I have a system, now what

gmst · Feb 11, 2013

Quote from DT-waw:

400k drawdown with 700k avg annual return?
Not really the best stats, but i'd suggest keep your current job and work on something much better, so you could trade it with personal money.

I didn't read the whole thread. But 7/4 is not a great ratio at all.

For my different strategies, I routinely get this ratio > 3, many a times >4.

dude_05 · Jul 11, 2014

dude_03 said:
I have been working for >2y years as a quant in a prop desk in a bank, while developing a automated system overnight and on the weekend.

I have been paper trading my system at work for ~8months now, and it proved to be good - where with "good" I mean that even under some conservative assumptions, it proved to have good risk-adjusted performance.
Great, you would say, where's the problem...the problem is that for for a number of "political" reasons, I am not allowed to make the jump to trading where I am, nor I am given a realistic indication on when this could happen.

So I am evaluating my options, and would like to receive some advice by some of the very experienced guys populating this forum.

[...]

Hi all, I'm the OP - just wanted to follow-up with my story for those who responded and for those who contacted me in private (sorry but I lost my previous login details and I forgot your usernames). <O

Hopefully this will help others in the future and may be I can get some good advice too.<O

</O

<O

</O

In the end I resisted 6 more months at my old desk before resigning because not allowed to trade. 1y forward after quitting, I must say that:

1) they might have been right not to let me trade at that moment, but it seems like they have missed on some great potential <?xml:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" /><v:shapetype id=_x0000_t75 class=inlineimg title="Stick Out Tongue" stroked="f" filled="f" path="m@4@5l@4@11@9@11@9@5xe" alt="" src="images/smilies/tongue.gif" smilieid="6" border="0" v:shapetype o<>

and
2) leaving my job was the right thing to do given my determination to pursue the trading path and the amount of things I could have not learnt if not dedicating myself to it full time (and with my own $)

More in details:
I spent the first 6months of the last year understanding what I was doing wrong -I noticed that I needed to re-optimize my models way too often, which I wasn't really supposed to- and came to the undisputable conclusion that overfitting was my enemy number 1.
I thought I had a good understanding of it, but understanding that I didn't has made all the difference in the world.
This lead me to simplify my existing models and especially it allowed me to add two new class of strategies to my portfolio (I am now trading FX, fixed income and commodity futures) - improving the overall results in terms of both performance and robustness.<O

</O

<O

</O

Of course I also had to face a number of other hiccups - to mention a few:<O

</O

- coding up the execution side of the strategies has been more challenging than anticipated (Iâm using Matlab for both backtesting and execution btw), mainly because of the discrepancies between executed trades and simulated trades (for a variety of different reasonsâ¦)<O

</O

- the tiny trading capital available to operate on futures <O

- the psychological impact of real trading, which at the beginning caused me to override the systems way too often<O

</O

<O

</O

(as a side note, it's really interesting to see how one's understanding of things evolves through time)<O

</O

<O

</O

Anyway, after this I got a better handle of things.
I have now a nice 6 months track record with real $ (besides a 15y backtest), which of couse is still quite short, but its statistics match those of the backtest in terms of return distributions and slightly exceed them in terms of performance so far, both aspects that help boost my confidence.<O

</O

<O

</O

Now Iâm pondering whether to open my own fund of some sort (being based in the UK the CTA route doesnât seem viable unfortunately), or possibly join some proper prop shops (which there seem to be a shortage of in London) or even some existing fund.<O

</O

<O

</O

Ideally I would go for my own fund, but finding investors doesnât seem that easy (and start-up costs seem just too high to go without 1-2m seeding): track record (and simulation) is very good in terms of performance, but as said it has been ran on quite little capital and for a relatively short time (although the strategies are quite short term, so I should have enough trades for statical significance).

The main problems I have with joining a prop firm/fund are keeping my IP, building a properly audited track-record that can then be used if I want to open my fund and well, the fact that I already know I would like to open my firm later.

Any comment/question/suggestion is welcome.

</v:shapetype>

dom993 · Jul 11, 2014

Do you mind posting a summary of your live results?

Crispy · Jul 11, 2014

(as a side note, it's really interesting to see how one's understanding of things evolves through time)

Dude - I dont know you. But I fully understand your journey. The one piece I quoted sums it up succinctly, for me anyway.

Thanks for coming to back to share the quest.

Crispy.

