Hi guys,
I have been trading the past 3 years and been involved with auto trade systems for the past 12 months. Having found C2 last month I am now about to go live. My strategy is to start with either 5 or 7 systems, choose the best profiting systems across a range of instruments (fx, options, futures, eminis, etc), start with a smaller amount of capital then average in after winnings are confirmed and then reallocate the greater percentage of capital every 30 days to the systems that generate the best results. Systems I am looking returning >72% are: ETF Timer, Happy Trading, eminialerts, Money Machine Forex, Breakout and reverse Ver 1, forex trends, forex special, Mike-Bot, Forex Trends, FX Trend System, The Smarter Option.
I am looking for any advice, readings, fund allocation rules or best practices to read up / consider on before I commence over the next 2 weeks.
Also, is there a forum or area for C2 members to discuss and network?
Thanks
Cam
I’m no expert but I’d look at these criteria:
Risk adjusted return. Not just net return. For example, my ‘system’ (I’m not recommending it, I’m actually considering taking it private) has a great risk adjusted return profile and net returns can be created by merely adjusting the contract size.
Minimum 3 months performance. I would not consider any system with less then 3 months of solid performance. I would prefer a system with 1 year performance and strong previous 3 month performance but again nothing to really suggest means anything.
Ron illustrated an excellent point, you need to really look at the profit after estimates are made for slippage, subscriber, and trade fees. Unless I was sure about this, I would bring each system online 1 at a time with a close eye to monitoring this stat.
Max open trade drawdown. This is one of my favorite stats. I like CALMAR as a first test pass on risk adjusted return (but CALMAR will tend to decline for good winning systems), the max open drawdown or max adverse excursion is immediate. Any type of swing trading system will be subject to fairly wide swings in this measure over the long term.
Correlation. No doubt, you want systems that are not correlated.
Capital tie-up requirement. Some systems are in the market less then others. My own system tends to not be in the market too much. If I were going to trade several systems, I would be cognizant of this stat.
Work involved vs your time. Some systems require more work then others.
I’m not convinced that re-allocation as you describe makes sense. Most systems will go from losing to winning periods randomly. What you really want to track is to make sure you are getting the performance that the c2 stats indicate. I would doubt 1 month would be enough time for reallocation.
Forex has the advantage of fractional position sizing and sounds like it would be attractive for what you are trying to do. I’m personally interested in the Forex market for the same reasons. However, I do have my doubts about that market and the systems that trade it, fyi.
Cameron -
I looked quickly at your picks, here’s what I see:
1. For maximum diversification, you can probably get by with 5-7 systems. After that point, you are just paying unnecessary sub fees. My guess is if you picked 3 (1 forex, 1 mini stock futures and 1 other futures) you’d be pretty good.
2. Check the correlation of all systems together. Sometimes, 2 good individual systems do not work well together. Most people start with good performers, then try to combine them. That’s not the best way to do it.
3. Some of the systems you picked are clearly run by amateurs - do you want that?
4. At least one system you picked owes a lot of its performance to one or two times of getting lucky.
5. Some of the systems look good because of the hidden risk they took. Look closely at the individual trades, and you’ll see what I mean.
6. Some systems are only a few months old - way too little time to draw a conclusion. You are taking much more risk you think with any system less than 1 year old. Doesn’t mean the young systems won’t work, but you can’t do proper investigation, correlation analysis, etc with only a few months of trades.
7. I recommend developing a process to add new funds, and discard funds from your pool. Read my article in August SFO Magazine (www.sfomag.com) “Know When to Quit a Trading System” (it is free) to get ideas.
8. If you pick 5 funds, chances are 1 will do bad, 1-2 will be average, and hopefully 1-2 will be star performers. Go into this with the mindset that some systems will fail. You have to look at the negatives. Check July issue of SFO Magazine.
Picking one system is tough enough. Picking a bunch is a lot harder.
I wish you good luck.
