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Follower guide to consistent profits


#1

Recently I became aware of how many investors on this site actually lose money and that´s horrible. In my humble opinion and basing on my own experience that situation can be improved. So with this guide I want to show a possible way to investors on how they can profit in the long run. Why? Because for me as a trade leader you - the investors - are the key to earn subscription fees so I better try my best to provide valuable information so most of you don´t get burned anymore. To me it´s very simple, if the current investors earn money they will stay and improve the overall situation of trade leaders like me. Also successfull investors may actually tell their friends and family of how and where they earn money so there would be even more investors and potential subscribers for my own system. Yeah, I´m very selfish I know. :wink:
Jokes aside, lets start with the actual guide.
(btw you can find my system here SmartVolaPlus)

Step 1: Find good strategies aka “do your due dilligence”

In this thread there is a discussion about that topic: What is the Best Objective Function?

My personal approach is to pay attention to the following criteria:

  • markets / instruments traded and leverage used in these markets (the higher the instrument / market risk the lower the leverage I want to see. This is highly individual but you´ll get a feeling for what is right after a while)
  • consistency at risk control (trade record)
  • maximum single trade loss / drawdown in conjunction with trade frequency and leverage (see the bigger picture)
  • Expectancy per trade
  • distribution of winners -> I want consistent systems, not those that got lucky on a few good shots. (trade record)
  • ratio of Expectancy per trade to conservatively expected slippage and commissions (I don´t want to have more than 20% cost per trade measured by expectancy so scalping systems usually get filtered out)
  • maximum system drawdown (I´m ok with up to 40% if that drawdown only occured once but that´s personal preference. Ask yourself what you deem to be ok for a system)
  • annualized compound return (I´m looking for 20-60% p.a. systems and want a good mix in my portfolio.)
  • MAR ratio (MAR ratio = annual compound performance / MaxDD; should be above 1)
  • length of drawdown periods (very important because long but small drawdowns can be as exhausting as steep and short drawdowns. Doesn´t mean that a system with long drawdowns is bad but there is a personal limit of what I would accept timewise. You should define your limit yourself.)
  • style of drawdowns (I don´t want sudden and steep drawdowns because then I possibly can´t react in time to cut losses)
  • track record of at least 12 months

Also I use the winning rate as an indicator of high risk grid / martingale systems.(winning rates over 80% are a warning sign for me to inspect the system even closer and 90%+ are no go´s)

Step 2: Building the Pre-Portfolio - correlation analysis

After I have preselected with the use of the mentioned criteria I then build a virtual portfolio with all strategies risk-adjusted. Example for risk adjustment:
System 1: MaxDD=40%, profit = 40% p.a. -> highest Drawdown of the sample so it defines factor 1
System 2: MaxDD=20%, profit = 30% p.a. -> factor 2 (40%/20%) so the MaxDD is the same as System 1
System 3: MaxDD=10%, profit = 15% p.a. -> factor 4 (40%/10%) so the MaxDD is the same as System 1

With the help of this risk-adjusted virtual portfolio I can analyze which systems correlate the least with each other so that I can maximize the portfolio MAR ratio (but keep diversification). If you can get the correlation data in a different way than I suggest you do so. I´ve read you can get this kind of data directly from the C2 site but as I´m not here as a follower for now, I don´t know this way. I developed the described method for other copy trading sites where you can´t easily access correlation data.

Note: Then I don´t trade the real portfolio in that ratio because it would make the risk and performance too much dependent on the correlation. I determine ratios for the systems with a focus on risk control like I will show you in the next step. But still it´s good to select the least correlated systems so the performance is reasonably smooth.

Step 3: Control your portfolio risk right from the start - “client restrictions”

By reaching this point I have a good idea which systems I want to trade together. Then I determine how much of my portfolio value I´m willing to loose when any single one of the systems hits its MaxDD again. With that information I can calculate the ratio or scaling% I want to use for the system. Lets take another example with the same systems as mentioned above (set your own loss limit):
Portfolio value I´m willing to loose at MaxDD = 10%
ratio System 1: 10% / 40% = 0.25
ratio System 2: 10% / 20% = 0.5
ratio System 3: 10% / 10% = 1

Specific for C2:
To calculate the actual AutoTrade scaling% these ratios are applied after position sizes of the systems are adjusted for the difference/ratio of portfolio value to system value. Example:
Planned portfolio value = 100k
System 1 currently trades 50k -> AutoTrade = (100k/50k)*0.25 = 2 * 0.25 = 50% scaling
System 2 currently trades 20k -> AutoTrade = (100k/20k)*0.5 = 5 * 0.5 = 250% scaling
System 3 currently trades 100k -> AutoTrade = (100k/100k)*1 = 1 * 1 = 100% scaling

personal side condition:
I take for granted that no system will stay below a drawdown of 15% so even if the MaxDD is 10% like in the example system 3 I would use 15% for the calculation of scaling. So keeping that in mind I would acutally not use 100% scaling but (10%/15%) * (100k/100k) = 0.66*1 = 66% scaling

Step 4: Cut the loosing systems and re-enter if reasonable - system management

Now, if a system hits its MaxDD I loose 10% of my portfolio in the given example. That´s acceptable but I don´t want to stick with a system any further that starts to hit the hole. Therefore I stop trading a system that has broke through its historical maxDD. Many times it happens just because the worst drawdown hasn´t been in the track record yet but the system still works. So I re-enter the system if it made up 50% of the current MaxDD. This rule is based on my analysis of failing systems. Most of these unstable systems will not recover significantly when they start to erode. Unfortunately you can´t filter out all of them even with a decent strategy check. So by adhering to this rule I avoid to crash my portfolio with a single strategy that stopped working. In fact I maintain full control over my portfolio risk. When the positive scenario happens and the system recovers back to health I´m on board again half way up the drawdown. This leads to the situation that with the given paramaters I´d have a realized loss of around 5% when the strategy hits its recent equity peak again. So yes, in the positive scenario I´d be better off just holding on to the strategy BUT you never know if a strategy recovers. In the long run It´s smarter to stay out for some time so you can react on the further development.

