C2 Star Mathematically Impossible on the Long Term

C2
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Check me on this. I believe I have it right, but I could be wrong.

  1. Subscription fee must be $125 and autotrade cost is calculated at $50.

  2. Capital must be between $40K and $60K

  3. Initially the $125 subscription will be a 0.35% drag per month or 4.2% per year on an account of $50,000

  4. ASSUMING a strategy does well and stays certified and grows to $60,000 requiring it to scale down to $40,000.

  5. The $175 is still applied to all previous months based on the new scaled down starting value, just like with other non Star strategies.

  6. If the strategy started with $50,000 after scaling it will have “started” with $33,000 since $40K/$60K*$50K

  7. Now instead of a 0.35% drag per month in the first month of the strategy it will be $175/$33,000*100% = 0.53% or 6.6% per year.

  8. After scaling just twice the drag per year will be 9.9% which is roughly equal to the max drawdown allowed.

  9. You can approximate the drag in any given year by simply saying each time you scale from $60K to $40K you increase your annual fee by a factor of 1.5 since 60/40=1.5.

Now this is a long way off for most strategies since most don’t have to scale down that much since they quickly hit the 8-12.5% max drawdown. But I think it is important to take note of.

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Interesting. I believe that Mathew has stated that AutoTrade fees are not included in the performance calculation.

When a strategy is scaled down is the subscription fee also scaled down for that period? I always assumed that it would be or else your drawdown would also be adjusted lower if it wasn’t. If not that is a big hole you’ve discovered.

I’ve tried To create a few different CStar strategies. For me the hardest part is meeting the 2.5% deployment of capital in closed trades. That threshold drops to 1% after a few months. I don’t understand why it starts high and then drops to reasonable level except to force strategies to take on too much risk.

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Now that you say that I maybe remember him saying the AutoTrader fees aren’t included. However, then it would be the same calculation just starting with a 3% annual fee rather than 4.2%. I believe the current monthly fee is applied in full to every month whether a strategy has been scaled or not.

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AutoTrade fees are included.

But Dwight’s point is, if a strategy is successful for long periods of time, and is forced to “rescale” back to $50K a few times, that implies that the Starting Capital of the strategy keeps getting smaller and smaller, by a factor of about 20% per rescale.

So after 1 rescale, Starting Capital seems to be $40K
Then after 2 rescales, Starting Capital seems to be $32K

Etc.

Since the current monthly costs are retroactively projected backwards onto starting capital, this does indeed suggest that % returns for those months will be calculated as lower than prior to the rescale.

However, the way C2Star works is that these historical recalcs will not affect current C2Star status. In other words, after a rescale, you won’t suddenly be told, “Hey, guess what, based on the rescaling you just did, you suddenly got dropped from the program because six months ago your performance wasn’t high enough.”

C2Star requirements are always in a go-forward mode.

That said, I agree that this isn’t the best way to handle rescaling. I’ll try to work on making rescaling use historical cost structures when calculating historical performance. (As it stands today, C2 is being overly conservative and using costs that are much higher than were actually in effect.)

Good catch.

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I feel like I got an A+ haha. Glad I’m not crazy and that you are going to look into it. Thanks Matthew!

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Nicely done, @DwightSchrute! Your research is here is very helpful and your candor in various discussion threads is often refreshing. Keep at it.

~ recon

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Interesting points here. But if a trade leader never changes position size in the strategy, then the percentage of netprofit would decrease if you dont rescale, that means that with resacling you would get a higher % netprofit in the end of the year despite that autotrade fees are calculated historically on smaller account equity. But of course the drawdowns could hit the other way around.

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I have to say I was pretty skeptical of the C2 star concept at first. After all it doesn’t have any limits on the amount of leverage a person can use. So what is to stop a 1 hour 100% drawdown? I still have that concern. However, after doing some more work on it I decided to finally try creating my own C2 Star system. I think a big thing that finally made me do it was realizing that they pay partial $1000 payout if you are certified part of the time. I can’t seem to create a strategy that I think will always be fully certified. Outperforming the S&P in every single rolling 60 day period by 1% seems impossible. However, I think it is possible to outperform on a rolling 60 day period for about 10-40% of the time while meeting the drawdown metrics. Of course only time will tell.

Certainly they are trying to make money, but I don’t think they are doing anything nefarious. Are they?

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Learning this helps the math make sense and takes a lot of pressure off. At least for me, continually focusing on short term ideas like continuous certification can result in impatience and poor trading technique. Today has temporarily claimed the last remaining certified C2 Star trader…

All the best with your C2 Star endeavors! It would be great to see you certified!

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Hello,

I won’t trade on С2star anymore, there are a lot of pitfalls. Much is not written when connecting to c2star. Why did you do this?

