After reading 100s of reviews here I got frustrated and I have come to the conclusion that the risk warning labels (low, normal, high, extreme) don’t have the effect they should have on the less experienced (read: naive) reviewers.
I’ve seen too many reviewers positively reviewing very dangerous systems with high in-trade risks (with labels ‘high’ or ‘extreme’ in their trade list) that ultimately blow up.
If subscribers keep reviewing systems with an open losses of i.e. -18% (‘extreme’) on a single trade (to close with a relatively small gain of i.e. +3%) as great then I can only conclude Collective2 is not doing enough to inform them about the risks of these systems. (you do a lot however, regardless the legal disclaimer pop up).
So, the current labels (good color scheme though) for these hidden risks clearly don’t scare off these subscribers and miss their effect.
I know: you can’t protect everyone but I’ve seen Collective2’s user’s base grow substantially in the past 5y, the newer users are obviously non traders. It shows in the reviews.
We’ve seen many people here who have suddenly lost substantial amounts of money because of these types of systems (the black swan swims by) and I think C2 is partly responsible (as an auditor) to prevent this from happening again.
Come on C2!
N
Nicolas,
Great point. There are tons of non-traders who stumble into trading these systems; I was one of them. In the “Call for C2 score algorithm” forum, several people touched on risk, or risk/reward. If anything useful or actually helpful comes out of a C2 score, it should be be a clearly quantifiable measure of the overall risk of a system.
The average non-trading user isn’t going to immediately understand what a risk measure on a particular trade means, or what the warning signs are of many of them in a single system. There are several compounding factors at play – naivete (as you point out), pure and basic denial, of course (e.g. “So there is a high intratrade drawdown - but the system owner knows how to manage that, right? That’s why his system makes so much money!”).
Add to that the fact that the C2 space, which is dominated by competitive developers, isn’t exactly the most appealing or welcoming place for non-traders to feel like they can ask dumb questions. (Don’t get me wrong - I’ve NEVER seen a newbie get shut down by a developer when he/she actually finds the courage to ask something on the forums. I’m saying that there’s enough infighting, complaints over positive reviews, snarky-but-uninformative analyst comments, use of aliases, and competition among the developers that it has the cumulative effect of scaring off newbies from even trying.)
Eh, that’s just the lay of the land. System developers need a place to be system developers. But GIVEN that, I agree with you 100% that C2 should do everything in its power to objectively measure and expose risk at a system level. It would be a huge benefit to all, except maybe the developers who are simply out to take subs’ money (and I remain convinced there are not many of those).
Christina
Nicolas and Christina,
I am a conservative investor and vendor. I agree that C2 could be better served by highlighting the individual system risks in a more aggressive manner.
In addition to the individual trade âriskâ that you have stressed, you can also look at the âProbabilities of future account lossâ statistic. To use this effectively, a trader must have honestly determined his/her own risk tolerance. Unfortunately, many traders (especially new traders) only truly evaluate this after they have lost money.
C2 is a CTA and regulated by the NFA. The rules governing CTAs are strict with respect to disclosure, most of which protect the customer.
Asking C2 to go above and beyond the NFA rules isn’t necessary in my opinion. Doing so would remove C2’s objectivity.
There are ample tools here for subscribers to conduct due diligence before they risk money. Perhaps the real problem is they are too lazy to take that responsibilty.
You write : "If subscribers keep reviewing systems with an open losses of i.e. -18% (‘extreme’) "
Again, the EXTREME (drawdown) you see in the Risk column on some C2 systems is not necessarily a real drawdown.
If the equity goes immediately from $1000 to $2000 then back to $1000 and the trade is closed Collective2 will report this as a 50% (Extreme) drawdown (instead of zero drawdown), even though the system did not lose any money.
That’s why you see an unusually large number of trades labeled as “Extreme” or “High”.
Yes, CEO, the “probabilities” stats are generally very useful, if one is able to look at them without rose colored glasses on. However, in addition to what you say about new traders not looking at it until they have lost money, I suspect the “chance of loss” is almost always going to be secretly offset by a hoped for “chance of recovery.” And why not? I’ve seen analyst comments that speak to “quick recovery.” It’s an easy trap to fall into.
Iris, that’s right! It wasn’t that I had no idea what a sharpe ratio was, or that I had no clue whether or not a big drawdown that occurred 3 years ago might still be statistically significant; I was obviously just too lazy to find out where the risk was! (forehead slap)…
Forgive the sarcasm, but I think you just underscored my point on a couple of different levels. If you (generalized ‘you’) want to trade to only experienced traders, that’s one thing, and I honestly feel that some developers do have that mindset: less responsibility, less hassle. But, if you want to attract non-traders, then any tool that could assist with synthesis of existing factors would be a good thing, IMHO.
