Anyone follow 8 systems or more?

C2
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As someone who has been enamored with Forex systems on C2 for quite some time, I ultimately concluded that they largely provide a misleading return for two reasons. First, commissions and spreads: IB requires post-trade conversion of currencies into USD which cut quite a bit into the scalping systems most high flying Forex systems on C2 employ. FXCM’s spread is quite a bit worse, which isn’t well reflected in C2’s trading logs since most people still use IB. Second, what about once-a-year scenarios where liquidity dries up and currencies undergo major moves? Even a stop loss won’t help against such spontaneous movements and could wipe out months or years worth of gains instantly. Zip4x suffered from this fate. How do you also reconcile the fact that barely any Forex systems are TOS? Even ConservProfit, a darling system with excellent risk metrics, is run by a guy who doesn’t trade full time after 12 years of trading or has his 15k system TOS (a small account value by most standards). How is it possible to reconcile that fact with trusting such a person with mid-high 5 figures as part of a diversified strategy? I guess some people are okay with it since I’ve seen autotrades scale to 3500%, but it’s a comparatively young strategy that hasn’t been tested by large scale currency moves that can happen instantly and without warning (e.g., GBP flash crash).

As a more general matter, most high flying strategies I’ve studied typically begins with huge leverage and moderates that leverage down over time to bask in the compounding effects of returns (the Ultron Vol strategies are the most egregious examples). Others have a string of small winners and a few big winners that may have happened from a combination of skill and chance; VolailityTrader is a prime example – with a very large number of small winners, a few big winners, and a few big losers – but even Copper Pea Capital, an apparently robust strategy, suffers from this upon close inspection of the trading log. in other words, the reason I’m likely studying such strategies is because such strategies just happened to be on the winning side of some big trades, rather than the losing side (of which I’m sure there are other strategies which I ignored). Thus, by subscribing to such strategies, you may mischaracterize luck for skill. And even if it was skillful, will the same skill work next time a make-or-break event occurs?

It’s also difficult to confirm whether strategies are truly uncorrelated since the real test is during large-scale stress events like Brexit, Aug 2015 or Jan 2016. These only happen once in a while and can destroy a system immediately. You don’t see the trail of prior winning strategies that are now losers… only the young upcoming strategies that may just be lucky.

Here’s a picture of a sobering trend for strategies on C2. Picking a winning strategy is much like picking a winning stock. Past performance doesn’t indicate future performance. In fact, it may mean just the opposite – that it’s high time for a pullback.

I’m also curious as to how large account holders reconcile following a paper money-based system. Apart from shame and losing sub revenue, what is to stop a strategy owner from destroying the entire value of a person’s account through errant trades? Diversification helps, but the risk of losing a significant portion of my account without any meaningful controls is scary. Scaling and order caps also help, but there are ways of circumventing such restrictions.

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22

You can put in your own stop loss on each trade. Study each system, What is the average loss on losing trades, and set the stop accordingly.

On some volatility systems, they have pretty big intraday drawdowns. You can manually trade these systems, wait for them to become a lost then get in.

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Intuitively, I think imposing your own stop loss is a dangerous idea. Some of the biggest gains can come out trades that were at one point huge losers.

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The same logic applies to getting emotionally chased out of strategies with good long term histories but short-term negative results or underperformance.

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Yep. That’s why it’s imperative to understand the underlying logic of the strategy employed. Unfortunately, most C2 systems are blackbox so it’s unclear whether a severe drawdown will reverse or a sign that a strategy cannot adapt to the current market conditions and must be exited.

1 Like
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Pedro C2 will allow you to have two IB accounts with one log in. So that is what I have so that I can have one system in one IB account and the other trading the same instrument in another IB account. You can also see both accounts with one log into IB. When you set up your trading through C2 if you auto trade you will just need to make sure you set up your second system on server 2. They walked me through it and it is pretty easy. I hope this helps.

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My stop loss are in line with the systems stops, but not all systems have stops, so I use it just incase of something major happens.