  1. Why don’t you write that the provider must pay $ 99 every month after 60 days if it has not exceeded the index by 1%.

  2. Why is it not written that 60 days is a rolling one and it changes every month.

  3. Why is it not indicated that 1000 dollars is 100% of the time per month, you have to be c2star. For example, if you have a star of only 10 days, you will receive not 1000 but only 333 per month.

Please write all the information, but for a lot of hidden information and the person connecting understands that in fact everything is wrong and he was deceived.

Michael

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You have to pay $99 every month for one C2 star strat?

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No, you do not pay $99 every month.

What Michael is referring to is the following.

If, after 60 days, you have “soft”-violated C2Star requirements (that is: you have not violated the risk limits and the loss limits; but you have not quite performed adequately by beating the S&P sufficiently), you are allowed to stay in the program in a state of not-quite-certified-yet. You can continue to be in the program, and can continue to try to outperform the S&P. We don’t ask you to pay the full C2Star entrance fee again. Instead, we ask you to pay a smaller re-up fee, which gives you additional time to try to achieve results. (This is optional. You can choose to abandon the strategy, or just operate it outside the C2Star program.)

Michael seems also to complain about something else which was meant as a courtesy: if you do not achieve full certification for the entire month, but you manage to achieve certification briefly for some portion of the month, you are paid a portion of the $1,000 monthly guaranteed revenue (the percent you are paid is the percent of the month you achieved required results).

(The alternative, punitive method, would have been to say: “You didn’t achieve C2Star status for the full month. Sorry! We won’t pay you any guaranteed revenue at all.” We don’t do this, because it seems kind of lousy.)

But I understand there are several ways of looking at this, and different people have different opinions. The way I look at it, and the way I intended the C2Star program to be understood, is this. We basically say, “If you achieve good trading results, then for as long as you achieve them, we’ll guarantee you at least $1,000 per month of income.” (That’s the minimum. Of course your strategy can earn more, if you attract more subscribers.) And similarly, if you only achieve results for half the month, well, then that’s okay; we’ll guarantee half of the $1,000 minimum.

I thought that was pretty fair. But I understand this may not appeal to everyone, so I wish Michael well outside the C2Star program.

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Ah I didn’t realize there was a re-up fee. That is disappointing but thank you for the clarification.

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Hi @MatthewKlein, your C2Star program is both fair + logical and adequately explained. Paying out the percentage of the month with full certification versus all or nothing is indeed a bonus. Thank you for that! Over time I hope that the C2Star program continues to attract a diverse group of top talent and also promote proper trading discipline.

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So can you hypothetically start a star system have a large winning position then sell that position with minimal drawdown and sit on that and collect $1000 a month as long as you out perform the S&P by 1% without having to make another trade for awhile?

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@MatthewKlein for the record I really like the partial pay out feature. I just somehow missed/didn’t realize there was a reup fee. So basically there are three ways in which a person pays for the C2 Star.

  • Strategy Listing fee $39 per month for one strategy.
  • Initial and one time C2 Star Application Fee of $199.
  • $99 reup fee for 60 day periods where returns didn’t meet requirements.

I do think the reup fee could be more clear, or I need to pay better attention.

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Can anyone answer my question, I looked at the rules briefly and it felt painful like someone was throwing darts at me while walking a tightrope. Basically one could just start 2 systems go long Tqqq in 1 and Sqqq in the other, catch a big run like 25% & close one system and close the other position as long as drawdown is low and you’re out performing the SP. by 1%. Am I missing something?

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Assuming that you could follow all of the risk management rules, you have to outperform the S&P500 index by at least 1% while also meeting the capital deployment rules. The “Capital Deployed in Fully Closed Trades” requirement might make your idea difficult to achieve.

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I think the purpose of the c2 star program is to create a low risk strategy that provides superior long-term risk adjusted gains. This is to provide stable investment options for the investors over full market cycles. The problem with many strategies is the extreme drawdown where there is no consideration for the investors that could lose invested capital.

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Hello,

It’s all good. But why is there no public information that after 60 days if the strategy does not have c2star and he has not violated the limits he must pay 99 dollars per month !!! and not for the next 60 days. and so on, every month for 99 + 39 not counting the starting fee of 199. I think this is a hoax, since some of the information is hidden, please correct it. So that people in the future know what they are entering.

In fact, we see that the starting fee is 199 and 1000 every month for s2star. But this is not the case.

Now, about how C2Star payments are calculated. You get credit for every minute you are certified. That’s quite literal. When we credit C2Star payments to strategy managers, our software calculates the number of minutes in any given period that a strategy maintains its C2 Star certification status.

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