SIUYA · Jul 12, 2014

to the original poster....FWIW

As you are in the EU (UK) just be aware that there are now also a lot more regulations required when setting up a fund, marketing and compliance now days. (look up AIFMD)

There are exemptions for smaller funds, however in order to raise capital and market to any serious money the game has changed, and the costs have increased. Remember that the investors either have to answer to someone as well, or they would likely prefer a regulated fund than an unregulated one.
If you can find the right someone to team with (IF is the tough part) then it might be worth it. Build the track record, build some money then the investors will likely follow if you do it properly, and you could always organise to any contract to include the fact you own the IP if you should leave a place.....but then what is in it for them.

Good luck - its a tough but potentially rewarding gig.

q_trader · Jul 12, 2014

dom993 said:
Do you mind posting a summary of your live results?

Here you go.

Crispy said:
Dude - I dont know you. But I fully understand your journey. The one piece I quoted sums it up succinctly, for me anyway.

Thanks for coming to back to share the quest.

Crispy.

Thanks for the support Crispy.

q_trader · Jul 12, 2014

Ok - just realized that I still had access to this other account from another pc

SIUYA said:
to the original poster....FWIW

As you are in the EU (UK) just be aware that there are now also a lot more regulations required when setting up a fund, marketing and compliance now days. (look up AIFMD)

There are exemptions for smaller funds, however in order to raise capital and market to any serious money the game has changed, and the costs have increased. Remember that the investors either have to answer to someone as well, or they would likely prefer a regulated fund than an unregulated one.
If you can find the right someone to team with (IF is the tough part) then it might be worth it. Build the track record, build some money then the investors will likely follow if you do it properly, and you could always organise to any contract to include the fact you own the IP if you should leave a place.....but then what is in it for them.

Good luck - its a tough but potentially rewarding gig.

Thanks for pointing this out, unfortunately I am aware that it's a nightmare - I attended a conference on how to start a fund and at the end my takeway was "Ok, it's impossible to start a fund" (in Europe)

The problem in general seems to be having visibility to investors without having to spend a fortune to set up a fund first.
There are some fund management services/umbrella company that takes care of everything for you - but in this case you would need to find investors first, as costs run around EUR 30k per year as far as I'm aware.

There are few exemptions as you mention, but for one reason or the other they don't really seem viable:
It's basically impossible to fit in the exemption for smaller funds if you are operating on derivatives, as what they look at is the underlying amount being moved.

There is another exemption for family offices/investing employee's money - but unless you have just 1-2 HNWI as investors it's hard to make it work this way.

Another way to go should be to have your own "technology"/"advisor" company that executes on other people's accounts, without having any actual access to their money - the problem in this case is that it's hard to build an auditable track record out of it.

Something I recently discovered is the possibility of setting an incubator fund with just your capital as an investment, but which should give you the desired visibility to investors:
http://www.investmentlawgroup.com/launching-an-incubator-hedge-fund
Still need to have a more in-depth look at it though (the linked article is for the US btw)

4thetruth14 · Jul 12, 2014

If you are just starting, now the fun starts. Keep your stops tight. Plan your trade and trade your plan.

curiousGeorge8 · Jul 12, 2014

q_trader said:
Ok - just realized that I still had access to this other account from another pc

Thanks for pointing this out, unfortunately I am aware that it's a nightmare - I attended a conference on how to start a fund and at the end my takeway was "Ok, it's impossible to start a fund" (in Europe)

The problem in general seems to be having visibility to investors without having to spend a fortune to set up a fund first.
There are some fund management services/umbrella company that takes care of everything for you - but in this case you would need to find investors first, as costs run around EUR 30k per year as far as I'm aware.

There are few exemptions as you mention, but for one reason or the other they don't really seem viable:
It's basically impossible to fit in the exemption for smaller funds if you are operating on derivatives, as what they look at is the underlying amount being moved.

There is another exemption for family offices/investing employee's money - but unless you have just 1-2 HNWI as investors it's hard to make it work this way.

Another way to go should be to have your own "technology"/"advisor" company that executes on other people's accounts, without having any actual access to their money - the problem in this case is that it's hard to build an auditable track record out of it.

Something I recently discovered is the possibility of setting an incubator fund with just your capital as an investment, but which should give you the desired visibility to investors:
http://www.investmentlawgroup.com/launching-an-incubator-hedge-fund
Still need to have a more in-depth look at it though (the linked article is for the US btw)

If you only invest in your own money, I guess you can simply open a LLC and post your audited results on a website with the disclaim that you are not an investor adviser and not seeking funding.

Crispy · Jul 15, 2014

q_trader said:
Here you go.

Thanks for the support Crispy.

That curve looks real to me.

Keep up the good work and dont get complacent in risk control.

My pleasure!