What’s the return now, 8 days later?
Dwight,
One of the strategies you listed is mine. (“AlphaQ”).
If your strategies are not working, you are not alone. Most market timing systems don’t work. My own “AlphaQ” could also stop working in the future. I have subscribed and created timing systems for quite some time and will like to share my thoughts. In doing so, I will try to share what I think improves chances for succeeding. I am not trying to drum up business – I believe very strongly about the following and thought it should help every subscriber in selecting systems for their personal trading.
- One has to have reasonable expectations. I think that timing systems should be used to preserve capital and not necessarily to get rich overnight or to even beat market indices.
- You have to analyze the system for its performance over any three year period. Checking system performance for less than that is unrealistic and may make you chase today’s winner, and quite likely tomorrow’s loser.
- Market timing is nearly impossible and the systems should have very realistic goals. My primary goal is to make more money than most income generating (cd, low risk bonds etc) funds during any three-year period. That’s right – if the cd and low risk bonds are yielding 3% annual return in three years, my primary goal is to exceed that after commissions and cost of subscription etc. My secondary goal is to have less draw down than the market indices over any three-year period. If the market had 30% DD, I want my portfolio over that same period to have dropped less than that. My tertiary goal is to beat common indices during three-year period, hopefully quite heftily. My final goal is to have three-year CALMAR ratio of >1, preferably >1.5 to 2. I think this incremental expectations prevent you from jumping from one system to another.
- I think lots of systems come and go because the developers feel so great about their systems and want to boast plus make money by publishing. Many do not do due diligence. I am sure I have been guilty of that in the past. I believe I have learned and pay lot more attention to sustainability. “AlphaQ” system is made up of several core sub-systems which have been live since June 2006 or before and back tested since March 2004 when VIX futures were introduced. Two of them have been tracked live by timertrac since Oct 26, 2015 capped at 2x ETF (the systems can do up to 3x ETF but timertrac does not offer NDO prices for 3x ETF.). The following are the results at timertrac for the two systems.
| S&P 500 | Strategy 1 | Strategy 2 | |
|---|---|---|---|
| Max 2x ETF | Max 2x ETF | ||
| After10-26-15 | -1.32 | -0.9 | 6.09 |
| Year 2016 | 9.54 | 46.71 | 38.8 |
| Year 2017 | 19.42 | 42.23 | 71.49 |
| Year 2018 | -6.25 | 11.51 | 21.46 |
| Year 2019 | 28.88 | 31.96 | 40.46 |
| YTD 2020 | -6.86 | 22.5 | 6.39 |
| Total Returns | |||
| Total Return | 45.27 | 272.73 | 358.31 |
| Ann Return | 8.32 | 32.53 | 38.53 |
- I think C2 should hold subscription fees for the first three years of systems’ existence and refund everything but its own fees if the system closes in less than three years. I have subscribers to “AlphaQ” systems. I would have no problem if the subscription fees are held by C2 until “AlphaQ” has been on C2 for three years. I think that rule will eliminate all frivolous systems which are published for few months and die or go private. We are talking everyone’s hard earned money and this rule will introduce discipline. If the system closes, you get large part of your subscription fee back and the vendor gets nothing if they close within three years.
- The systems should be tradable. Frequency of trades, Max DD, Worst single day loss and number of consecutive losses are important consideration. Regardless of how much money the system is making, when it suffers large DD or too many consecutive losses, most people (and even the creators of the systems) start having doubts. The systems are of no value if you are unable to take every trade. Before you use it, you have to ask yourself, will you take the current trade if the previous 6 have lost money?
- Know your exit point. Just like individual stocks, knowing when you will stop following the system is very important. Here is what I suggest. Find out Max DD, annualized returns, max DD, recovery rate, year to year returns for as long a period as possible. Going forward with live trading, the max DD will always be higher that what is shown up to this point. So for extreme safety, expect max DD to be double in the future. So, if the system has had max DD of 25%, expect 50% max DD going forward. Then determine the amount you are willing to lose for any specific system. Let us say that you really like the returns and willing to lose $5000. That means you can start with $10,000 and stop only if the portfolio drops to $5000 or three-year goas listed above are not met after following it for three or more years.