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That is a nifty set up, but what if 3 of your systems are trading the same instrument? Maybe you subscribed carefully and it doesn’t happen…

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Exactly, pick systems that don’t all trade the same thing.

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Hi, All,

I’ve been on C2 9 months. Initially trading 12 systems I’m down to around 8-10, would like to get down to around 6. I’ve been fortunate to find early on some great strategies, such as Vix Day Trader 1, but also got some major disappointments. Left some after the owner just bailed out after a loss,… and that was from a system with more than a years track record, and with decent communication. I had one reply that his system wasn’t “behaving properly”, another one that there was a “technical glitch”…

I learned from this first year, to scale down ! And thanks for the tips above, I like the 3% rule !

I left because I was disappointed and don’t recommend : Brk Dax, Reload, ForceX, Strategic Trading, Hybrid Multistrat, House Patterns.

I left because I don’t have the patience to wait this long for a return. After 4 to 6 months and and I can’t make sense of it, I struggle to stay and it was the case with AT Pro (used to be TOS!), Bowie, Mozart, Bob Dylan (although I could see myself come back to him later).

I left because they martingaled or broke their rules and it freaked me out : Zero T (since has improved on that, I might get back on it). Pure ES, Pure ES Oil (since renamed, and disappeared) this system was very poor and the owner threw in the towel after changing his rules all of the time. He had a good track record… even these can go down… leave you with a loss, disappear without sticking with it whilst complaining that subscribers don’t stick with it…

I left and got back on : CkNN Algo… he had one mishap lately, generating a 15% virtual drawdown… I got back in taking a loss wiping months of profits, and got back on half my scaling. Great communication. Great ability. Great resilience. I surprised myself for getting back on it, but I don’t regret it.

My experience is that systems that are pure algos don’t work that well, they are immune to emotions… great, but they also do crazy things. Like Bowie that went heavy long just after Mrs Clinton’s emails FBI problem popped… and stayed short on election night. Making a huge win there… But whow… I like a system with a human that can explain what he is doing or a system with an algo and a human still making decisions, and overriding if necessary… the reason I got back on CkNN is that he did in fact intervene on his system when it was needed following his big loss, and I was super impressed with what he did. I feel comfortable knowing he’s behind it all. That’s just me.

I left and regret I did / Could get back on when looking for a more conservative account:
Drunk Uncle (TOS)
Carma Stocks (TOS)

I lost most in value on : BRK Dax, Bowie, House Patterns

I presently trade, and I think, for the long term
Vix Day Trader 1 (great control)
Smart Volatility Short (TOS) (he did great convincing me to stay, I like his approach) (offsets Volatility Trader at the present)
Volatility Trader (TOS) (although it hit me hard lately, I scaled him way too high, looking to scale him down)
CkNN Algo (solid, but as said above, had to scale down)
Just Forex Trades (recent, happy so far)
Conserv Profit (recent, happy so far)

I presently trade, and am evaluating:
Mr Money Tree (not happy recently, might scale down)
Gewinn Agressiv (just started… can’t tell, seems pure algo…)

I’m on the trial for:
Event Hunter w Forex Plugin (good so far)
ES ST IT… wouldn’t mind some feedback

I’m presently looking for a good futures system, and so far I’ve not been lucky with any of them. Thanks for the suggestions above, I’ll check EventHunter and its Forex Plugin. Any other suggestions from subscribers (not strategy owners), and others willing to share their portfolio, would be great.

Thanks a lot
Guillaume

6 Likes
31

In response to some e-mails, I should to be clearer about the correction to the drawdown I use for newer systems. Another investor here has separately validated that these multipliers are roughly correct. The correction I use doubles the drawdown for each halving of time, below 12 months.

I.e. For a system with a 12 month track record or longer, I would use the DD as stated
For a system with a 6 month record, I would double it (x2)
For a system with a 3 month track record = stated DD x4
For 2 months, x6

I then use this “corrected DD” to set the allocation $, such that the potential DD is <3% of my portfolio.

E.g. ConservProfit with a stated DD of 17%, but only a 5 month TR, would have an adjustment factor of 2.4, and corrected DD of 41%. If I want to limit my DD exposure to 3% of $1M for example ($30K), he would get an allocation of ~$70K. (e.g.$70K x 0.41~$30K).

