Trading Strategy of the Week: 25k E-mini SP500 Portfolio
This week we spoke to Madrid-based Collective2 Trade Leader Andrés Padrones about his flagship C2 trading strategy 25k E-mini SP500 Portfolio. He also manages the strategies SP500 Protemeo v2 and 30k Futures Portfolio.
Andrés Padrones thinks market research is fundamental to finding alpha in the markets.
Tell us a little about yourself.
“I have a PhD in statistical sciences, but currently I’m focused on financial markets. In terms of my day job, I have been working for more than ten years for different consulting companies here in Madrid, Spain developing statistical predictive models.
One of my first jobs was at a bank working in credit risk management, and it was there that I discovered my love for financial markets and trading in general. I’ve always loved strategy games and for me, trading is the ultimate way to formulate real strategy. If a trade works well for you, you get a reward… or, alternatively, you experience a loss. It’s very just.”
Algorithmic vs. Discretionary Trading
“I don’t believe in discretionary trading. I’m not saying it’s impossible to be successful with discretionary trading, but I think it’s very hard to maintain profitability year after year. Algorithmic trading has notable advantages over discretionary trading.”
All my strategies are 100% algorithmic. I don’t believe in discretionary trading.
Do you set stop losses?
“Sure. Using stops is a way to quantify the risk assumed and minimize the risk of ruin. Also, stops allow for dynamic position sizing so that additional contracts can be added when a model calls for it.” [Editor’s note: Stop losses do not limit losses in all market conditions.]
What instruments do you trade, and why?
“I work with futures, mainly. They offer great leverage and liquidity.”
How did you develop your strategy? Did you try other ideas first?
“Almost all of my strategies (I employ 12 in total) have what I believe is a market edge. I base this statement on the research I have conducted over many years.
I’d say 90% of my initial ideas end up not working, 10% show some validity, and a mere 2% prove themselves as worth pursuing. It’s definitely a process. I dedicate most of my time to researching algorithms, portfolio building, and money management of strategies.”
Do you ever “pyramid” or double-down on positions? If so, are there any rules that you follow?
|“I’ve actually just begun to double positions in 25k SP500 portfolio. Unfortunately, I’ve had some bad trades, but that is the logic.|
My favorite money management strategy is the Weighted Fixed Ratio by Ryan Jones (described in his book The Trading Game). If you want to understand the importance of money management in trading, I’d really recommend this book.
This fixed ratio method increases positions while keeping constant the ratio over maximum expected drawdown.”
Why do you use Collective2? Do you have any advice for someone who may not be familiar with C2?
“I love Collective2; it’s a great project. It’s a unique site that lets you show the real price executed in AutoTrader accounts. Also, the TOS Certification Program (“Trades-Own-Strategy” Certification) makes it easier to know when Trade Leaders are risking their own money with their strategy.”
Any advice for people that want to subscribe to a strategy on Collective2 and then AutoTrade it in their broker account?
“I’ve observed the behavior of my subscribers over the last few last years and it’s varied. I’ve noticed that when a strategy has even a small drawdown, it see a lot of unsubscribes. Which of course means that subscribers disconnect from the strategy at the moment right before the run-up comes, and they miss it. So if I had to give one piece of advice, it would be: be patient. Recognize that losses are a part of trading. If you thought enough of a strategy to start trading it, try to stay the course, and be patient, at least for a while.
Finally, I strongly encourage subscribers to seek out “Trades-Own-Strategy” strategies. And then, once you find one or two strategies you like, understand the risk before you start trading. Know what the maximum drawdown has been so far. Assume you’ll see that again, plus more. If you can’t handle a drawdown, then this kind of trading probably isn’t right for you. There are no magic formulas in trading, after all.”
*A strategy that has earned Trades-Own-Strategy (TOS) Certification means that the trade leader trades the strategy in a real-life, funded brokerage account, verified by Collective2.
Past results are not necessarily indicative of future results.
These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Material assumptions and methods used when calculating results
The following are material assumptions used when calculating any hypothetical monthly results that appear on our web site.
- Profits are reinvested. We assume profits (when there are profits) are reinvested in the trading strategy.
- Starting investment size. For any trading strategy on our site, hypothetical results are based on the assumption that you invested the starting amount shown on the strategy’s performance chart. In some cases, nominal dollar amounts on the equity chart have been re-scaled downward to make current go-forward trading sizes more manageable. In these cases, it may not have been possible to trade the strategy historically at the equity levels shown on the chart, and a higher minimum capital was required in the past.
- All fees are included. When calculating cumulative returns, we try to estimate and include all the fees a typical trader incurs when AutoTrading using AutoTrade technology. This includes the subscription cost of the strategy, plus any per-trade AutoTrade fees, plus estimated broker commissions if any.
- “Max Drawdown” Calculation Method. We calculate the Max Drawdown statistic as follows. Our computer software looks at the equity chart of the system in question and finds the largest percentage amount that the equity chart ever declines from a local “peak” to a subsequent point in time (thus this is formally called “Maximum Peak to Valley Drawdown.”) While this is useful information when evaluating trading systems, you should keep in mind that past performance does not guarantee future results. Therefore, future drawdowns may be larger than the historical maximum drawdowns you see here.
Trading is risky
There is a substantial risk of loss in futures and forex trading. Online trading of stocks and options is extremely risky. Assume you will lose money. Don’t trade with money you cannot afford to lose.
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