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Thursday, August 2, 2007

Longstoch-ST termination

I just got a note from the vendor of Longstoch-ST that he is considering terminating the system in its current form due to the recent drawdown. This means I have decided to close any open positions tomorrow at the open and delete the system from my portfolio.

On the one hand it is very unfortunate that I had to digest the full drawdown because it just started after the first signal I received. On the other hand its effect could have been much worse if this was the only system I was trading, or if I did not have my positions hedged.

I think I should have taken the downward trend in its alpha much more seriously, as that has actually been a greater concern to me than the current drawdown (which seems to follow the sell-off in the broader market closely).

You might remember I had to terminate extreme-os during a drawdown last month because of technical problems. I think I solved that problem successfully by sticking to end-of-day systems (terminating auto trading). I now have to terminate another system during a drawdown because the vendor decided to change the course/terminate it. This is something that will be much harder to prevent in the future. In fact, it is likely that many systems will be terminated once a heavy drawdown occurs, as subscribers are probably all fleeing away and new subscribers will be hard to attract with a major drawdown on the record.

On the other hand, the declining alpha (see yesterday's post) should have given a clue that something was not ok, and I regret that I didn't do this analysis before I subscribed.

9 comments:

Unknown said...

Well... Termination of a system just because the system has DD is very childish approach. In general it means that the system vendor just drop/f@ck off all the system subscribers, because stats went wrong and the system vendor isn't guru anymore and he/she prefers to start collecting money from a scratch lol It's expectable risks for subscribers ;) Eu

John said...

Eu’s words reflect a cursory understanding of the circumstances. As the vendor of the system I’d like to clarify that Longstoch-ST will continue to trade with no code adjustments, just in conjunction with my second system on C2, in a fresh ‘blended’ account. The details of this transition remain to be ironed-out but the general intent is to offer better diversity with a more appetizing risk/reward. The billing model will effectively remain the same so a sub will receive the same breed of signals as before, just in addition to signals from a second system.

John

Science Trader said...

I'm sorry if my post caused any confusion. John's description is consistent with my understanding.

Unknown said...

2SC Yeah.. it was unclear why you have to close your current positions of the system. However john explained it so "Eu’s words reflect a cursory understanding of the circumstances." was invalidated. It actually was main point of my comment. Validation/invalidation of my opinion about the system.

Unknown said...

Maybe you have to clarify on main page of the blog that closing current positions of the system is your decision and it's not forced by the system vendor termination of the system.

Science Trader said...

Good idea!

Unknown said...
This comment has been removed by the author.
Unknown said...

hi science trader, I was looking at longstoch-st and extreme-os as candidates for autotrading, and was curious as to what your current feelings are on them? extreme-os seems to have periods of disgruntled user comments, and I was curious whether you thought longstoch was still work a look, after that drawdown...

comparing the generation 2 autotrading to the generation 1, at what point do you think that the frequency of trading makes the per/trade price of gen2 prohibitive? (there are a few systems I'm interested in, for example, that average around two trades/day)

have you looked at cts snapback at all? performance looks good, and the trades are held 5-10 days, on average.

any thoughts on these promising new ones:
holly ftse
slow and steady
treasury scalper
mwz
team aphid bird
defiant

thx for letting me pick your brain!

Science Trader said...

Hi Elbow,
It's difficult to get a good understanding of the P/L for extreme-os, because much of the p/l per trade was eaten by slippage when I used gen 1 auto trading. Since gen 2 autotrading is claimed to be much faster than gen 1 (by the vendor), I'd expect slippage to be less of a problem. However, with gen 2 you have to trade through OptionsXpress and pay $9.95/trade, which means you would have paid more than $23,000 in commissions if you'd have traded this system from the beginning...
Longstoch-ST is still worth a look, but I would suggest to contact the vendor, as he was planning to terminate the system, and/or merge it into his other system (Ultrastoch-ST).

The only way to find out whether gen2 or gen1 auto trading is better , is to test both of them. It's not only about the fixed commissions but also about speed of execution (which is claimed to be faster under gen2) and reliability (which in turn depends on your own hardware setup). Finally, it depends on the size you are trading: As your size gets larger, the difference between a fixed and variable commission structure gets smaller percentage-wise. So, no clear-cut answer exists.

Unfortunately, I currently only consider end-of-day stock system with at least one year of history, so I haven't really looked at CTS snapback or the other systems you mention.