax, or Beta v2 Dax for example), while systems with a pair of characters separated by a slash ("/") are systems that are automatically optimized from time to time.

Optimization of their strategies occurs at different times and is conveyed to investors in the strategy name. For example, "Epsilon 12/12 Bund" uses 12 months of data ending December 30th to determine the trading parameters for the next 12 months and then repeats the same exercise in each of the following years for the year ahead. Another type of optimization utilized is historical optimization, in which they fix the beginning of the optimization period and continue to add new data. For example "Rho H/3 Dax" begins tracking data in January 2001 and then re-optimizes the entire data set every 3 months.

While many investors may not be used to this concept of time adjusted parameters, thinking it smells of optimization or curve fitting, the approach of AutoTradingBot is different than the negatively connotated optimization we see form time to time from other developers. The "BAD" type of optimization usually occurs made only when a system is in drawdown or the developer "feels" like a new input will work better in the existing market conditions (i.e. a new low volatility filter or moving from a 1 minute chart to a 5 minute chart). The reason those are "BAD" optimizations is because they are made with the aim of improving the system's performance, and that can lead to a "cat chasing the tail" atmosphere where changes have the opposite effect.

AutoTradingBot's systems are very different in this sense because they actually use time as the determining factor for when to re-optimize a strategy. So while the end goal is to definitely improve the system, the reason it is done it to keep the system in tune with the current market environment, not just for performance alone.

If you are looking at one of the time adjusted parameter systems, it is also important to note that AutoTradingBot displays any optimized system results on a walk forward basis That is, the new parameters are only reflected in the results for the time period they were active, and do not change any of the results going backwards. This is extremely important - as you are more interested in seeing how the strategy of adjusting parameters has done rather than how the most recent set of parameters has done over the past few years.

Whether looking at a systems which adjust its parameters or not, the fundamental characteristic of all AutoTradingBot's systems is simplicity. Through their research they found that using fewer parameters per system resulted in a reduced chance of over optimization. Further, all of their systems have market driven entries coupled with adaptable exit strategies designed to protect and lock in profits when markets are trending in the systems favor.

Performance:

In conclusion, with the volatility in the Dax rising nearly 40% over the past year while the volatility in the S&P futures rose just 1%, there is an obvious appeal to these markets and systems from a volatility standpoint. But there is also the diversification angle to explore, as these systems operate on a totally different time frame and can catch moves that happened overnight that are never reflected in the US markets.

But the final benefit of these Eurex based systems has to be their performance. We worked hard with Trading Motion and AutoTradinBot to come up with a list of systems we thought would have the best chance of success moving forward, choosing those systems with the longest time since release and with actual results available, and that list is below.

With several of the systems on that list posting double digit percentage gains since we began trading them in actual accounts, the hard work looks to be paying off so far. But don't take our word for it - check out the statistics of these European trading systems yourself in the table below. Clicking on any of the system names will take you to a performance summary for that strategy.

- Jeff Malec