2 New C2Star Stock Strategies

Trading and Markets
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I am new to Collective2, but I have over 2 decades of model building at large Fortune 500 companies. Most of my past modeling dealt with commodity risk mitigation at the corporate level, but I’ve now applied those skills to stock modeling. 2 weeks ago we launched 2 new strategies: Blue Fund & Orange Fund. We did over 5 years of back-testing on both models and the results were so good that we made the investment and submitted them for C2Star certification immediately. Here are the results after being live on the site for 2 weeks:

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The strategy behind both of these funds is to meet the very strict C2Star requirements. Both these strategies only trade stocks and the capital is 100% deployed at all times, but we never use any additional leverage, the strategies don’t require it. The 5 year back-testing generated the following results:

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The basic premise behind the strategies is to trade like you would invest for the long term, meaning, the model attempts to diversify the daily trades to minimize risk while maximizing returns. Capital is 100% invested daily and most positions are held around 24 hours. The model re-balances the portfolio daily based on daily signals. Both models currently evaluate a basket of 90 stocks, the majority of which are mega-cap or large-cap to maximize liquidity and allow for scalability. The models use a blend of both long and short positions to hedge risk. Throughout the back-testing, roughly 22% of the trades were short and 78% of the trades were long in both models. Most days the models invest in 5 - 9 different positions.

A common question for most new strategies is how will they perform in a bear market, which is why we made sure when we built these models, that the back-testing period included both Bull & Bear market scenarios. As a recent example, the market experienced one of its fastest declines ever between Feb 19th and March 23rd of this year, during that period, the S&P 500 fell -34%. In that same time frame, the Blue Model was up +91% and the Orange model was up +90%. In the back-testing, both models tended to perform even better in a bear market then they did in bull markets, but they both performed very well in both.

It takes 60 days to become C2Star Certified but after 2 weeks, both strategies are meeting all 9 criteria to be certified.

We’d greatly appreciate you checking out our strategies!

Oak Spring Capital.

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Very impressive assuming it works out of sample (that which might worry me is five years backtest history - there are a lot more market regimes out there than the most recent ones).

You’re only trading stocks, not ETFs right? (As EU citizens we have been forbidden from trading American ETFs by childish regulation.)

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Hey Peter, thanks for the note. There are 2 or 3 ETF’s in the mix of the 90 stocks we monitor, I didn’t realize that ETF’s can’t be traded in Europe. We plan to launch some new strategies in the next 60 days, we’ll make sure to model some that don’t use any ETF’s to make certain they’ll work for European subscribers. Note when I create my back-testing, I always hold 1 year of data out of the sample to make certain the model performs within the sample and outside of it.

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Very interesting stuff! Nice work since beginning. I hope it goes well. I would love to diversify into an unleveraged portfolio that just trades stocks. Is there any consideration of doing a long only version. I just don’t like shorting. Alternatively maybe a stock replacement strategy with puts to get similar results to shorting.

I would be very interested to see any backtest results that excludes shorting. It would certainly make it more attractive to people using IRA’s like myself.

The results definitely seem too good to be true, but that doesn’t mean they can’t be. I will say over that same time period of 6/26/20 until now, QQQ did as well or better I believe with no shorting, concentrated positions, transaction costs, tax realizations etc. I am very excited for you and hope it goes well. I will be jumping in if it does, but it is just too early for an outsider like me, who didn’t run the backtests, to have enough faith.

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Thanks for the reply! I actually have a long only IRA model that I’m currently working on, we haven’t launched it yet. The preliminary results are really good, but the draw downs are closer to 12%. I’ve been working on getting that number lower, but we may launch it with those parameters. We’ve found it really difficult to keep draw downs under 10% without any shorting/hedging positions. We’ve avoided using options because they are difficult to accurately back test and the transaction costs can be prohibitive.

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Good to hear! I certainly wouldn’t be bothered by a 12% drawdown, but I know that doesn’t work for everyone and definitely not for C2 Star. Also, I know what you mean about the options backtesting. I have been deep in the weeds on some options backtests for months now.

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Your performance so far is very impressive and I like the fact that you hedge with short positions and that came in very handy during the down cycles during your, albeit short, back testing period.

One question: Why did you choose stocks instead of futures? Most good C2 Star systems use futures, just to mention two which I follow, starting at 3/24 and 1/21 with returns to date of 46% and 42.4% respectively. Have you experimented with stock index futures?

As a side note, Matthews idea of creating the C2 Star system was one of his best ideas. I hope it will attract top traders in the future.

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Great question Karla, the main reason I’ve focused on stocks is liquidity and scalability. The strategies I’ve loaded so far focus primarily on Mega cap and Large cap stocks, so as I pick up subscribers, I don’t have to worry about their ability to trade in the market or our trades artificially affecting the prices. In addition, because shorting is part of my strategy, I want to make certain all of my subscribers will be able to borrow the shares they need to short. I may explore some stock futures strategies down the road, but for the time being I’m primarily focused on generating stock strategies.

Cheers,

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Makes perfect sense, I wish you good luck and many subscribers in the future.

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Great to hear this… like a seasoned money manager. May I ask what you use for selecting your candidates? Using charts or volume analysis or something else?

And what stops and targets do you use?