Kevin
Hi Cameron,
I think you got a few very good replies there. My 2c:
Don’t skew so heavily towards forex. By all means include a good forex system that’s been around a while, but be aware that the C2 archive graveyard is full of failed forex systems that looked spectacular until they spectacularly crashed!
Of course, that applies to non-forex systems too, but forex seems more prone to boom-bust. I guess the lure of fast & easy riches is too great to resist 
If you are looking at a system a few months old returning say 30% a month, do you expect it to continue so? Or do you think it will settle down to 40% per year but was just lucky at the beginning? Or, maybe it is simply using so much leverage that one day it’ll crash and disappear… Consider this: George Soros averaged about 30% per year on over the long term (decades). Are there really systems on C2 that can do so much better than that…?
A few rough stats for illustration
Number of active systems on C2 = 806, of which
228 trade primarily stocks
344 forex
199 futures
35 options
Now apply the following simple filter:
Age > 365, Max DD < 50, CAGR > 10, Sharpe > 1.5
and you get:
17 stocks (7.5%)
3 forex (0.9%)
13 futures (6.5%)
2 options (5.7%)
A few of these non-forex systems can be discarded due to over-trading (very low P/L per unit) but the pattern is still clear.
These stats do not include all the inactive systems that do not appear in The Grid. It would be interesting to be able to do a more thorough analysis.
Dean.
P.S. BTW, I’m travelling next week to visit my sister in Sydney. My first time down under
Hey everyone,
Thanks for the original post, and thanks for all the detailed replies. I’m sure all the info has been very useful to a lot of us newbies out here!
- Christina
Just a quick question: why search for Max DD<50? A 50% drawdown is pretty significant; I doubt many traders would stick it out with a system more than 10% (maybe 15% at most).
Rob
"I doubt many traders would stick it out with a system more than 10% [drawdown] (maybe 15% at most)."
EXCELLENT comment. Great insight Rob, you are probably right.
And that, my friends, is why most people should not trade in the first place. If you are only willing to risk 10-15%, alternative investments like futures or forex are not for you.
“If you can’t handle the heat, stay out of the kitchen.”
Number of Active Systems on C2 at least 1 year old, according to Grid: 173
Systems at least 1 years old, with less than 15% max drawdown = 32(18%)
Hi Rob,
I chose 50% since that over time weeds out the most obvious gamblers who have drawdowns way over 50% but leaves the systems that are good over the long term even if they exhibit high short term volatility.
After choosing an interesting looking system one should then look at it more closely. Does high drawdown happen often? Can you tell whether it was due to excessive risk taking without a backup plan? This is often rather difficult to determine though.
Take the example of someone simply buying and holding AAPL stock, dollar-cost-averaging into it every month. They are doing this because they believe Apple is a super money making machine and in 10 years’ time they will have done very nicely out of it. In 2008-2009 they would have experienced a 60% drawdown. Risky, yes. But for this particular long term investor who is confident in Apple’s business, that drawdown is not necessarily a bail-out-level bad thing.
Or, take ETF Timer which many here believe is one of the top systems on C2. That has had over 25% drawdown.
But you are right, most people would be spooked by a 50% drawdown which is why, as Kevin says, people should stick to their own comfort zone and set their own criteria so as not to get spooked into rash decisions. That example filter I used was simply to make the point about how many systems of which type survive over time.
Dean.
Kevin, yes, and when you consider that there are over 13,300 systems in the C2 database then 32 = 0.24% !
But that does exclude several active systems that are by and large looking good over a decent time period.
Some of those 13,300 will have gone inactive while still doing okay. But my guess is that the vast majority will have quit after busting out or going nowhere. That is why it would be nice to be able to analyse inactive systems as well. Or am barking up the wrong tree here? Matthew?
Dean.
Correction: that’s 12,486, not over 13,300.
So 32 = 0.26%
uh, yeah. . .I was gonna say;)
