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I want to open a thread where I can write more in depth about my strategies and answer common questions relating to my strategies here for the public to reference. Feel free to ask question or offer criticism - just keep it respectful of everyone.
I first started C2 back in May and created and deleted many strategies rather quickly as I was trying to link different strategies to different IB accounts, had some problems with the API, tried to figure out what I wanted to actually provide, and tried to figure out what subscribers would like. Though these strategies were killed you can still look up details by going to Strategy Activity Details. Just be warned that many of the strategies continue to accumulate stats despite the fact they were killed off. Therefore if I closed a strategy in May while it was holding a stock that has gone up, the strategy will look like it has gone up after May. The reverse is also true.
In August, I eventually settled on 3 flagship strategies with various degrees of risk and return projected. So about 96 days ago I created those three strategies, and now believe it is safe to say all kinks have been worked out.
Today I want to talk about the most conservative and favorite strategy that I offer, DIVERSE. 55% of this strategy is just long and short term bond ETFs from Vanguard and 15% in a mixture of gold and commodity ETFs. Those portions of the strategy are purchased once a year and re-balanced every year following.
Despite the fact that I only actively trade stocks and ETFs with about 30% of this portfolio, in the last 96 days it has roughly doubled the return of the S&P500. Because of its broad diversification into stocks, bonds, gold, commodities, and volatility this strategy is practically ready to survive an apocalypse. Honestly though I believe this strategy is well protected from any kind of black swan event outside of one that makes us all wish we had been doomsday preppers.
Being that many people on C2 are looking for high flying portfolios, they could find this strategy boring. Fortunately, because of the way AutoTrading works they could easily manually exit the bond, gold, and commodity ETFs and remove those ETFs from auto syncing. By doing this you can effectively scale up on the strategy and get a portfolio similar (not identical) to my COMPACT and NOT YOUR FATHER’S VIX strategies blended half and half. Essentially you can subscribe to 2 of my strategies for the price of one. I am not saying changing the allocation is a good idea. I will leave that decision to you. I am simply saying that this strategy can appeal to people looking for high risk high reward and people looking for lower risk and lower reward.
If you have any questions feel free to ask. If you find this post annoying I apologize and suggest that you scroll to the bottom and mute the conversation.
Do you have any hedges to prevent a total account wipe out or possibly a negative account balance with your broker in case of a black swan event while you are short volatility? And that applies to all other volatility systems no matter how well they have performed in the past.
That seems to me to be a very reasonable approach besides hedging short volatility positions with options. I wonder how many subscribers to volatility systems have given thought to that.
Hi Charles, first, I have a lot of respect for you and your strategies. I love the fact that they’re fully automated and running on cloud based servers. However, I’m a little fuzzy on your risk management philosophy. Some of what you wrote seems like you’re addressing risk management in the way your models will adjust and react to rapidly changing market conditions in real time through their algorithms and through stop losses. But then in reading through your 8 expanded points, it sounds like you’re putting much of the risk management responsibility on the subscriber: only put in a certain percentage, take out profits every now and then, rescale one’s percentage after being up a certain amount, etc. It may be helpful to provide some more detail on the risk management actually built into the strategy itself, so that subscribers can decide if they’re comfortable with that risk or if they should add additional risk management on their own. Keep up the good work, David.
Charles,
Well-said! As an investor and active trader, I can always appreciate developers who always put out good work and contribute with insights like this. Keep up the good work! We need developers like you around here on C2 for long time.
I think you have great strategies on C2. Your approach to build your strategies and reputaion with trading strategies with well-managed risks, providing insights, information, and professional & courteous support to the investors will definitely make you stand out and take you to the next level. I wish you all the best from the bottom of my heart!
Charles, I totally admire your energy! It’s obvious you have a passion for what you’re doing.