If CP can hold this low DD for another 7 months, then his adjustment factor would decrease (potentially to 1.0), and he could get a larger allocation (2.4x more).

The nice aspect of this approach is that it is self correcting. It also is a way to rationalize trying out newer, highly leveraged systems at an appropriate $ level (e.g. Ultron at $20K has roughly the same adjusted DD risk as CP at $70K, or Copper Pea at $200K).

Hope this helps any confusion.

Regards

Les

6 Likes
32

This model does not make sense. A simple question, what about a strategy has a DD>50%? If you want to use this model, 10 year maybe is the boundary.

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@LeslieGray Thank you for sharing your portfolio ideas. The approach is really interesting. I personally use monte-carlo simulation of the future drawdowns, and was struggling with young systems with higher uncertainty. But your post gave me couple ideas. :slight_smile:

Would you be able to share your criteria of subscription termination, if you have them?

I was thinking to use system stats as historical max dd, max trade loss, max length of dd, max length of negative trades, time to hit new equity high. Say, if system hits one of (or number of) these criteria, then this system should be terminated.

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I’m also curious as well as to what people are using for criteria to bail on a system besides gut instinct. It seems easier to get in. I would think getting out in logical terms would require either a statistically significant change (to the bad side) of risk/return metrics vs. the sample, or a (verifiably) better mousetrap comes along.

To get in I would think the important ones are (assuming appropriate sample size):

  1. Liquidity Liquidity, Liquidity! (Did I mention, LIQUIDITY?)
  2. Correlation to instrument(s) traded / Correlation to Benchmark (ideally, 0)
  3. Correlation to overall Portfolio of systems (ideally, 0)
  4. Alpha (excess returns - risk adjusted)
  5. Risk Management (no martingale or other nonsense, also beware kelly criterion position sizing etc)
  6. Consistency of approach (either systematic entry/exit or a steady/proven hand)
  7. Profit per transaction, in other words how much worse will you be off if you don’t get precise executions?
  8. Does the “personality” of the model fit you?
  9. Does it deal with tail-risk (either through conservative leverage or constant hedging), or does an outlier event put it out of business for good?

Final thought on model design: Obviously one can scale a strategy to a target risk level, but it goes to the mindset of the model manager / designer, if the “out of the box” setup on the model doesn’t have reasonable/rational risk/leverage parameters, what will the manager do when things go badly? Will they go on tilt or override the model?

Some interesting food for thought!

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I have different criteria for getting in vs getting out, but they are related:

  1. Does the system have an algorithm behind it? Those being run on someone’s beliefs are out. Ditto for someone’s “extensive experience”. If the system owner can provide back test data - a big plus. (the exception is an excellent track record or very tight trades)

  2. Annualized return// adjusted max drawdown. This is clearly the “reward”. If this drops to be non-competitive against better choices, they get replaced. Again, a review monthly self corrects. This should be >4.0, ideally. The S&P runs about 2.0.

  3. Any “change of strategy” or emotional overrides gets the boot, or a reduced allocation. Any indication of ego or crazy is out.

  4. I watch the “risk-of-ruin” metric, and kill any outliers.

  5. I look at all the trades, and for clear evidence of a stop-loss strategy of some kind - e.g. how does the strategy handle a strong move against the position. Is it model driven or SL driven. Ditto for profit taking. Tight trades are a plus. Strong martingale activity is out.

There are other metrics in the list, but these are the major ones.

Key is to let the systems compete objectively, not fall in love, and to have a “bench” to select from if you need to kill a strategy (or reduce the allocation). I have made mistakes making emotional SL decisions on manager selections, just like emotional SL on trades.

Regards

4 Likes
36

This is a great thread with some quality posts.