If a strategy expands its MaxDD and recovers to a healthy status I recalculate the AutoTrade scaling by using the new MaxDD before I re-enter. That way potential loser strategies are automatically paused and scaled down while the winners are kept on their appropriate scaling. That´s just the same as “cut the losers and let the winners run” translated into copy trading.

I hope many of you find this article valuable and that you start to be consistently profitable soon.

Kind regards,
Alexander


Another system collapse
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Thank you C2 & ALL developers I appreciate you
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Futures Strategies
#2

Thanks @AlexanderG
This is really good guide for system selection.


#3

I stopped reading after seeing that the poster misspelled “lose” in the first sentence.

Never seen anyone “loose” money. lol.


#4

Be nice…not everyone on here is first language English


#6

Did you try to use markowitz portfolio approach?


#7

No but feel free to use any method you like. The purpose of this guide is to show less experienced investors one specific way to get the results they like and is based on my own thoughts and experience. If someone has a different approach and is happy with the results than it´s all fine.

Though my personal opinion about most portfolio approaches including Markowitz´ is that they try to maximize reward/risk ratio. Therefore they are prone to losses due to changes in correlation, volatility or other metrics like any strongly optimized system. In contrast I focus on risk control because I know that the winners take care of themselves so I don´t try to overly optimize those. After all I´m a trader not a scientist so I´m satisfied if stuff works. :wink:


#8

C2 should really improve it’s scoring / ranking system. The C2 score should be a good predictor of what results to expect from a system going forward. Right now a trader can be ranked number 1 by C2 and then a week later the ranking is fallen to 40.


#9

If c2 develop their score in this way, they will be able to claim a Noble prize. :slight_smile:This will be a holy grail.


I just want to vent a little
#10

Thanks for the info, really helpful for subcribers!


#11

Thank you Alexander for taking the time to share. I really appreciate it. Very helpful!


#12

Thanks for the friendly feedback people.

I´ve fixed some typos, rephrased some lines, seperated the guide into 4 instead of 3 steps and shortened here and there where I had redundant info.

If you have suggestions where I can formulate something better so it´s clearer to understand, please send me a pm. I´m not a native english speaker so I assume there is room for improvement.


#13

Thank you AlexanderG. This is a good guide for new members trying C2.


Growth 500 is disappear
#14

This is probably one of the most important element of a good trading system : its ability to quickly recover from a drawdown.

Here is an example.

System A makes 30% per year on average and the longest drawdown (25%) lasted 3 weeks.

System B makes 60% a year but the longest drawdown (25%) lasted 18 months, during that same period of time.

You can be sure that traders (or subscribers) will almost always choose System A over System B, although the return on investment of System B is twice as big and the drawdown is exactly the same in both cases.

Good post AlexanderG :+1:


#15

since everyone here seems to know what they are doing. please share what combination of systems you have come up with and how they are doing for you. What is your YTD? Thanks.


#17

Good day Alexander, thank you for your guide I found it to be very helpful, based on my understanding of your guide I think the system QuantFXOpen comes out with a positive result, would I be correct ? It would be helpful verify my understanding of your guide and I hope others find this helpful as well, many thanks PJG


#18

Thanks everyone for your feedback! :slight_smile: :slight_smile:

@PJ01 The strategy you mentioned would not come out with any result because its track record is far too short. If I´d be interested in a particular system that has a track record shorter than 12 months I would set it on my watchlist and check back when the first year is completed. Time passes fast and there is no hurry in following any one system. The consistent and profitable strategies will still exist after 12 months and beyond.

To be fair, at this date I (as a follower) would not even bother to analyze my own system SmartVolaPlus because of the short track record. :smiley: Patience is crucial for followers and trade leaders alike. :wink:

Have a great day! :slight_smile:


#19

very many thanks for your thoughts, regards pjg


#21

Hey everyone,

lately not much of value is going on in this forum so I bump this thread for newbies and infrequent forum visitors to find.
Any suggestions and feedback are welcome. If you have any idea of how to improve on portfoliomanagement everyone will appreciate if you share.

Have a nice day,
Alex


#22

Hi @AlexanderG,

I am a newbie to c2, and thank you for posting the awesome follower guide.

I am not very clear about the calculation in step 3. What’s the meaning of formula like " System 1 currently trades 50k -> AutoTrade = (100k/50k)*0.25 = 2 * 0.25 = 50% scaling" ? If the total planned portfolio value is 100k, and System 3 has 100% scaling with current trades 100k, isn’t all the money will be taken by system3?

Thanks for clarification,
Best

Jinchao


#23

Hello jinchao,

you brought up an important question. In my example I was assuming that leverage is no problem because the strategies would not take up all the buying power they have (that is mostly the case with systems older than 1 year. For a reason…). But as soon as you follow stock/etf strategies, the leverage may become an issue.

So the answer to your question is: check how much leverage they used in the past and what type of products are they trading. E.g. you can’t 5x a stock system that already goes maximum leverage UNLESS you have 5x the capital. But then your whole capital is locked up on this one…

However you can scale a 100k strategie to 100% in your 100k portfolio and still ADD other strategies IF the 100k strategy only ever uses a fraction of its full buying power.

Rule of thumb: reasonable future and forex strategies are never a problem to scale. Stock and Option strategies need a closer look on their use of buying power.

Asking the developer of any system that interests you about his margin policy is also recommended.

All the best,
Alexander