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Thanks for the kind words. I’ve actually reviewed over 300 different stocks as part of my modeling and landed on a current basket of 90 stocks. I didn’t chose them, the model did. The signal triggers are unique to my model, I reviewed a number of possible indicators until the model found some unique ones that appear to be predictive. I don’t use stops or targets, the model approaches trading like investing. It develops a diversified portfolio that attempts to hedge risk by using a mix of long and short positions and combining a basket of stocks that are correlated in such a way as to diversify the risk. It re-balances the portfolio on a daily basis based on the market signals for that day.

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Any recommendations on which C2 brokers are good for stocks? Does anyone have any recommendations on good versus bad ones? Thanks

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Interactive Brokers has been great.

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Hope we can do better this month. 2nd half of July was not that good. :sweat_smile:

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When I view each strategy the description is empty.
I was hoping to understand the basic idea of each strategy and how the blue and orange are different from each other.
For example, what factor tilts are employed?

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Hi Kenneth, thanks for the comment. I’ve been meaning to load detailed descriptions for all of my strategies, I’ll try and get those up this weekend. I’ll give you a quick recap here. All of my models are built using technical indicators. I don’t use fundamentals or economic news to drive my trades, it’s all algorithmic based. I have developed some proprietary indicators over the years that my models employ. There’s no judgement or intuition as part of my strategy, I simply trade what the model says to trade that day. Orange and Blue are similar in the sense that they both trade from the same basket of around 150 different mega-cap stocks and ETF’s to ensure liquidity for my subscribers. There are some days when their trades can be somewhat similar, but there are other days when their trading is very different. For example, in today’s positions, Orange is about 50/50 split between long and short positions while Blue is 100% short today.
That shows in their S&P 500 correlation as well. Orange has a correlation of .21 to the S&P (which is still very low) while Blue has a correlation of .001…essentially zero. The correlations are so low because I don’t use traditional trading signals that most of the market utilizes.
I am working on adding economic news trading signals into my models but that testing is currently in the beta stage. If it holds up to testing, I hope to roll that out near the end of the year.

Hope that helps. Let me know if you have any questions and feel free to reach out to me directly.

Cheers,

Joe

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Just checking back in. I know you posted about 200% or more 5 year average annual returns with drawdowns below 5%. What are your thoughts now? Has the market taught you a lesson or are you just as convinced as before?

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Yeah 5 years of backtests isn’t exactly gonna do it. You’d need alot more out of sample testing in rocky conditions before claiming anything like a 5% drawdown.

Oh well. Hopefully he learned.

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I am curious to know if the leader does think he found why it isn’t working or if he thinks it is and it is just poor period etc.

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I’ve been super busy so I haven’t had time to reply to this post. Overall, I’d say both Blue and Orange are operating within normal patterns I saw in the back-testing although the drawdowns have been slightly higher. Blue currently has a max DD of 7.7% and Orange 9.9%…both still really small. One of the things that has driven the deviation from the back-testing is that I didn’t include stops in my modeling. As I picked up subscribers, some requested that I include stops as I placed orders as an extra layer of protection and I obliged. When I went back into the data, the stops ended up deducting 250 – 300 basis points from my overall return and it also added to the drawdowns as the stops locked in losses. Without the stops, the drawdowns would be closer to 5% - 8%, still slightly higher than the back-testing but still really good.

We’ve also been in a very aggressive bull market since my models launched. My models historically were about 70% long – 30% short in terms of dollars invested. Since they’ve gone live, my models have held roughly 55% long positions and 45% short positions. They keep predicting a correction that hasn’t happened……… yet. The S&P is up roughly +15% in the four months since I’ve launched these models. In Blue Fund, I’ve made over 700 trades and have a 56% positive rate, despite my heavy short position. Blue has managed to generate an +11% gain while Orange is up around +4%. Without the stops, these numbers would be closer to 14% and 7% respectfully. I’ve also had some execution errors which have cost me a few points as I’ve learned the nuances of the Collective trading platform. Blue is currently a Top 100 Model on Collective. In fact if you go screen stock strategies that are greater then 90 days old, have a drawdown of less than -8% and have annualized returns greater then +25%, there are only five strategies that meet that criteria, and Blue Fund is one of them.

With all that said, do I know for certain if my models will generate the returns in the back-testing? No, I don’t, and any strategy builder who guarantees their models will succeed is lying. Back-testing is imperfect but it is the only method we have to validate a strategy until we set it live. Matt was right when he said there is a survivability factor to model building. 99% of the models I build never get launched.

Bottom line, I am still confident in the models I’ve launched. The market doesn’t go straight up forever, there will be periods of correction and then the long only models will struggle. Anyone could have put all their money into TQQQ back in March and they’d be up huge right now, but I know with 100% certainty that a correction is coming. What we don’t know is when. It could be next week, next month, or next year. My models are designed to generate positive returns in both bear and bull markets with preservation of capital and minimizing drawdowns as their primary mission.

One other note, the average was in indeed around annual return was 200% in the back-testing, but there were also years where it was much lower then that, one year it was around 40%. Is that 200% achievable? No way to know with 100% certainty until it posts in actual results, but we’re only 4 months in at this point. The only thing that will prove or disprove the back-testing is time. Sadly, I can’t make that go any faster. :slight_smile: :grinning:

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