Thank you for the thorough overview of your strategies. I’m a newbie at C2 (a couple months) and find the conversation with others to be refreshing. At the same time - and maybe my impression is wrong - but I’m also quite surprised by the seemingly lack of attention about risk considerations in many of the strategies. I get the shivers looking at some of positions being taken with such a small amount of capital!
You provided considerable discussion about your risk considerations. I have a few followup questions about your overall investment philosophy that I could not quite pickup from your overview. I want to make sure I know where you are coming from.
What’s more important to you, risk or return and why?
Are you completely satisfied with your 3 flagship strategies? Why or why not? What would you have differently if you were to start over?
Do your 3 strategies compliment each other by design or are they more standalone strategies? In other words, do you have an overall business plan (not trading plan) for them collectively?
To what extent are your strategies algorithm based versus discretionary?
In your diverse strategy, you show a large number of different securities. How are you selecting those and what is your exit strategy on each? What value added factors do you feel you provide in stock selection that some fancy stock picker on wall street isn’t already providing?
Just curious – this question may show my inexperience with C2 – why do you execute your trades at the broker through C2’s autotrade system? Why not do the trades at your broker and then transmit to C2?
Thanks so much for great answers! In an earlier life, I managed an equity portfolio of over $12 Billion for a large company pension fund. I met with many “fancy stock picker” managers from the big wall street banks and I always asked them similar questions to what i posed to you. Not all gave the same degree of explanation.
Let me throw in another thought to add to yours. Many times, whenever I talk to folks (especially Financial Planners) about “beating the market”, I get that look that says “what are you, nuts?!” Believe me - I am a CFA and I know all the stats. What these folks miss is that a smart small individual investor (like many on C2) CAN beat the market not JUST because they are better stock pickers, but rather due the use of the tools now available to the retail investor (like futures). That’s probably the biggest factor I have seen in the 35+ years I’ve been doing this. It also has to do with the challenge of market liquidity that you cite. It’s like the difference between the maneuverability of a wave runner versus that of a cruise ship. I also cite the tools you used to make adjustment s since you started with C2.
Keep on trucking, my man! I think 2018 will be very interesting.
Absolutely agree. Best name would be VIX Long or XIV Long, or, even better, VIX IRA. The first might imply that you were long the VIX, rather than usually long the XIV (or a similar position).
Main question - why this can be assumed?
I will 100% believe only if developer will share the rules of the system and I can re-create all backtests by my self with the same results. Everything else can be false at any level: fake trades, tweaked rules, curve-fitting etc. (as you mentioned before and I missed )
On the other side - subs here jump into the strategies after 10 trades and several promoting posts with the right words. So posting backtests can easily increase your significance on the forum and attract new subs.
Originally I avoided giving out my backtests and explained how they generally shouldn’t be used. I even made alternative drawdown/return estimates based on actual return data from C2 and Monte Carlo simulation to be used instead. But almost everyone asks for the backtest data anyway and I was spending all my time explaining why I didn’t want to publish the data (and still they want to see it). So I eventually gave up and put a link to backtest data in my system description document. So though I don’t think sharing backtest data is a good idea, I don’t see how it can be avoided when most people expect to see it.
I only ask to see backtest data when a system developer makes claims about what their system would have done in years prior to being on C2. When they refuse to produce it (you know who you are) then I am very suspicious of their claims and integrity.
Other than that, I have generally found most backtests to be over-fitted and pretty useless.
Backtests on average widely overperform the strategies going forward. That’s true even for good models because of 2 main things: times change and the model looking backward is optimally fit. This is true even if the model is not overfit with too many variables to be reliable.
Unless the backtest is really simple (one or two variables), this slippage will usually be very substantial. And even when the backtest is simple, it can still do grossly better than the reality going forward.
The best use of a backtest is to generate trading signals, not to reliably estimate returns or drawdowns.
Personally, I prefer forward tested models. That is systems that are tested in real time. Backtested results are only curve fitted results unless the model has NO rules/parameters to adjust.
I’ve actually found that sometimes models with losing bactested results can be profitable too! lol…
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