I have a few comments as both a system developer (Drunk Uncle) and an investor who has been trying to diversify across multiple systems in addition to my own. Beating the market with a diversity of systems is a difficult problem. As evidence of that here’s a link to the performance of Collective2’s own combined system product, ScoutAlpha, which apparently has a negative return since inception in Aug 2016:
https://trade.collective2.com/scout-alpha/performance/

My own experience with a group of systems from last year was good but I did not do as well as I’d hoped. I made a few mistakes I’m trying to learn from and I’m always looking for good advice so I appreciate this thread.

Here are a few thoughts I think are key in building a portfolio of systems:

0) Understand Survivorship Bias. Fundamentally C2 highlights leading systems culled from a large population of trading systems. There will always be winning systems to put on the leaderboard, but will those systems continue to perform going forward? Most systems will not. This is the core problem we face.
en.wikipedia.org/wiki/Survivorship_bias

1) Related to #0, avoid hot systems without much time behind them. I violated this concept with two systems late last year by subscribing to them when they had only a few months of very good/steady returns and both tanked the moment I subscribed. I had reasons for both subscriptions… one system had a developer with other successful systems and the other had a large number of daytrades I thought made the data statistically significant. The market changed gears and both tanked; one system was killed by its dev and the other dev announced a change (see #4 for my view on that). I’ve had better luck with systems that have a longer history of success even if returns aren’t as sexy. Number of trades is not enough, you need time in the market. Waiting for 3 quarters of data is a sweet spot IMO.

2) Avoid large drawdown systems even if the return appears worth it. Fill your stable with systems that don’t fail big when they fail and you’ll do less damage to the returns of your profitable systems when things go wrong. It’s also easier to determine when a system might be having a problem before you lose a lot of capital if the system has reasonable drawdown.

Also see posts above by LeslieGray and her ideas on drawdown and correlation.
You can get Correlation data on C2 here (using C2 explorer):
forums.collective2.com/t/correlations-table/8455

3) Related to #2, avoid Martingale systems, systems with extreme leverage, and other systems with large hidden risks. Some systems on C2 have great looking equity curves or high returns but have significant hidden risks.
Here’s a post I wrote on how to detect martingale systems on C2:
forums.collective2.com/t/dangerous-strategy-with-a-martingale-example/8633/5

4) Be worried when a developer changes their strategy. Creating a system that is profitable into the future is difficult even for developers that know what they are doing. Usually changes to a system need to be forward tested to prove out the change and you don’t want real money at risk on someone’s test. An exception to this might be systems that are regularly updated/changed and have a history showing the success of that process. Otherwise the announcement of a significant change to a system (usually due to underperformance) is often the warning of worse to come IMO.

5) I am personally wary of discretionary systems and prefer systematic traders. Enough of a trading history might convince me take a chance on a discretionary system but it’s not my preference. Last year my worst performer was a discretionary futures system that stopped performing.

As a final thought it’s good to Understand how a system works as much as possible, where it’s risks are, what its skew is, etc. Unfortunately these things take experience and can be difficult to get on some systems. One theme I see right now is VIX systems are all over the place as we’ve been in a falling volatility environment. I would be careful not overweight my portfolio with VIX systems. VIX systems can fail very big very fast and I think there will be a tough time for those systems at some point ahead where many will not survive. JMO.

Here’s a post I wrote on skew:
forums.collective2.com/t/histograms-examples/8350/3

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David like several of us have would you share with us what systems your currently using and or testing? thank you

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great post. very sobering, I also find concerning that even Scout Alpha hasn’t been able to have a positive return–which is run by Collective2. I have been doing a lot of thinking on this issue as well: why is that even Collective2 cannot create a blended model that shows a positive return. That is a problem and worth thinking and discussing further.

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David I forgot to say thank you for all the information you provided and the links. Its great stuff!!

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I really wish Collective2 would also create ‘a subscriber’ leader board–where we could follow each others subscriptions-and trading accounts-a sort of competition that would foster blended trending methodology and proper risk management, subscription longevity, and proper scaling and management of blended models. Obviously, Collective2 cannot even do this. it would be nice to see subscriber success and trading practices observed over time–how many subscribers are successful here and what realistically should monthly returns entail. It would be nice to have some transparency and modeling of successful subscribers that have done well here at Collective2 and are truly making real $$.