The opinions expressed in these forums do not represent those of C2, and any discussion of profit/loss
is not indicative of future performance or success.
There is a substantial risk of loss in trading. You should therefore carefully consider
whether such trading is suitable for you in light of your financial condition. You should read,
understand, and consider the Risk Disclosure Statement that is provided by your broker
before you consider trading. Most people who trade lose money.

We launched ‘TickPrime SP500’ earlier this week. This post gives you a brief understanding of the philosophy behind the strategy.

At ACA we believe that financial markets do not follow a Gaussian distribution but rather a Lévy stable distribution (i.e: Fat tail normal distribution). This means that financial markets are more volatile and riskier than is usually assumed. Thus, the ideology of buying and holding for a long period of time (few days/weeks) does not usually generate good risk-adjusted-returns (where risk is measured as volatility of the equity curve and risk-adjusted-returns are benchmarked against Index ETFs).

In our opinion, the sweet spot for generating Alpha by retail investors lies in day trading, where average time in trade is a few hours. On smaller time frames (such as a few minutes), trading costs and slippage escalate exponentially and eat into profits; while, on larger time frames (when holding over night positions), the trade is exposed to a higher degree of potential volatility which therefore limits the ability to leverage.

The ‘TickPrime SP500’ strategy is based on the above understanding and is our first strategy on C2.

You can expect the strategy to:

Let it’s profitable trades run and not be limited by profit targets.

Limit it’s losing trades with a stop-loss.

Close all positions before trading session ends, allowing subscribers to allocate less capital and use higher leverage.

Enter number of contracts based on the estimated probability of trade success.

‘TickPrime SP500’ comes with a 15-day free subscription period, please subscribe and give us your feedback.

Your system has been around about 10 business days and your drawdown is already nearing 10%…at this rate, your drawdown would be 100% when your fund is 100 days old—I suggest you alter your strategy so that your strategy is more profitable, while limiting losses.

TickPrime SP500 is trading 3 contracts with a capital of $25K, which implies a leverage of 12X. It is indeed an aggressive strategy and must be used along with other components as part of your portfolio. We would never suggest any one to trade at 9-12X leverage on 100% of their capital.

Let me illustrate Drawdown with the following example:
Assume ES Dec-15 price of $2000. At ES contract multiplier of 50, the notional value of one contract is $100K ($2000*50). For three contracts it is $300K. For a $25K capital account, this implies a leverage of 12X ($300K/$25K) and for a $35K capital account, it implies a leverage of 8.6X ($300K/$35K). The Drawdown of $-2,350 experienced last week, is therefore -0.77% of the notional capital (at no leverage).

The maximum we expect to lose based on the worst case backtest scenario over the last 9 years is -5% of $300K, which translates to $-15K. On a $25K account, this would be -60% of capital employed and on a $35K account it would be -43% of capital employed.

The average we expect to earn per year based on 9 years of back test data is +11% of $300K, which translates to $33K. On a $25K account, this would be +132% of capital employed and on a $35K account it would be +94% of capital employed.

Please note that the above performance numbers do not include any compounding/re-investing of profits.

How can one use this strategy:
Depending on your risk appetite you can employ this strategy differently. For example, a very conservative approach would be to simulate the performance of a High yield bond fund by deploying your principal funds into TIPS (https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_rates.htm) and investing the Coupon into this strategy. On the other extreme, a very aggressive approach would be to trade this model on very small capital at the maximum leverage provided by your broker (20X?) and harvesting all profits generated. So, for example, the $25K account is already in profits of +$3,931. You could deploy this profit into an index ETF or TIPS and continue trading TickPrime SP500 on a $25K account.

Hope this answers your question and feel free to ask if you have any further questions.