It would be a nice feature to be able to see how many subscribers a system has. This would show the future subs confidence in the system.
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Yeah, but C2 has a policy against that.
It’s a contrarian indicator actually. No one was joining me till I was up 30%, jumped on, went up 20% more, drewdown 15%, lost them, went back up 25%, got my max sub count, turned them away at 85% up, got 1 sub after drawing down 33%, up 15%, upped price, unsusbscribed prior to a 39.4% month. It’s not anything that would help people on this site, especially after the years I have seen here of up 150% systems crashing to breakeven prompting the 1 star reviews after the system had been 5 star for the up months. Believe me, this would hurt a lot more people than help, not to mention I do appreciate the privacy.
I have the same experience. People tend to subscribe to my system when the equity curve is going up, and unsubscribe when the system experiences a drawdown. Interestingly, all people who ever unsubscribed from Kauai would have been profitable if they’d just stuck with the system during a drawdown.
I think the problem is that it’s very tough for the average subscriber to swallow a 20% drawdown. On the other hand, only about a quarter of systems with a longer-term track record (i.e. 2-3 year) have been able to keep drawdowns under 20%, and less than 1/10 under 10%. Thus, for a subscriber there is a substantial chance (s)he will experience a 10-20% drawdown at some point. This will turn into an instant loss if a subscriber decides to unsubscribe rather than waiting for the recovery.
In sum, subscribing to any C2 system and then unsubscribing during a 10-20% drawdown looks completely irrational to me and (especially if it happens a few times in a row), a sure way to lose it all.
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This is why so few make money trading. It is tuff.
Well said, Science and Richard.
Drawdowns are extremely difficult for subscribers, because they did not develop the system (assuming there even is a “system,” not just random selection of trades under the guise of an established method), and they do not know what to expect, except for what is shown on C2, which is usually only a small snippet of time in the system’s history (if the developer did the right thing, and used at least a few years of history to test out his idea).
Here is what I’d recommend to potential subscribers of ANY system:
1. Make sure the history you see in C2 is actually representative of what is being traded today by the developer. There are a lot of developers who will significantly change a system midstream, yet keep the same system! So, when you look at an equity curve, you’ll be seeing the combined results of 2 or more systems. That is ridiculous at best, misleading and unethical at worst.
To see the right way to do it, visit Rick Hanies’ systems - he killed a successful system and started a new similar, but different one, because he did not want to taint C2 results. That is one proper way to do it. PM me and I’ll tell you if your developer does the opposite (and wrong) thing.
1. Before you subscribe to any system, find out what the historical maximum drawdown was. As a rule of thumb, multiply that by 1.5. Could you handle that amount of drawdown right off the bat? If not, then you shouldn’t subscribe.
2. If you have the ability, put all the trades in a Monte Carlo Simulation and see what shakes out. You will be able to see drawdowns in terms of probabilities. So, for example, you might find out that trading system X has a 50% chance of having a drawdown greater than 30% in the first year. It may have this severe of a drawdown, it may not, but the point is at least you’ll have some better data to go off of. PM me if you want a free simple Monte Carlo spreadsheet I am finishing work on in the next week.
3. BEFORE you subscribe, determine your walk way point, and stick to it. Your thinking might be like this:
"I checked with the developer, and he has not changed his system since introduction on Collective2. A check of his trades confirms that he is trading the same way he always has. On Collective2, he had a 20% drawdown. Developer’s hypothetical history shows a 25% drawdown, and Monte Carlo sim shows a 50% chance of a max drawdown of 30% in the first year. So, I’ll take the worst case of them all, and multiply by 1.5. That gives me 1.5*30 = 45% drawdown I should be ready for.
That is too much drawdown for me, so I either need to add capital to the account, or not trade this system. Looking at the results, if I double my initial capital, I still get a very good rate of return, and I can withstand a 22.5% drawdown. If that drawdown gets hit, I am out - NO QUESTIONS ASKED. Otherwise, I stick to the system!"
Sorry for the length of this reply, and I know it is complicated, but trading is VERY difficult, and if you try to take the easy way, one way or another you’ll pay in the end.
Kevin
With market-snuffing gains - drawdown should be a fraction of CAGR (compound annual growth rate). One-half to one-third is reasonable. Less than this IS outstanding.
But one does have to determine whether track record is sufficient to be deemed a true LONG-TERM winner (not temporal).
IF SO. . .a 10-20% average drawdown and perhaps the 25 or 30% MAX is par for the course. But like pervasive trader mentality (>95%) grasping these concepts and sticking to them are rare and missed gains - from lost subs - after drawdown will be routine.
"Education" regarding the absolute difference between short-term winnings and long-term investing using COMPOUNDING is totally necessary if making money work the hardest for you is THE focus/goal.
