C2 Star Mathematically Impossible on the Long Term

Every trade strategy leader should develop a strategy that plays to their strong suits. If that qualifies for star certification then great, but it should be an indirect goal. Your strategy should be designed to take care of your subs.

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Correct , just new strategies can apply .

To be C2Star certified the strategy equity should be between 40k and 60K. Because you start with 50K, after a 20% return you will have to rescale your strategy.

I just realized that I am requested to close all my open trades and cancel all my pending orders before rescaling my account. This is very damaging for subscribers because I have a medium to long term system, with positions that should be hold for very long periods (3 to 5 years minimum). Having to close and reopen all the positions in my portfolio, just to fulfill all the C2Star requirements, doesn’t make much sense! This is not in the best interest of subscribers because they will pay brokerage fees for closing and reopen the positions.

I contacted the Support team to check if they are aware of this problem and if they are planning to do something about it. Let’s see what they say.

Support team reply:
“You are correct, you would need to close all of your positions to rescale. There are no current plans to change this at the moment, but I have forwarded your concerns to our developers.”

@MatthewKlein Do you think you can prioritize this topic for your next development opportunity?

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This will not change in the near future.

My goal in creating C2Star was to make sure that C2 Star strategies could serves as highly modular building blocks for a multi-strategy portfolio, without any strategy over-weighting in the portfolio. Thus rescaling downwards is required once a C2Star strategy model account grows too large.

Furthermore, rescaling requires closing positions (for AutoTrader safety).

For these reasons, this probably will not change.

(Although not really applicable or helpful for long-term buy-and-hold strategies, it’s worth noting that rescaling is not an immediate requirement. You have 10 days to rescale once your strategy reaches a critical milestone.)

The upshot of all this is: not every strategy is right for C2Star. Maybe someday in the future we will create other variants of C2Star – perhaps one for long-term buy-and-hold strategies. But for now, there is only one program.

I do appreciate the feedback. It’s helpful to know what is important to C2 members.

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@MatthewKlein I struggle to understand the reason behind some of the rules of C2Star program and it would be great if you could explain them. My main question is why using absolute numbers AND % apparently for the same measures. I think for all situations a % works better than absolute values, but happy to understand your point of view.

Examples:
1- 5% Maximum Open Loss as percent of equity vs $2000 Maximum Open Loss
The 5% can vary from $2000 to $3000 (40k to 60k)
And though I understand the need of this rule to tame gamblers, for medium to long term investors it’s quite punitive (the same commentary applies to point 2)

2- 5% Maximum Equity Drawdown rolling 24 hours as percent of equity vs $2000 Maximum Equity Drawdown rolling 24 hours
The 5% can vary from $2000 to $3000 (40k to 60k)

3 - $5000 of All time Maximum Equity Drawdown
$5000 can represent 8,3% to 12,5% (60k to 40k)

And my last question is regarding the account equity and the reasoning behind the need to have it in such a tight interval (40k to 60k).

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From my perspective, C2Star long term strategy criteria could be something like this:

  • Equity Start: 25k
  • Equity should be lower than 75K
  • Must outperform SP500 index by 1%
  • Must deploy minimum amount of 1% of capital in the rolling 60 days
  • Closed trades must represent minimum deployment of 1% of capital in the rolling 60 days
  • Should not underperform SP500 index by more than 5% (disqualifying criteria)

This week two of my C2 Star probationary accounts were knocked out, as were the programs of many others. The failing was a 4% drawdown in 24 hours. Unfortunately, in active 24 hour markets, this is inevitable. This and other program rules lead to a failure rate of close to 100%. Is this what C2 wants to achieve?

The criteria for the C2 Star program was likely not designed by a successful trader. More likely, the rules were drawn for fearful traders. In gambling as well as trading, “scared money never wins.” About the only way to succeed in the program is to de-leverage the systems to avoid the draws. Then the returns are so reduced that the system is not of any interest to anyone.

There may be a need for the Star program, but the rules have to be changed. For instance, existing systems should be able to bring in their prior results. I would rather Star a program with a year of resuts than one with 60 days. Also, there needs to be some relationship between the drawdown rules and the leverage used. Many good programs are excluded because they go for higher returns. Benchmarking performance to S & P only makes sense for stock systems. The standard should be risk adjusted results.

