Tarzan v1.0

A little over a year ago, I began using Collective2 as one of the tools in my toolbox to develop a trading system. It took some time, but I gradually developed a solid track record and was ultimately listed with the top 20 or 30 systems available. This past February, however, I stopped supporting my system for two reasons: 1) I began trading it myself in earnest and started feeling more secretive; and 2) nobody was subscribing to it anyways.

At the time, I was flummoxed as to why nobody would subscribe to my system. The other top performing systems had many subscribers, with some of them pulling in over $10k a month in subscription fees. So what was wrong with mine? I now believe it is because the style of trading to which I am attracted looks stupid to others. I opened positions at market open and closed them at market close. I wasn’t twitchy enough for day traders and I broke every rule of the swing traders by closing out positions “prematurely” and had way too many trades. I got lots of questions like, “Where are the stop losses” and I’d answer that I didn’t use them because I couldn’t prove they added value… but that’s not what folks wanted to hear.

I’ve continued to work on my system and utilize it for myself. There’s been some ups and downs, but that’s not really what this post is about. I’ve missed Collective2, as it was one of the only public forums I had with my trading, and I found the interaction enjoyable. So I recently decided to give it another go by giving myself a very challenging (for me) goal. I didn’t focus on maximizing returns as I had with my previous system. Rather, I tried to design a system around a few key principles that I thought would make people happy.

Oddly enough, most traders (as far as I can tell… and numerous books agree with this observation) tend to focus on what makes them happy in the activity of trading rather than on making money. So I designed a system with the swing trader in mind:

1) All trades entered in the evening. Enter and exit positions on market open. Allows the system to be traded by those working full-time jobs.

2) Minimize the total number of trades while also minimizing the risk. I thought seven positions (both long and short) held at a time struck the right balance.

3) In general, let the profits run and cut the losses short.

4) Trades average 2 to 10 days. Here I was trying to meet the expectations of the trader looking for a bit of excitement without offending their sensibilities by dipping into the day-trader playbook.

Anyway, version 1 of Tarzan is now up and running. I still need to bring the max drawdown lower (it hits a 30% drawdown during 2002 in my backtesting), but I wanted to start developing a track record with it so I went ahead and put it on C2. As I alluded to above, classic swing systems are very difficult for me, so this was quite an achievement… or it will be, if it works. We shall see.

3 Comments

  1. Peter
    Aug 30, 2007

    Finally, some gain from that book you bought about how to profit from the mob mentality!

  2. Jay
    Aug 30, 2007

    Ah yes… “Extraordinary Popular Delusions and the Madness of Crowds”

    So I should have highlighted I didn’t totally ignore performance. I did try to maximize performance, but within the constraints given. Which sort of meant I wasn’t maximizing performance.

    The system backtests with an 80% compounded annual return… so if the future at all resembles the past, it should do pretty well.

  3. Rollin
    Aug 30, 2007

    Jay, I’ve been wondering about your first system and how it’s been faring. Any feedback on that, or do you not want to publicize it?