Questions prior to the Robot going private

Pascal and Billy,

Since the robot will be offered soon on a fee basis (as I understand it), I'd like to venture some questions. Since my search through the VIT archives is not extensive, I may tread on already covered ground. If so, my apologies, and please show me the way.

Here are three clusters of related questions:

1. Why was the robot developed with backtesting only through mid 2007? Are either of you disappointed with the robot's performance in 2011? Can you comment on how the year has gone for the robot?

2. If this device is as effective as its backtesting shows, what do you expect its popularity to become among investors, both retail and institutional? Will its popularity become sufficiently powerful to generate feedback effects? What might these be?

3. Since today programmed trading is evolving everywhere, can other trading programs be devised that specifically "outwit" the robot here? (I may be unclear here. But I'm interested in the arms race of software and the feedback effects of success. And please know I write this as a chess player who could defeat top programs in 1990 but who can now only watch the top programs play intensely complex games with each other tirelessly. This is to say, I know very well the power of machines on games).

If anyone can go further with my questions, please step in.

I thank you both for your daily insights on trading; they are profoundly influencing me everyday.

[QUOTE=nickola.pazderic;13983]Pascal and Billy,

Since the robot will be offered soon on a fee basis (as I understand it), I'd like to venture some questions. Since my search through the VIT archives is not extensive, I may tread on already covered ground. If so, my apologies, and please show me the way.

Here are three clusters of related questions:

1. Why was the robot developed with backtesting only through mid 2007? Are either of you disappointed with the robot's performance in 2011? Can you comment on how the year has gone for the robot?

2. If this device is as effective as its backtesting shows, what do you expect its popularity to become among investors, both retail and institutional? Will its popularity become sufficiently powerful to generate feedback effects? What might these be?

3. Since today programmed trading is evolving everywhere, can other trading programs be devised that specifically "outwit" the robot here? (I may be unclear here. But I'm interested in the arms race of software and the feedback effects of success. And please know I write this as a chess player who could defeat top programs in 1990 but who can now only watch the top programs play intensely complex games with each other tirelessly. This is to say, I know very well the power of machines on games).

If anyone can go further with my questions, please step in.

I thank you both for your daily insights on trading; they are profoundly influencing me everyday.[/QUOTE]

1. The robot was developed with backtesting only through mid-2007 because the 20 DMF sensibility evolved drastically after the uptick rule changed in the summer of 2007. Optimal buy and sell signals rules are much different before and after that event. A consequence of this is also that the robots will have to be suspended if there is any new change in uptick rule and it will take time before a new 20 DMF model could become reliable.
There is only satisfaction with the robots performance. They have perfectly fulfilled their role since being online, in a choppy environment that did not offer any long term trend to follow yet. Not only was capital well protected compared to buy & hold, but they also did much better than the alternative of staying in cash. Actual performance can only be measured from early March 2011 because all prior trades were still part of the backtesting timeframe. And we cannot take into account the trades from the beta versions.
Pascal will provide a more detailed performance analysis soon, but here are my own records of the robots:

IWM Robot : Compounded Return since 3/21: +4.45% vs -1.67% IWM Buy & Hold.

Type Entry date exit date Entry price Exit price Profit Reason
Buy 3/21/2011 4/11/2011 80.92 83.23 2.85% MF
Short 4/13/2011 4/20/2011 82.77 83.83 -1.28% MF
Short 4/26/2011 5/10/2011 84.71 85.29 -0.68% SL
Short 5/12/2011 5/27/2011 84.81 83.44 1.62% SL
Buy 6/10/2011 78.39 80.04 1.94%
Compounded Return 4.45%

GDX Robot: Compounded Return Since 3/9: +10.14% vs – 11.84% GDX Buy & Hold

Type Entry date exit date Entry price Exit price Profit Reason
Shorted 3/9/2011 3/10/2011 59.69 56.83 4.79% MF
Bought 3/11/2011 4/1/2011 56.25 59.77 6.27% MF
Bought 4/6/2011 5/3/2011 62.49 58.71 -6.05% SL
Bought 5/10/2011 5/10/2011 57.24 56.76 -0.83% MF
Shorted 5/11/2011 5/11/2011 56.66 54.91 3.08% MF
Bought 5/12/2011 6/6/2011 54.31 54.82 0.94% MF
Shorted 6/7/2011 6/8/2011 55.28 53.43 3.35% MF
Bought 6/23/2011 53.26 -1.28%
Compounded Return: +10.14%


2. We hope first that the robot will provide excellent long term risk-adjusted performance. Increased popularity should become exceptional to really create feedback effects and we are far from it with our current audience. We won’t hesitate to charge $2,500 per robot next year if this is the case! But more seriously, we prefer to expect some periods of disappointment that are statistically unavoidable. The robots were first created for our own trading discipline needs and we are sharing them with pleasure to our group of friends and followers without an aggressive marketing plan in mind. We believe a good product sells on its own if it meets the needs of their users, and so far it is meeting ours. The robots subscription fees will honestly be marginal compared to our trading P/L bottom line. If it becomes a management burden or encounters too many pervert feedback effects, we can always limit the number of subscribers giving priority to the “early birds”.

3. One can never know for sure. The 20 DMF component of the robots is publicly available, but it is indeed crucial that we keep the risk management system undisclosed and proprietary. That’s why we don’t provide backtest results on the true robot signals, but only on the system before risk management. Reverse engineering is impossible with data publicly available. Also, our intention is to continually improve the algorithms over time and to switch ASAP to a real-time system instead of EOD to stay ahead of any reverse engineers.
Billy

Billy--

You're truly on top of it and able to answer my question at once. This is reassuring. I hope the feedback that is presented by users, like me, is useful to you.

Again many thanks,

Billy,

Where can I find the definitions for MF and SL and any other sell signs?

Thanks,

[QUOTE=nickola.pazderic;13989]Billy,

Where can I find the definitions for MF and SL and any other sell signs?

Thanks,[/QUOTE]

The robot has programmed only two types of trade exits:
1. SL = Stop Loss. An exit when a trailing stop is hit.
2. MF = Money Flow signal change. An exit when there is a trend change (In this case, the exit must be executed as soon as possible)

Will money flow exit signals be sent real time or EOD only?

Thanks,

[QUOTE=nickola.pazderic;13991]Will money flow exit signals be sent real time or EOD only?

Thanks,[/QUOTE]

Officially, it has been and will be EOD. The track record sells at the open the next day.
But we will try to issue a warning in real time in our forums that the MF might issue a signal change at the close, without any responsibility or commitment on our behalf if it doesn't happen.
Billy