- Based on your portfolio size, use multiple systems which are uncorrelated to each other. Higher the portfolio, more systems you should follow. Even the best of systems do poorly off and on and during certain market conditions. Some do better during bull market; some do better during better market and some during sideways market. Owning all of them reduces overall risk.
- I do the same for the “AlphaQ” system. It is actually a system of many separate/individual systems. Like mutual fund of mutual funds. I run 10 different systems of mine every night, each can be traded separately. The average of these ten systems is taken to generate final signal for the “AlphaQ” system. These systems have been live since at least June 2016 and back tested to March 2004.
- As a creator I use varied data for my sub-systems to reduce risks, increase returns and hopefully have longer shelf-life for the system. These include but not limited to the use of daily, weekly and monthly data, input data of multiple indices and not just NASDAQ 100 or S&P 500 etc., use absolute price data but also use market sentiment data, combine mean reversion and momentum strategy, and use traditional and non- traditional indicators.
- To elaborate, my systems use NASDAQ, S&P 500, Dow, Russell 2000, VIX futures and other lesser known indices even though it trades NASDAQ 100 based ETFs. In addition to using price changes, I also use sentiment data (e.g. NASDAQ high low ratio). It combines mean reversion and momentum, e.g. buy low only if the intermediate term shows bullish momentum. Some systems tend to buy low when the intermediate term is not bullish. That often forces you buy low and sell lower. In addition to traditional indicators like moving average, RSI etc., I also extensively use less widely used rules and indicators. One example of that would be some of the ideas put forward by people like David Varadi.
- The systems, like “AlphaQ” system, should be fully mechanical and not left to creator’s discretion for day to day signal.
- That being said, I personally think that the creator of the system should assess their systems every few months and see if there is a need for correcting something WITHOUT over-optimizing (every system is optimized – some more than others). This particular point is controversial – some like the system to be completely “locked” whereas others like me believe that it is okay to tweak the system if necessary as long as you are not chasing every new idea or few extra % points per year. I try to tweak only to reduce max DD and not necessarily to increase the return. “AlphaQ” had 23% DD in May of 2019. That is not excessive for a system which can trade 3x ETFs. However, I thought that there was a way I could make the system little less risky by making few changes and reduce the DD. I was not attempting to increase the return. The core sub-systems and everything else remain the same. After I made few changes, the system since June 3, 2019 has made 112% profit in 13 months with max DD of 12%.
- I think all system creators should be willing to provide past data (live and back test) with different metrics. That should allow potential subscribers to make educated decision rather than chase the performance graph.
Wishing successful trading to everyone.
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Hi, Thanks for your insight. What happens to these strategies once they go private? Would the subscribers as of record be invited to participate in the private venture?
I wonder if you have considered taking Alpha Q private? Are there are many possible pitfalls. Is the paperwork extensive and does it take a long time to process?
I really like your idea of C2 putting a hold on subscription fees for the first 3 years, if not all of it, at least half of it. I am sure you are not the only one asking for something like this, I for one would support it.
I also agree with you that any strategy should be mechanical and not discretionary. Too many systems do not even have a description of the system, which makes me suspect that they are discretionary. And I really don’t know how you get to call something a system if is traded based on hunches, whims, or even varying studies and data.
Thanks
[quote=“HenryGonzalez, post:24, topic:14122”]
Hi,
What happens to these strategies once they go private?
I don’t know.
Would the subscribers as of record be invited to participate in the private venture?
They should be invited. That will be only fair.
I wonder if you have considered taking Alpha Q private? Are there are many possible pitfalls. Is the paperwork extensive and does it take a long time to process?
Just fleetingly. Not seriously. One never knows but I can see the temptation if the system does well for few years but fails to justify enough subscriber interest. Then any vendor, including I, could potentially try something else. Too many ifs. I am trading AlphaQ myself so I will be happy as long as it is successful, subs or not.
Cheers. Success to all.
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