Any other suggestions?

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Yep. Admit that existing systems are not for c2 star program and develop the system which will meet c2 star requirements even when market goes south.

Yeah,
I would never use the C2Star leaderboard as a way to find programs that I wanted to put together into a portfolio. Given that almost all of these programs seem to be discretionary, I am hugely biased towards low max DD, reasonable leverage, systematic, long track record, and I also don’t like long-only programs (unless they are in an asset class that is out of the ordinary, not correlated to global stock bond or commodity indices). but even the long-lived programs here give me the creeps. I come from a systematic background and I think I have some biases.

these super short track records are suicide. I can see the desire to create a portfolio of programs with a very short leash in terms of drawdowns, but I also think that in reality, false negatives - throwing out programs with episodic bad performance - really hurts performance in the long run. It is only after several years that a programs regresses to something close to its mean performance, and vanishingly few programs have a sharpe > n (1.0?) over the long haul. the best you can really do is to cling to programs whose returns are uncorrelated from each other, have low concentration of risk, and are not too correlated to classic benchmarks. But peer performance is also important. if I can get 90% of the performance of Winton Capital with no incentive fees, I will accept .99% correlation to that “peer benchmark”. But only if I am not invested in the more costly of the two net of taxes and fees.

Incentive fees are poison, and so if you can find a handful of .7 sharpe programs that have no management fee, you can perhaps accept retail - level execution fees, and if the programs are uncorrelated you will still make potentially a lot of money over time.

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I started to follow this thread Basically Daniil is forward testing a portfolio of the best 5 C2Star strategies, which he reevaluates each 2 weeks. The results are interesting. Let’s see how this test ends.

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Oooh, having to close and reopen is a HUGE problem in some parts of the world, for instance here in Denmark.

We are taxed only when we close a position. At that time we are taxed close to 50% of the profits.

So if you buy a stock at 5 and it rides to 15 inside a year, and you keep it open you pay no taxes that year.

If you close it that year, then reopen few days after, you get to pay taxes approximately 50% of (15-5). That is very, very, very expensive.

I am sure there are also countries where stocks held longer than X months or years are tax free, otherwise taxed a lot.

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do you need 50K of your own capital to start the c2 star? i am trading 5K account and target $200 per day. I have been profit 25 days and loss 5 days in last 30 trading day. I am thinking to get the c2 star but the rules give me headache.

No you don’t have to tie any money to it but you could auto trade your own strategy with a 10% scale factor. You would enter orders on C2 then they can copy it to your brokerage account to show subs you are following what you are preaching. Or you can just enter them to C2 and not copy them using AutoTrade.

what is 10% scale factor? does C2 have your own software to trade? I only trade ES NQ mes MNQ, I have accounts with Tradestation and Ninjatrader. I want to get c2 cert. I see it require 50K account and how many contract do I need to trade to met the 1% capital deployment?

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This is a good and important question. Unfortunately you don’t get an answer, see "minimum capital deployed" C2Star

This strange rule keeps me as a short-term trader from a C2Star certification. :thinking:

If you aren’t’ trying to game the system you should likely have no problem meeting the minimum deployment number.

C2Star
https://collective2.com/c2star/showRequirements

AutoTrading/Scaling

TOS
https://collective2.com/trades-own-strategy/info

OK.
Up to 60 days of strategy age you have to tie up 2.5% capital around the clock. At $50,000, that’s $1,250.
These are, for example, 2 futures positions @TU US T-NOTE 2 YR (Initial Margin).

I don’t understand the point.

I want to trade, not invest. :thinking:

Collective2 Futures Symbols – Collective2

I don’t believe it has to be around the clock. I think it is a weighted calculation. See below

https://collective2.com/c2star/minimum-capital-deployment

“Basically, you need to risk an average of 1%, (2% or 2.5%) of your capital over time.”
“to take 1%, (2% or 2.5%) of your Model Account, and “deploy” it into a trade on Day 1, and leave that trade open forever.”

“Another way …”:
24% of capital $50k and hold position 1 hour, 2 hours or 2.5 hours.

That’s $12,000. With @YM, Init. Margin $4,437.

You need to hold 3 @YM for about 1h, 2h or 2.5h each calendar day.

Correct?

Just an absolute fabulous system.