Traders' Roundtable

I had for a time investigated a tradional Donchian system with a 700.000 USD portfolio diversified portfolio bases on the all liquid portfolio in Blox and used the standard contract transaction cost in Blox = USD$12.50 per contract.

My system performs well performs quite well with CAGR around 30% and Max Drawdown at 25% and I am quite satisfied with it.

I had further investigated to trade a portfolio around 1/10 of the value above = 70 000 USD (there is no more money in that portfolio) . To make it work i planned to use CFD's. The problem with CFD's is that the commission is percent based (CMC Markets= 0.08% on the contract value).

If i buy 1 CL contract = 126 835 USD at Interactivebrokers i pay 6 USD for a roundtrip.

I i buy the the equal at CMC Markets i pay 0.08% * 126 835 i get
202.94 USD for roundtrip.

That is a huge difference and really kills my system. CAGR% drops to
-3.3 over 10 years.

The system is exactly the same, the only difference is the commission.

Has anyone had the same (shocking) experience as i had? I can only agree with Tim, trade what you tested.

Maybe i should try an ETF based based portfolio with ETF's on currencys, metals, energy and fixedincome, anyone have experiences of that?

Comments?

Basically, Exchange Traded Commodities are ungeared and you are likely to find the performance rather less interesting than futures. The ETF market is rapidly growing and changing and I believe I am right in saying that certain providers have now come out with 2x geared ETCs; I have no idea what the liquidity is like.

To backtest a geared or ungeared ETC will either require different data than your normal EOD CSI futures data or will require a very different money management Blox.

One alternative is to create indices from futures prices and adjust upwards for interest and downwards for tracking error and the costs of the ETC provider. I posted a Blox in the market place to create indices from futures prices, although I can't now recall the details (let alone whether I got it 100% correct!). In this way you can created geared or ungeared ETC proxies and use a money management system similar to that you would use on equities.

The other possibility is to use futures but adjust your money management Blox (and/or betsize) so that, in effect, you are using no gearing.

I won't expand on the point at this stage but I just thought it worth pointing out that if you do intend to use ETCs, backtesting will require very different considerations and much re-thinking/coding.

The three advantages of the futures contracts are (1) leverage, (2) low transaction expense, and (3) leverage. With those three advantages, applied across a lot of markets simultaneously, it's a lot easier to make simple trend-following systems work than it is without them.

Your filters for which markets to trade will probably have to change; I don't know that being long/out/short X markets simultaneously will work as well because of those advantages being lost. The same techniques for entry, exit, and position sizing may not work as well as they did with futures.

Only some markets have leveraged ETFs trading at 2x or occasionally 3x spot moves; most are only tracking spot movements. The currency ETFs may or may not pay monthly interest dividends, the older CurrencyShares ones do but I don't think the newer ones from other vendors do.

You'll have to input different data, adjusted for dividends/interest and splits (if any).

You will find that there's a dearth of data past a certain point; many of these ETFs have only been trading for a year or two. I have spliced representative data onto the back end of the stream where possible for testing (adjusted gold spot price for before GLD existed, adjusted WTIC oil settle for before USO existed, etc.). Here your risk becomes tracking error-related.

I'm generally satisfied with the work I've done along this line, but it may not satisfy you.

Your alternative may be to find a way to use $70K instead of $700K by using fewer markets at once, adjusting the sizing parameters, etc. This might have deleterious impact on your CAGR/DD ratio, however.

Thank you very much for your input.

This item is more complicated as it seems. CMC rolls the contract at specific dates and at those occassions the you do not pay any commission. Only the spread as i understand.



I think i have some more to investgate!

Thanks very much for your interesting comments!