Christina
Two simple requirements would go a long way to enhance disclosure and risk warning and by extension C2’s reputation:
1) Require all vendors to give their real name (to be verified by C2) with a short description of their trading background (some competing web sites even require a photo besides extensive personal data).
2) Require all reviewers to post their real name, also to be verified by C2.
Christina, of course the more info the better, but this is not the mandate of C2. Also, there is nothing stopping those of you with great forensic and analytical abilities to post your findings here on systems’ forums to help those amatuers.
Frankly, it doesn’t matter to me whether subs are experienced or not because I avail myself to all with full transparency. Thank the lord I don’t have to rely on my C2 sub income to pay bills because there isn’t enough of it to do so. My guess is most of the highly ranked systems have trouble securing more than 10 subs.
Karl, why is that important? Does that information make a system better or worse? The resumes and pedigrees of the partners at Long term Capital were 24 carat and the reviews from its diamond studded institutional clients didn’t mean a thing when they imploded and shook the underpinnings of the world’s financial markets .
The performance statistics of any system should speak for themselves and that is the beauty of C2. Nothing extraneous to the true numbers matters especially a photo of a developer.
Igor,
I have heard your argument here at C2 a number of times, and I disagree with you. In my opinion, a drawdown is a drawdown whether it is realised or unrealised.
You said "the equity goes immediately from $1000 to $2000 then back to $1000". To me, that is the very definition of "Drawdown". If a vendor lets the the trade lose 50% of its equity from its high, I would call that extreme.
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You write : "If a vendor lets the the trade lose 50% of its equity from its high, I would call that extreme."
In other words you are saying that the trader should always liquidate his position at the apex of the trade.
Well dear fellow trader, it is possible of course…but only in the Twilight Zone!
you write "My guess is most of the highly ranked systems have trouble securing more than 10 subs."
According to C2 the top vendors pull about $10.000 a month from their subscribers alone, on top of their own trading activity of course…
That’s about $120.000 a year doing almost nothing. Not too shabby don’t you think?
The question is how many are earning that? From my analysis of live data trades among the top ranked and hottest systems, I’d guess no more than five vendors, or less than 1% of the developer population.
Iris, you can find more info on earning potential as a C2 vendor here:
http://collective2.com/static/systemDeveloper.htm
Igor,
Each trader has their own risk tolerance.
Apparently your risk tolerance is much higher than mine. Perhaps a 50%+ draw to you is considered normal or low risk.
For me, IMHO, a 50% draw is considered extreme.
P.S. I never said nor did I imply that a trader could always liquidate his position at the apex of the trade.
Thanks, but I’d seen that before. It doesn’t state how many developers earn the double digit monthly figures. Again, my guess is less than a handful.
Also, it’s not clear if the $1,000 is monthly or for some other timeframe:
“Almost half of systems that are profitable have earned at least $1,000 in subscription revenue.”
An argument can be made that a more meaningful way at evaluating drawdown is from the OPEN price of a trade to the trough of the decline (if any) where there is risk of loss of BEGINNING equity, not a phantom loss of potential profit. That’s not to say watching a big winner go back to BE is pleasant, but the fact is the account equity is unchanged.
Personally, I’m much more concerned about trades that move into the red than missing the profit on those in the black. To each his own.
C2 already offers many statistics and gives lots of advice. In fact, in some ways it even goes overboard - probably at the behest of the regulators. Also, Matthew has written several excellent articles in which he points out the most common pitfalls. See http://www.collective2.com/uglygirlArticle for instance.
The forums are also full of thoughtful posts written over the years by people who know what they are talking about either from being burned themselves, or studying trading and trading systems for a long time or simply offering solid common sense logical reasoning.
Any newbie who feels a bit daunted has a wealth of good information already available! The most important thing is that one must have the right mindset to make use of the good information. Some do not; there is no amount of warning or education that can steer someone into a lower risk course if they are incapable or unwilling to be steered there.
So I don’t think there is really that much more that C2 can do. There are always people who want to make a quick buck and people who believe that there really is a successful (legitimate) system for winning at roulette out there ‘somewhere’ - these will pick the wrong systems on C2 and will lose money whatever C2 does to steer them into a different course.
But in the end there must be losers for there to be winners - trading the public markets is almost a zero sum game!
Dean.
However you define drawdowns, I’d certainly call the trade you describe, where the account doubles and then goes back to where it started, extremely risky. If you’re potentially doubling your account on a single trade, you’re taking way too much risk on that trade.
