Collective2

I filter systems using Predominantly MOO orders (independence greater than 95%); Realism Factor (honesty - greater than 80%); P/L per unit: the higher the better (reliability - non scalping methods); Max (true or realized or actual) DrawDown (pride - less than 48%) and rank the resulting results by the Expectancy Score- ES - (highly correlated with Profit Factor - self esteem) and then break a tie (less than 5% difference in ES) if any, by the Sharpe Ratio (integrity).

The expertise of the principal establishes the foundation for an analytical discipline employing a macro, top-down, bottom-up perspective in a framework tailored to the asset allocation challenges facing investment professionals, professional & proprietary traders, brokers, accredited investors, hedge fund & asset managers whose main purpose is to maximize the ES. We are uniquely positioned to provide high value-added in the quest for superior returns with an approach geared to the portfolio investor�s need to choose from among competing asset classes on a e. high risk/e. high reward (e. aggressive) basis taking into account the difficulty of picking winners, commission, slippage costs and tax consequences. Please ignore the Drawdwn & Risk column and the Max. Drawdown figures reported by C2 as it is fraught with bad quote errors, rife with fallacies and prejudices to base any concepts on it.

Our client services are primarily delivered through http://collective2.com e-mails. Our Model Positions are representative positions that put our best economic forecasts to work. These are not recommendations to buy or sell specific instruments, nor are they personalized investment advice.

I filter systems using Predominantly MOO orders (independence greater than 95%); Realism Factor (honesty - greater than 80%); P/L per unit: the higher the better (reliability - non scalping methods); Max (true or realized or actual) DrawDown (pride - less than 48%) and rank the resulting results by the Expectancy Score- ES - (highly correlated with Profit Factor - self esteem) and then break a tie (less than 5% difference in ES) if any, by the Sharpe Ratio (integrity).
I filter systems using Predominantly MOO orders (independence greater than 95%); Realism Factor (honesty - greater than 80%); P/L per unit: the higher the better (reliability - non scalping methods); Max (true or realized or actual) DrawDown (pride - less than 48%) and rank the resulting results by the Expectancy Score- ES - (highly correlated with Profit Factor - self esteem) and then break a tie (less than 5% difference in ES) if any, by the Sharpe Ratio (integrity).

Model Positions are created at a size representing a fixed % of the portfolio. Larger versions of similar positions may involve market impact costs or other costs that we do not take into account. The typical portfolio% risked is 0.6667% of total equity (adjusted by the dollar volatility of the instrument) for 36 positions, assuming that the system has a positive Expectancy ((AW X PW - AL X PL) / AL) where AW=average win, PW=probability of win, AL=average loss, PL=probability of loss) & a Profit Factor (W:L ratio) greater than 1.0. Use the 0.6667% equity risk model and never risk more than 2.6667% (from algorithmic hedged scaled up/down trades) for 36 positions, assuming a 96% DrawDown at a losing streak with 1 in 40007 of ever occurring will consist of 36 consequtive losses. Min. account size recommended:$10K - mini-forex, mini-futures, ETFs/Options, $100K - futures, stocks, $1M - bonds, $10M - T-bills, $100M - forex.

The risk of a trade is defined as the dollar amount that the trade would lose per contract if it were a loss. Commonly, the trade risk is taken as the size of the money management stop applied, if any, to each trade. If your system doesn�t use protective (money management) stops, the risk can be taken as the largest historical loss over a period of 30 recent trades. This is a modification of the approach Vince adopted in his book "Portfolio Management Formulas," John Wiley & Sons, New York, 1990. http://www.adaptrade.com/Articles/article-ffps.htm

In my mind, curve fitting means either using different systems for different markets, or using different parameters of the same system for different markets, & this is not valid technical analysis. Instead, one should trade the moves, rather than markets. Some traders hold on to a position, & keep changing their systems to fit it - other traders hold on to their systems & keep changing their portfolios to fit it. If a system works on Bonds & not on Beans, this system is curve fitted over a specific set of data (Bonds) & it loses all statistical validity. To believe it will work in the future as it has worked in the past is very dangerous. I therefore take exception to any system, that either only trades one specific market (stocks or forex) or group of markets (Energy), or trades different markets using different parameters or rules of the same system. All this proves is what has worked best in the past, & this will usually not continue to work in the future, as there is no correlation under this scenario as history wont ever repeat itself exactly.

Trader Mike says: "Expectancy, position-sizing & other aspects of money management are far more important than discovering the holygrail entry system or indicator(s)." http://tradermike.net/2004/05/trading_101_expectancy.html Alex Matulich says: "Expectancy score is a better, more objective measure than the Sharpe Ratio for evaluating the relative performance of different trading strategies." http://unicorn.us.com/trading/expectancy.html Harry M. Kat says "Overall portfolio standard deviation can be reduced further by combining both hedge funds & managed futures with stocks & bonds" http://www.capmgt.com/managed-futures-and-hedge-funds.html Dr. David Druz says, "The more robust a system, the more volatile it tends to be! This is because robust systems are not optimized to particular markets or market conditions. The converse is also true. You can design systems with excellent returns & low volatility on historical testing, but which work only for given periods in given markets. These systems tend to be curve-fit or market-fit & are not robust." This quote comes from: http://www.tacticalnet.com/cgi-bin/t2.exe/VolatiltiyPaper.htm


Day-trading systems specialize in one market, do very well for a while & then suddenly fall to pieces. Many day-trading systems are taking extremely large positions which, in the event of any large intra-day moves or breakdown in exchange trading functions or server outages which happen from time to time, expose the account to wipe-out, even negative equity. Please also note that as with many systems that go for longer terms moves (although not all trades do this), the open equity plot favoured here at C2 sometimes provides a misleading, or we should say incomplete, picture. The most important negative points are those that involve actual (realized) account losses, which are not the same as an open equity (unrealized) drawdown. There are going to be open drawdowns. But in order to get the big moves, you have to be willing to give those profits a chance to run. Mosttimes it works, sometimes it doesnt. What is not shown here on the C2 graph is the closed equity line. Usually, though not always, it shows a far smoother ride than looking at the open equity plot alone, which does tend to oscillate far more, and also with far larger moves than any day-trading system would permit. Also, options on forex & futures are not yet available at C2, which makes it difficult to hedge your positions for longer-term investing, with the result it appears that the day-trading systems at C2 encounter lower drawdowns; but in reality, the intra day drawdowns they encounter is not shown at C2; instead they show end-of-day drawdowns which essentially is a closed equity plot for day trading systems. "All that glisters is not Gold" - Shakespeare http://www.dontloseyourass.com

Out-of-sample data is essential for system validation. Robustness (a term used to describe a system or method that works under many market conditions), rather than peak performance, is the key to a useful system - Kaufman, Trading Systems & Methods" The systems that have withstood the test of time (robust) have very few parameters & very simple methods - Hill, Truth In Futures