Diversified Algo Portfolio Allocation vs SP500 Index

[TrAndy2022]

Good Morning MKTrader,

Great comment. I am aware of Kevin Davey.

I reviewed his website and here is the major flaw which is a BIG disadvantage to retail trader:

1. NOWHERE on his site does he prove or show a portfolio of algos that is beating the SP 500 index year after year, yet he is charging $5848.96 to teach. No proof of results of him or students.

2. NOWHERE on his site does he prove or show his portfolio of algos year after year results, yet he selling how to build edge driven algos. No proof of results of him or students. Yet he is charging $5848.96 to teach.

You might have a look into those strategies with results shown (not all is free):
https://www.quantifiedstrategies.com/how-have-our-trading-edges-performed/

 

[SimpleMeLike]

You might have a look into those strategies with results shown (not all is free):
https://www.quantifiedstrategies.com/how-have-our-trading-edges-performed/

Good Morning TrAndy2022,

This is a really good realistic expectation and thought process of the idea of portfolio of trading strategies. Thanks for sharing

I like this part of the article and I learned from it:


We are pretty happy with the results for 2022. The main reason is that we want uncorrelated returns to the overall stock market (S&P 500).

However, many traders have completely unrealistic expectations.

First, the most important thing about short-term trading (in our opinion) is to get uncorrelated returns to the overall stock market (see more about this below). Second, if you are able to get 10-15% unleveraged returns over a decade you are really good – we would even call you a maverick.

 

[SimpleMeLike]

So to answer your question, a diversified set of algos would probably be complimentary to other investments like stocks, bonds, real estate, etc. since they risk profile is so much different.

Hello MKTrader,

https://www.quantifiedstrategies.com/how-have-our-trading-edges-performed/#The_bear_market_of_2022-2

I believe this article sums up what you said about having a portfolio of algos as another investment diversified from other investments.

I really enjoyed this read.


We are pretty happy with the results for 2022. The main reason is that we want uncorrelated returns to the overall stock market (S&P 500).

However, many traders have completely unrealistic expectations.

First, the most important thing about short-term trading (in our opinion) is to get uncorrelated returns to the overall stock market (see more about this below). Second, if you are able to get 10-15% unleveraged returns over a decade you are really good – we would even call you a maverick.

 

[TrAndy2022]

Good Morning TrAndy2022,

This is a really good realistic expectation and thought process of the idea of portfolio of trading strategies. Thanks for sharing

I like this part of the article and I learned from it:


We are pretty happy with the results for 2022. The main reason is that we want uncorrelated returns to the overall stock market (S&P 500).

However, many traders have completely unrealistic expectations.

First, the most important thing about short-term trading (in our opinion) is to get uncorrelated returns to the overall stock market (see more about this below). Second, if you are able to get 10-15% unleveraged returns over a decade you are really good – we would even call you a maverick.

Even Jim Simons one of the best hedge funds owners does not have more than 15% unlevered returns per year. But he does use plenty of leverage to get 66% return per year in average. Leverage on low drawdowns is the key.

 

[SimpleMeLike]

Even Jim Simons one of the best hedge funds owners does not have more than 15% unlevered returns per year. But he does use plenty of leverage to get 66% return per year in average. Leverage on low drawdowns is the key.

Hello TrAndy2022,

Thanks for explaining

For my understanding can you please give example of "unlevered returns" and "use plenty of leverage".

Are you referring to using 1 ES contract for strategy A the entire year for 15% unlevered returns versus using, for example, 10 ES contracts for strategy A to get 66% leveraged returns?

I am bit confused.

 

[TrAndy2022]

Hello TrAndy2022,

Thanks for explaining

For my understanding can you please give example of "unlevered returns" and "use plenty of leverage".

Are you referring to using 1 ES contract for strategy A the entire year for 15% unlevered returns versus using, for example, 10 ES contracts for strategy A to get 66% leveraged returns?

I am bit confused.

Yes, you are right. Unlevered returns (mostly on stocks used) are just with leverage of 1 or when 1 ES contract traded (the full market value on 1 ES contract =50*actual points). Then with leverage or using margin higher returns are possible (and also higher drawdowns).

