Attain's Semi-Annual 'Top Fifteen System Rankings'
July 5, 2005
With half of 2005 now in the rear view mirror, it's time for Attain's semi-annual system rankings! We release our rankings twice a year to give investors a concise summary of the systems we believe have the best chance for success moving forward. We are not content to merely show you the best performing systems this year or a list of the top performers of all time, however; as the best system for one investor may be anything but best for a second investor. For this reason, our rankings have developed over the years into a comprehensive tool which ranks systems across 8 different statistical categories.
It seems no matter how hard system developers and brokers try and tell you there is no "holy grail" system - the harder the investing public searches for one. Many investors are in search of a "holy grail" system which has low risk, high average returns, a multi-year track record, and of course - impressive recent gains, and this eternal search for trading's "holy grail" leads investors to quickly weed through hundreds of trading systems by asking every developer, broker, or investor knowledgeable about trading systems to show them their BEST system. But what are you really asking when putting this question to these "experts"? What is BEST supposed to mean, anyway? Best this month, this year? Best for all time? Best risk adjusted return? Best in terms of lowest Drawdowns?
But aren't we being short sighted when asking to see the BEST system in one category or another. The real question should probably be more along the lines of what system is consistently among the top systems across all of the different statistical measures important to this type of investment.
This is exactly what our rankings have been designed to do: See which trading systems are the BEST in each of 8 categories, then see which systems are the BEST overall.
We begin by looking at which systems are the BEST by Year to Date (YTD) return. This is unfortunately the measure most investors use to determine what system is best for them, and the reason the year's hot system is usually regarded as the BEST system. The downside to this analysis, of course, is that it ignores risk. A high return is nice, but at what cost. The BEST performers so far this year are:
While Mesa Bonds and RC Success appear to be very much the BEST this year, a simple change to looking at total return over the life of the system quickly puts two other system atop the BEST list - Compass and R-Mesa 5 (despite losses of -25% in '05). Mesa Bonds and RC Success drop out of the top 5 altogether. The BEST systems by Total Return have been the following:
Its easy to play devil's advocate when looking at the total return table and say how it unfairly treats newer systems. It admittedly takes a while to build up significant total return numbers, and for that reason looking at the average annualized rate of return (ROR) makes sense. This measure is more of a "what to expect" than a "what has happened" measure. The BEST systems by Avg. Annualized ROR are:
But what if we think of BEST not as the one that surpasses all other, but rather look for that system which is most suitable. The question in that case should not be, "What is your BEST system?" The question should be: "What is MY BEST system?", or in a more grammatically correct form: "What is the best system for me?"
To find what system is the BEST for you, a little soul searching is required. Are you interested in the absolute highest return? Lowest drawdown? Best mixture of the two, perhaps? Or perhaps you think the best system is the one which has been around the longest. There is surely something to be said for longevity. You will quickly find that different systems head many of these lists, showing that the BEST system is an elusive target indeed.