Gilbert
I have to disagree with you that a subscriber should completely rule out systems that have changed strategy. First, any subscriber should be buying into the “trader” as much as the system. Second, IMO a good trader should be willing and able to revise strategies based on the market environment. This demonstrates experience and maturity in the markets. The result of traders who have not been willing or able to change is evident in the number of good systems that have crashed when the market environment changes. Third, a system revision that has had many months of positive results is to me an excellent sign of a good trader being smart and flexible, so long as there hasn’t been an obvious searching for “whatever works now”.
And I’ve had the same experience with subscribers as others have reported. One of my systems had 5 subscribers after a month of results. Ridiculous. There is no value to any system or trader without at least 6 months of results, and preferably a year. And no one should subscribe unless they understand and appreciate the strategy being traded, and have some confidence in the trader so they can stay the course during a drawdown.
David -
If a developer is upfront about making changes, and discloses this fact to everyone BEFORE they subscribe, then I have no issue. But, this almost never happens.
Problem is many vendors panic and change approaches at the first sign of trouble, just as many subscribers panic and switch systems at the first drawdown.
For your statement “good systems that have crashed when the market environment changes.” I’d say the system was not good in the first place, since the market is always changing, and a good system accounts for this. But most systems aren’t good, either here or pretty much anywhere else (hedge funds, CTAs, etc).
"Problem is many vendors panic and change approaches at the first sign of trouble, just as many subscribers panic and switch systems at the first drawdown. "
Many vendors probably do that anyway, as they realize from their results that they are not the Second Coming of Jesse Livermore…
Well Kevin, I suppose it all comes down to that eternal issue of where does a trader’s brain end and a mechanical system begin? I’m of the opinion that they are one and the same, given that I haven’t personally seen a computer system yet that can process some information with the same elegance that an experienced brain can. But I also recognize that this site, as with many funds themselves, are set up to focus on mechanical strategy, not the person behind it. IMHO, a wise subscriber will give a lot of weight to both. I’m sure there are many folks at firms like Lehman and LTCM who wish they had at some point in time engaged their brains and disengaged their computers 
A million lemmings can’t be wrong. ©
I think your suggestion needs an improvement. In addition I would suggest to disclose trading capital of every subscriber. In the case it would be much easier to follow smart money at C2.
Eu
Science Trader On the other hand, only about a quarter of systems with a longer-term track record (i.e. 2-3 year) have been able to keep drawdowns under 20%, and less than 1/10 under 10%.
Last 2-3 years were/are very interesting period in trading… hmm… statistically speaking. Hundreds of C2’s systems died in the period (smile)
Kevin Sorry for the length of this reply, and I know it is complicated, … one way or another you’ll pay in the end.
That’s true as well as your advises. As number 4 I would add subscriptions fee to DD calculation.
Eu
Hi,
I would say: provider (i had to say trader - as the subscriber trades 
) matters and system matters. (e.g., a provider may be honest, a system not)
Of course it is ok to say: it is the provider, his intuition, experience, whatever. - But then simply state this in the system description (e.g., this system is my most experienced to trade (manually) the SP500 using short term trades). - And even better: name the system after yourself. - after this is what is in there…
But basically all providers I see here, want to give the impression they are using a certain methodological approach - and then they should stick to it. That’s it, everything else is not honest (and in that sense the provider counts as well
This method does not need to be mechanical… - but on the other hand, trust the provider is also not methodological…
Even in a method (or even a mechanical system), you can readjust… - but than make clear under what circumstances and make it clear in the system description at what times a readjustment has happened, so people now they look at stats, equity curve, etc.
As a subscriber only I have one problem here and that is: all the providers tell me: just trust the provider… - yet, if you look at it… - usually they have blown up several “systems / accounts”… - I don’t want mine to be next. So, actually whenever it becomes clear someone changes method within a system, I at least turn of autotrading to wait
for the next months so enough data is aggregated to judge the “new method”… - because actually it is a new one, only traded under the same name…
Cheers
Klaus
Klaus,
I would say - don’t trust anybody. (smile) Only one thing that you need is assurance that system vendor won’t change his methodology on a fly or the system vendor will give you notice in advance. It’s not a question of trustability to system vendor. It’s simply a question for possibility of usage C2 stats for your own methodology of choosing C2’s systems. If a system vendor changes his system on a fly simply you cannot trust C2’s stats and following you cannot use it for your risk estimation and following you’re open for unknown risk. And following if you cannot estimate a risk for your account all other things are irrelevant.
Morality of system vendor, picture of good, honest, hard working guys who wants to help for few cents to poor investors is useless from practical point of view.
Just my 2c,
Eu