 

[SimpleMeLike]

Yes, you are right. Unlevered returns (mostly on stocks used) are just with leverage of 1 or when 1 ES contract traded (the full market value on 1 ES contract =50*actual points). Then with leverage or using margin higher returns are possible (and also higher drawdowns).

Thank you TrAndy2022,

that makes sense now

 

[MKTrader]

Hello MKTrader,

https://www.quantifiedstrategies.com/how-have-our-trading-edges-performed/#The_bear_market_of_2022-2

I believe this article sums up what you said about having a portfolio of algos as another investment diversified from other investments.

I really enjoyed this read.


We are pretty happy with the results for 2022. The main reason is that we want uncorrelated returns to the overall stock market (S&P 500).

However, many traders have completely unrealistic expectations.

First, the most important thing about short-term trading (in our opinion) is to get uncorrelated returns to the overall stock market (see more about this below). Second, if you are able to get 10-15% unleveraged returns over a decade you are really good – we would even call you a maverick.

Interesting. I quickly glanced at the site. My first thought are

1. Why are they showing almost completely backtested results if they've been around since 2012? Only 2022 (a bear market when it's easiest to beat the S&P 500) is shown? Maybe I'm wrong but that's what I gathered. I'm guessing they're previous algos didn't perform well in real time so they keep making new ones. That can be an endless and losing cycle.
2. Even though they use ETFs (which you can trade in most any brokerage), it looks like a lot of work to trade a bunch of short-term swing trading strategies. And you have to monitor them--when they start underperforming, is it a normal drawdown or did the algo simply stop working under new market conditions? Again, that can be an endless cycle with a lot of subjectivity even though you're dealing with "100% mechanical" systems.

 

[TrAndy2022]

Interesting. I quickly glanced at the site. My first thought are

1. Why are they showing almost completely backtested results if they've been around since 2012? Only 2022 (a bear market when it's easiest to beat the S&P 500) is shown? Maybe I'm wrong but that's what I gathered. I'm guessing they're previous algos didn't perform well in real time so they keep making new ones. That can be an endless and losing cycle.
2. Even though they use ETFs (which you can trade in most any brokerage), it looks like a lot of work to trade a bunch of short-term swing trading strategies. And you have to monitor them--when they start underperforming, is it a normal drawdown or did the algo simply stop working under new market conditions? Again, that can be an endless cycle with a lot of subjectivity even though you're dealing with "100% mechanical" systems.

1. He needed some time to develop those bunch of algos, otherwise he came with his 50 algos at 2012 already but that was not the case. 2. Do you know ANY algo(s) where you can be sure it cannot stop working ? If yes, then please tell me.

 

[SimpleMeLike]

Interesting. I quickly glanced at the site. My first thought are

1. Why are they showing almost completely backtested results if they've been around since 2012? Only 2022 (a bear market when it's easiest to beat the S&P 500) is shown? Maybe I'm wrong but that's what I gathered. I'm guessing they're previous algos didn't perform well in real time so they keep making new ones. That can be an endless and losing cycle.
2. Even though they use ETFs (which you can trade in most any brokerage), it looks like a lot of work to trade a bunch of short-term swing trading strategies. And you have to monitor them--when they start underperforming, is it a normal drawdown or did the algo simply stop working under new market conditions? Again, that can be an endless cycle with a lot of subjectivity even though you're dealing with "100% mechanical" systems.

Hello MKTrader,

Thanks for responding.

I'm guessing they're previous algos didn't perform well in real time so they keep making new ones. That can be an endless and losing cycle.

Exactly my point. Anyone can curve fit some algos together to make it look good from 2007 to 2021 using back testing tools.

Is there anywhere online where I can see someone, something, or whatever that shows real time, real money portfolio of algos and the returns the past X years? Bad or good, where can I see such example.

That can be an endless and losing cycle.

Well, according to Kevin Davey, he teaches the traders should be making strategies all the time. He says every year the trader should produce about 3-5 algos per year.

I do not hope to sound negative, but I speak the common sense of the common man.

I do not believe anyone can show in real time real money for years the theory of portfolio of strategies makes money consistently. Better to dollar cost average SP 500 index and do no hard work. And try to discretionary trade the ES futures and scale up over time.

Perhaps someone can prove me wrong.