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Up 4% in 3 Days - Five Stocks/Wk, Zero Margin, Fully Hedged


Whats going on with your strategy? Its down big this week. Is there no adjustments midweek to compensate?


Its painful I know - Feb has not been a good month by any measure…
But this is a long term strat designed to survive (low margin, hedging etc). Looking at the bigger picture…

Oct 2018 +2.1%
Nov 2018 +1.5%
Dec 2018 +3.3%
Jan 2019 +1.8%
Feb 2019 -3.2%

No adjustments, as this would go against the system - persistence is critical.


@fiveHedged I think that you mentioned earlier that you had some better backtest results using short SPY or long SH. If that is true would you please post those results? Also maybe 66% long stocks and 33% long SDS?


I would be interested to see you publish a version of your system with no hedge and allow users to only take the individual stock trades.


The current system I am running on C2 (LIQUID version) is actually 66% long stocks and 33% long SDS. Can you PM me with your email, so we can continue the conv there. Thanks.


This is something I have thought about. In fact, I am testing a solution to be long the five stocks with a fixed stop loss (around 10% based on entry price on Monday Open), and the results are similar (slightly better) that the 1:1 hedged.
Whether using a 1:1 hedge, or a fixed stop-loss, the objective is managing risk.
I will publish something along these lines this week.
Meantime, please PM me with your email, we can then discuss in some depth.


I am currently testing 75% long 25% short SPXL (3X) SPY. There is a slight decay in SPXL price over time. Makes a nice enhancer. This is performing nicely. That is why I am shocked at your liquid portfolio and how bad it has done. tough to watch. I believe in the concept.


fiveHedged (All-Market) strong recovery since Monday…

Also note: Slippage factor has been significantly reduced (average 2-3 changes on Mondays instead of all 5 stocks) as I have implemented additional liquidity factors (eg., min mktcap > 250m, profitable companies only, strong institutional holdings etc).


Perfect 5/5 score today - all five stocks trading higher than RWM - just how they should be. Strategy nearing record high…


What if you used TLT or TMF as a hedge instead of going short the market permanently.


Tested (TLT ‘Treasury’ Hedge vs ‘Russ2K’ Hedge):
Takeaway: TLT hedge provides higher returns but bigger drawdown. Also note Sortino & Sharpe Ratio’s better using Russ2K.

See Below…




Would you be willing to share what your backtest results show from 10/26/2018 until today? I am curious how closely they match the C2 track record.


I second this. I’d like to see how well they match.


Like all backtested strategy results they are probably very different that the forward tested (live trading) results.

As a system developer I only find forward tested results to be reliable.


Yes of course (apologies for the delay).

Please note: In February, the strategy was updated to incorporate rules which improved entry/exit liquidity. This results in (1) selecting stocks which are traded more frequently in higher vol and mktcap allowing ease of entry and lower bid-ask spreads, and (2) lower weekly turnover, meaning not all 5 stocks need to be sold/bought (usually around 2 sells/buys and 3 holds). The reduction in weekly turnover reduces ‘slippage’ significantly, and adds to the bottom line.

Incorporating this improvement is part of a continuing effort to improve alpha, without affecting the core principles of the stock selection process/rules. Also note, on C2 the fill prices often ‘slip’ heavily from the original limit entry/exit prices, as autotraders get filled and C2 uses some kind of VWAP averaged fill price, hence slippage becomes wider (this is what essentially caused the Feb drawdown). By improving the liquidity/turnover/slippage, the object is to reduce that slippage in C2 order fills.

Below are tables of both backtests. The first is based on the higher-slippage (less liquid) strategy, and the second is based on the lower-slippage (improved liquidity) update…

Improved (Lower Slippage)…

PS: If traders have any questions on the above, please direct message me, so I can provide more contextual detail, and we can have a more productive conversation. Most of the research/work I do is confidential, and I find addressing these specifics on the forums is not the appropriate platform. Happy to discuss via DM though. Thanks.


What I think I see from these two tables is that from weeks of Dec 31 to date (ie, since S&P bottom on Dec 24), both backtests show the system making money, with significantly more in the improved lower slippage model that has been in effect since some time in February. But the C2 record instead shows a drop in the account from about $54,006 to $53,220 over that same period (using Typical brokerage figures). So the real account does not seem to be quite matching up to the backtests. Maybe I’m misreading something.


Thank you for posting and being very open about the system whether or not it shows good or badly.


Agree, thank you fiveHedged.


Still early days despite being on C2 nearly 5 months…

I am quietly confident the system will perform much better and in line with tests over the coming weeks/months. The biggest hurdle has been the liquidity/slippage issues, not helped by the C2 method of filling orders for autotraders (which result in an avg fill price away from the original limit entry - but they explain constructively why this happens).

Anyway, the takeaway is that we have less slippage now purely due to the fact there are on average around 2 stock changes per week (eg., this weeks buys have been NCI and SYNA, with 3 ‘holds’). And this should (theoretically) improve forward performance.

The proof is in the pudding, so if I am wrong I will be the first to stand corrected. But I am confident the strategy will deliver.


Quick heads up - I am planning to take the fiveHedged system TOS over the coming weeks. Currently I am using Russell Mini Futures in my own trading hence not TOS (yet) as a single futures contract require the same $ value stocks (around $75K) to create the 100% hedge, hence not ideal/appropriate for C2.

But I value being TOS. So…

Planning to allocate a [dedicated to C2 strategy/TOS] smaller proportion (around $15k-$20K) to long 5 stocks/RWM hedge (which requires less cap than a futures hedge, allowing more accessibility for C2 subs), exactly in sync with strategy.

Will post updates here.

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