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Trading Strategy of the Week: Futures Timer

Any results mentioned or shown are based on simulated or hypothetical performance that have certain limitations. See bottom of this post for full disclosure and important warnings. Past results are not necessarily indicative of future results. Most people lose money when trading. These results are based on statistics that were current as of August 19, 2016, when this profile and article were edited.

This week we talk with Collective2 Trade Manager Jim Totaro, discussing his strategy “Futures Timer.” View summary statistics, including hypothetical monthly returns and subscription costs, inside Collective2. 

Six years ago, Jim Totaro joined Collective2. He ran one of C2’s most popular trading strategies. Then, abruptly, he walked away. Now he’s back, with a new strategy, and a new attitude.

It is unacceptable to have a loss. Unacceptable

I joined Collective2 a long time ago, more than six years ago, before C2 was much of anything. (No offense, guys.) I ran a strategy called “ETF Volatility Timer,” which grew to be one of the most popular strategies on the entire Collective2 site. It did well for a couple years, with its hypothetical C2 Model Account gaining +14.8% in 2013, and +25.3% in 2014.

Then, in 2015 it had a loss. It was a relatively small loss (3.0%); and, in fairness, the S&P 500 lost that year, too. But, still, I thought it was unacceptable to have an annual loss in a day-trading system. Just plain unacceptable. I know, I know — you cannot guarantee profits in the world of trading — of course you can’t — but that doesn’t mean that, as a human being, you should lie down and accept losses. I don’t, and I didn’t, and so I walked away. I ran the strategy until people’s subscriptions expired, and then I did not renew it on Collective2. I took a break, and recharged my batteries.

What if he got rid of ETFs, and used futures instead?

I thought about things for a long time. In 2016, I began to analyze the trade history of ETF Volatility Timer. I wanted to see if there was a way I could have improved results. What I found was pretty interesting. The strategy traded only ETF products. C2 allows trading of ETFs only during regular trading hours. Going back over the data, I saw that I had missed opportunities to catch a lot of the big moves in volatility, especially from 8:30 to 9:30 AM (Eastern time), when most of the major economic reports are released.

In addition, since I generally needed to exit trades by 4:00 PM, I found that I had been exiting positions too early, and not initiating trades in the afternoon. The afternoon can be an important time, particularly immediately following FOMC meetings, when interest-rate decisions are released (typically at 2:00 PM Eastern).

That was when I had an insight. No, it’s not the cure for polio, but at the time it felt pretty radical: What if I traded futures instead of ETFs? Because C2 allows futures trading on a 24/5 timeframe, I could create a new strategy on C2 that traded volatility using the same proprietary technical indicators I was using for ETF Volatility Timer, but which could have access to the markets many more hours each week.

You know the stereotype of the shy bean-counter who prefers staring at a row of numbers over meeting new people and marketing himself? Well, it’s a stereotype for a reason.

While I was familiar with futures, and had traded them sporadically over the years, I didn’t have extensive experience trading them. I should probably say formally that futures are not appropriate for everyone, and they’re inherently more risky than stocks, since large amounts of leverage are used.

But, still, I decided to experiment, and to learn. I started trading volatility futures in my own personal brokerage account. Eventually I became confident that my basic strategy was sound, and that I would be able to run a futures strategy on Collective2. This was the genesis of “Futures Timer,” which I launched on C2 in March 2016.

About his new “Futures Timer” strategy

“Futures Timer” trades the CBOE Volatility Index (VIX) futures. The system trades up to a maximum of 3 VIX contracts, generally one at a time. I target daily gains of between +0.3% and +0.7%, and most trades are opened and closed on the same day. (Of course a “target” is just that, and gains cannot be guaranteed, and losses may occur.)

Entry points are determined by proprietary technical indicators based on price, volume, and velocity. I use exactly the same proprietary technical indicators for “Futures Timer” that I used for ETF Volatility Timer. However, since the futures markets are open 24/5, there are many more opportunities for trading compared to the ETFs which trade on the stock markets.

“Futures Timer” is an absolute return program. It tries to consistently outperform the overall market, regardless of the market environment; and to produce that performance with less volatility than the underlying market itself. This is the goal. Whether I can achieve it, only time will tell.

CustomerLoyalty20%badge_2

Jim Totaro offers a “Loyalty Discount” to subscribers.  Says Jim: “After you pay for two months at the regular monthly rate, I will apply a 20% discount for all subsequent payments, for as long as you continuously subscribe to Futures Timer.”  Auto-trade the system at Interactive Brokers or any C2-compatible futures broker.

From accountant… to trader

I was born in New York, and have lived and worked here my entire life.