To begin to filter things down, we must incorporate the riskiness of each system. Many investors look at Drawdown to get a feeling of the risk involved. But concentrating solely on drawdown is just as bad as looking only at return. For starters, a system could have a very low drawdown because it has only been trading for a few months (note the Bounce systems only started trading in Jan. of '05) The BEST system for 'lowest' maximum drawdown have been:
But as nice as it is too see a low drawdown, low risk doesn't really help if there is also no return. We can always invest in treasury bills if we want zero risk. The next logical step, therefore, is to evaluate which systems have the BEST return per unit of risk. . This is accomplished through the use of several risk adjusted ratios. The first of these is the Sharpe ratio, which measures returns divided by risk (as measured by the standard deviation of returns, or volatility). The formula actually uses the amount of return over the risk free rate. Attain uses 2% as the risk free rate of return in its calculations. The systems with the BEST Sharpe ratios have been:
One of the problems with using the Sharpe ratio is that it punishes trading systems for having a high upside volatility profile. For example, the Compass system had a one month gain of +74% in 2002, which caused the volatility reading for the system to skyrocket. But it can be argued that upside volatility is of no concern, as that means large positive monthly gains in the distribution of returns. Does it mean an investment is more risky if it has a huge monthly GAIN. We think a huge monthly loss sure has to do more with risk. There is a risk measure which eliminates the upside volatility skew from the Sharpe ratio by using the volatility of negative returns only. This measure is called the Sortino ratio. The BEST systems by Sortino ratio have been:
The Sharpe and Sortino ratios have a flaw, however, in that they view the volatility of returns as the main ingredient of risk. This speaks nothing of what sort of drawdown had to be encountered to get the return. As many trading system investors can attest to, it is the drawdown period which represent the most risky part of the investment, not the volatility of returns. The Sterling ratio measures returns divided by risk (as measured by drawdown). The BEST systems by Sterling Ratio have been:
One last piece if information it is important to take into consideration is the length of track record. The above tables have looked at systems with at least six months of data, but measures such as the Sharpe ratio are usually computed on at least 3 years of data. The shorter the length of a track period, the greater the margin of error in the statistics. Thus a system such as Bounce eRL, which looks very nice atop many of the BEST tables above, could have a very large margin of error given its relatively short six month track record. The BEST systems for length of track record are:
So what system is the best overall? It again depends on what you are looking for, but the overall picture does have some clues. Our rankings define the BEST system mathematically by using a simple formula for scoring systems based on their ranking among all 39 systems we track with actual customer fills. For each of the above eight categories, we ranked each system 1 through 39, with a BEST in category equaling 1 point on down to a worst ranking of 39 . The sum of all scores was computed to get the following standings for the Top Fifteen BEST systems at Attain:
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 |
Trading conditions lined up nicely for those trading the e-mini Russell and e-mini Midcap contracts as both markets continue to see a greater amount of volatility than the S&P futures. Both markets rallied during June, with the e-mini Russell finishing +3.85% higher and the e-mini Midcap climbing +2.04%. Even NASDAQ traders had to be somewhat satisfied with the volatility in the tech sector as the futures fell -3.44% for the month. However, SP futures traders went home disappointed for the month as SP’s remained virtually unchanged only falling -1.80 points lower for the entire month!
While some of these stats are skewed by the June contract expiring and a rebalancing of the indexes, it was not difficult to see that money was flowing out of blue chips and tech stocks, while flowing into small to midsize listed companies.
Long energy investors had a great month with crude oil futures climbing +6.04% as they cracked the psychological $60 barrier, and unleaded gas futures trading +6.05% higher. Grain traders had a wild month as grains sold off hard in the last week of trading. Corn and soybeans led the descent falling -4.09% and -4.03%, with wheat falling -3.28% as well.
In the financials the US treasury markets continued to defy expectations as 30 year bonds rallied another 1.12% in June. Shorter term debt like the 10 year note barely moved, further proof that the yield curve is very flat. September 10 years were only up 7.5 ticks (+$243.38) for the entire month.
Finally, foreign currencies felt the summer heat in June as the US dollar continued to gain strength. Dollar Index futures finished 1.46% higher on the month, while Eurocurrency -1.71%, Japanese Yen -2.37%, and Swiss France -2.74 all moved lower.
**Day Trading**
After a short break up to higher levels in April, stock index futures volatility has headed right back down to historically low levels. June saw volatility below the annual average and about half of what it was in April, meaning day trading profits were somewhat tough to come by.
One system which thrived in low volatility last year was Blue Wave Trading's BWT Zones SP system, and true to form it was the best performing day trading system in June, breaking a three month losing streak by hitting profits on 70% of its June trades for profits of $4,105 per contract. Hopefully this is a sign of things to come for BWT Zones.
Other systems seeing nice monthly gains while putting a dent in their drawdowns were R-Mesa, with profits of $1,895.50 per contract, and Impetus eRL - which posted $541 in June profits.
Elsewhere, Electric Daybreaker managed $290 per emini contract across its 4 market (ES, NQ, eMD, eRL) portfolio, while its big brother Daybreaker SP struggled a bit - losing -$1,690 for the month. AG Xtreme saw gains of $2,725 over 12 trades on its computer generated hypothetical track record. (Unfortunately, one client trading AG Xtreme opted out of several trades in June, leaving his actual AG profits at just $875 per contract for the month). It's worth saying again - Stick with the system!