I graduated Summa Cum Laude from from St. John’s University, where I received a Bachelor of Science degree in Accounting. After school, I joined KPMG, which, back then, was one of the Big 8 accounting firms. I guess I’m dating myself with that statement, because now we’re down to the Big 4. Probably in a few years there will be a single government-run account firm, and I’ll tell my great-grandchildren about the days when there were more than one, and they’ll look at me like I said I drove a horse and buggy to work.

Well, soon after joining KPMG, I earned my CPA designation (currently inactive). I began performing audits of publicly-traded companies. I was not interested in trading during this time. I really felt my career path would remain in Public Accounting.

But then something interesting happened. I left KPMG to pursue other challenges, and started working at several privately-held and publicly-traded companies in diverse industries. With each new position came increasing responsibility, until finally I became a Chief Financial Officer (CFO).

The interesting part of the story is how I found my way into trading. As I had more oversight into companies’ financial operations, I began to spend more time working with outside brokers who were handling my companies’ 401(k) and pension plans. The goal of such corporate investing is to minimize risk. But as I studied the results that were being touted, somewhere in the back of my mind I kept thinking, “Surely it’s possible to do better than this?”

It wasn’t a sudden Road-to-Damascus moment, or anything like that, but I think a seed was planted in my mind. It took a few years for it to grow. When it did, I realized that what I really love is trading — the pursuit of actively trying to beat the market.

And so I guided my life into that role. It took a while, but finally I succeeded. For the past 15 years, I have been a full-time trader.

What he likes about Collective2

A lot of things! Since my background is in Accounting and Finance, I have never been comfortable marketing myself. You know the stereotype of the shy bean-counter who prefers staring at a row of numbers over meeting new people and marketing himself? Well, it’s a stereotype for a reason.

So I like that about C2 — it’s a public platform that effectively attracts new people, and new subscribers, and allows them to follow my strategies. That takes a load of responsibility off me.

Also — and maybe this will strike some people as ironic, since I’m an accountant by trade — but I really have no desire to handle book-keeping and billing functions for my strategies. I have more important things to do with my time. I like the way C2 handles these functions automatically for Strategy Developers, so that we can concentrate on managing our strategies and on trading.

I like the way my trading record is on-line and updated in real-time. This could lead to future possibilities, as people discover my trading abilities.

Finally, I enjoy working with the C2 Team. I’ve been with C2 for a long time, and watched the platform and the company grow. Matthew and his team have always been helpful, and courteous, and open to my and others’ suggestions.

Advice for people just starting out at C2

If you are looking for a strategy to subscribe to, a good place to start is the “Leading Trading Strategies” page. The page is like a “leader board” showing popular systems, and the key facts about them: what they trade, their equity graph, their worst drawdown, their Heart-Attack Index, etc.

Once you find a few potential strategies to study further, I next recommend that you examine the actual trades executed by AutoTrading subscribers. That’s one of the best features of C2, by the way: you can click on each trade in a trading record, and can see how many people traded it in a real brokerage account, and what price they received! This is important information, because it reveals the extent to which the trading strategy has live-account followers, and how many.

My final piece of advice to new C2 members is to disregard the first month or two of a strategy’s track record, particularly if those months differ materially from the rest of the strategy’s performance. I would place more importance on the consistency of monthly returns, rather than the outright monthly results.

Now, regarding advice to those people who want to become strategy managers on C2, let me say this. In order to generate revenue on C2, you have to get and keep subscribers.

That sounds obvious, but what does it mean, on a day-to-day basis? I have found that the best way to attract subscribers is… to not worry about attracting subscribers! At least, to not worry for the first three months that your trading system is on C2. Take that time to focus on trading your strategy and building your track record. In those first three months, look at your drawdowns as a blessing in disguise. Those drawdowns establish a benchmark against which your trading strategy will be measured in the future. These are the best drawdowns to have, because you did not cost subscribers any losses, since you have no subscribers yet.

On a brass-tacks level, make sure your System Description as posted on C2 adequately describes your trading style and methodology, so that potential subscribers will know what to expect when they begin AutoTrading or subscribing to your system.

Finally, one more point. In my 15 years as a full-timer trader, I have had many discussions with hedge-fund managers, investors, and financial advisors. What they are looking for, and what I believe subscribers on C2 are looking for, are trading strategies that are consistently profitable, with low drawdowns and low correlations to the S&P 500. While it may seem counter-intuitive, they would gladly give up some upside in terms of annualized returns, in exchange for consistency of results and reduced drawdowns. That’s what I’m trying to achieve with Futures Times, and that’s what I recommend new C2 strategy creators also try to achieve.

Maybe it’s a holy grail, but a holy grail is always worth pursuing.

 


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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