Rounding out June's winning systems were the newly released systems Bounce eRL and Bounce emD. These systems trade on the long side only, and started at Attain in January of 2005. Bounce eRL made $910 per emini Russell and Bounce eMD made +$500 per emini Mid Cap for the month.
Systems unable to post June profits included Compass, which took a breather from an otherwise fine year, losing -$2224 on 11 June trades; Clipper eRL, which lost -$1,038.60 per emini Russell contract, and the BWT Russell systems and RC systems.
The RC systems saw losses of -$240 per emini for RC Success and -$300 per emini for RC Miracles. Unlike Zones SP, Blue Wave's Russell systems couldn't get on the right track in June, losing -$710 per emini Russell in the BWT Zones eRL program, -$2,556.80 per money management unit (3 emini Russell) in the Roc'n Russell.
June was a hit or miss month for the swing systems as short term trends developed and quickly reversed several times during the month.
The Top honor for June was a close race between Eclipse eRL and Axiom eRL. Both systems trade on intraday bars and were subsequently able to capitalize on the rapid trend development and trend reversals of the month. In the end Eclipse eRL won out earning +$3,874.30 per contract. Axiom eRL earned +$2,698.70 and not far behind was Axiom eMD which gained +$2,439.50 and is now trading at new equity highs.
In other trading Axiom ES and NQ were not able to duplicate the performance of the eRL and eMD, proving once again the power of diversification and need for multiple market trading across your portfolio. The ES and NQ lost -$1,470 and -$1,002 respectively.
The Tzar swing trading system struggled in June. Tzar eRL lost -$2,779, Tzar NQ ended down -$657.80, Tzar ES fell short by -$455, while Tzar eMD gained +$50. Tzar trades on daily bars, so when the market is not trending in one direction or does not make any major moves worthy of a counter trend entry investors can expect to see Tzar in the red.
The prettiest trade of the month came from Mesa Bonds, which exited its long position and reversed to short just a day before bonds sold off over 2 basis points, then covered the short and reversed to long before bonds rallied back up 2 basis points. At the end of the day, the system had locked in $3,120 per contract in closed trade profits for the month and was holding long in the bonds for open trade profits of . Mesa Notes, meanwhile, held long in the 10 Yr Notes all month.
**Long Term**
Long term traders have had a tough time finding profits thus far in 2005, and just when it looks like things were going their way in June, an event like last week's huge sell off in the grains wiped out some healthy open trade profits. The silver lining is that the trend followers have not been burned too bad and now have several promising positions on.
Axiom LT and Andromeda may be setup the best with their short foreign currency positions. On the current leg of the trades (September contract) Axiom LT is making +$5206.25 per contract in the Japanese Yen, +$3862.50 per contract in the Swiss Franc. Andromeda is also short in the Swiss for profits of +$3875.00 per contract, and +5206.25 per contract in the Yen. (All open trade profits)
Long Dollar Index positions have become popular amongst trend following programs, with Aberration Plus holding long for open trade profits of +$2430.00 per contract, Andromeda making +$2745.00 per contract, Axiom LT making +$2745.00 per contract, and SEMA4 Symmetry making +$940.00 per contract, all open trades in the September contract.
In contrast, long grain and metal positions have been the bane of most systems. Axiom LT is holding long in bean oil for a loss of -$110.00 per contract, long in corn for a loss of -$975.00 per contract, and long in Minneapolis wheat for a loss of -$825.00 per contract. Aberration is also long in bean oil for a loss of -$-1118.00 per contract, while holding short in cotton for a loss of -$-$2575.00 per contract. Meanwhile Andromeda is long in gold for a loss of -$1570.00 per contract and just closed out short cotton trade for a loss of -$2655.00 per contract.
Looking ahead to July, trend followers will continue to look for bonds to trade higher and currencies to move lower. Nobody knows which way grains will go but drought conditions may help out long positions in the end. Finally, crude traders have successfully broken the $60.00 barrier. Is $70 per barrel next?
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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.