Commodity Index Strategy
The Commodity Index Strategy is a fully diversified, turn key trading strategy that trades 27 of the most highly liquid futures markets available. It trades across seven non-correlated market sectors: Energies, Financials, Currencies, Metals, Meats, Grains and Softs.
The strategy exploits price trends in the markets by waiting for low risk, high opportunity trades to occur. It uses wide stops to stay in the trade and capture big, bull-market moves.
Subscribers to the Commodity Index Strategy are essentially creating their own personal commodity index.
The strategy is made up of three core components. These unique, highly-advanced components give the Commodity Index Strategy an enormous trading edge over other commodity trading strategies and indexes. They are:
- Fundamental driven inputs
- Directional biased signals
- Superior money management controls
Fundamentally Driven Inputs
The Commodity Index strategy begins with the proprietary valuation determination algorithm. This 100% systematic filter determines when a market is under or over valued. The program also takes advantage of common sense, real-world trading inputs to filter out trades that do not make sense in the real world.
These fundamental inputs are then passed on to the next component of the strategy.
Directionally Biased Signals
Market sectors traded do not necessarily trade long and short. This component of the strategy keys off of the fundamental inputs and establishes a trade direction for the market sector. They are long only, short only, or long and short.
Superior Money Management Controls
All signals generated must pass through the risk and money management filters. The strategy can then examine risk prior to selecting the trades for the account.
Each trade has to meet certain criteria to ensure that no one trade can adversely impact your account. The Commodity Index Strategy also monitors the amount of risk that it will accept in each market group to protect against too much exposure in any one sector. The markets that make up each sector are usually highly correlated.
Finally, the Commodity Index Strategy manages the total risk of your account by monitoring the amount of exposure in all the open positions. This protects your capital against a random event.
No other commodity index actively manages your exposure to the individual markets. Investors participating in any of the mainstream commodity indexes still need to know when it is a good time to buy or sell. After this decision, they can still only purchase the index in its entirety. The Commodity Index Strategy switches back and forth from a cash position to being fully invested based on the proprietary valuation algorithm.
The Commodity Index Strategy will also not initiate new positions in any over-valued markets.
These features remove all the guess work by the investor.
Real Time Results
The Commodity Index Strategy has been trading since 15 June 2007 or 4.21 years. It has been compounding at 14.31% per year, during this period! A total return of 75.6%
If you would like to receive our updated real-time performance by email, subscribe to our monthly performance updates.
Analysis of Real Time Results vs. Backtest Results
The Commodity Index Strategy began trading on June 15, 2007. It ended 2007 + 29.89% (not including T-bill interest and collateral held in foreign currencies) after only five and a half months of trading!
Below is an analysis between the real-time trading performance and the results of the backtest, from June 15, 2007 to December 31, 2007.
The tables below show three sets of trades. Table 1 is the actual trades by the Commodity Index Strategy. Table 2 is the trades from the backtest, from June 4, 2007 until December 31, 2007. Table 3 is the trades from the Order Manager from the Mechanica Trading platform. This is the exact order sheet used by Angus Jackson traders.
Table 1 shows actual trades with real slippage and commission. We pay a discount commission, so we added the last column in table 1 to show the actual results with a full service commission as well. There are only two slight discrepancies between the orders and the actual trades.
The first error is in the Sept 07 US Dollar Index. In our account, the trade was exited on 08/15/07 at 81.710. It was reentered on 8/21/07 at 81.250. This resulted in a $460 error plus an extra $18.34 round turn commission that went against us. This means that the trade should have had a $478.34 larger profit.
The second error is more of a discrepancy between the real world and the hypothetical. Notice the Dec07 Mini-gold roll on July 26, 2007. In the orders, the roll did not take place. Most likely, this is due to the actual order being filled on July 23, 2007, rather than July 20, 2007 (as in the Order Manager). Again, this results in an extra commission of $16.86, which goes against us.
Even with the two errors the actual account out-performed the order manager and the backtested trades by 6.02%. This figure does not include T-bill interest, which further increases the real time results.
With the full service commission rate and the two errors, the actual results again outperformed the order manager and the backtested trades- this time by 2.37%. (Again this does not include the T-bill rate.)
The actual account outperformed the order manger and the backtest for two reasons: 1) the exceptional execution by Angus Jackson’s traders 2) realistic slippage and commission used in the backtest and applied on contract rolls as well.
The purpose of a backtest is to create a perspective of the structure that can be duplicated in the real world. An over optimized back-test or a simulation that can not be followed in real world trading is worse than useless. It is dangerous.
Below is the complete backtest ran from 1 Jan 1990 to 8 April 2008.
Proof of Concept
Below is the hypothetical backtest or what we like to refer to as the proof of concept. The test is just over 18 ½ years.
The test was run with an initial investment of $65,000.
All tests were run with the Mechanica Portfolio Engineering software combined with an Excel macro to test 1 lot trading metrics.
Slippage and commission was $75 on each new trade and $37.50 on each roll.
The account equity is on the left hand scale and the account drawdown is on the right hand scale. The duration of the draw downs can be viewed by the red shaded valleys on the green curve. The depth of the draw downs can be viewed in the lower red shaded plot. The performance of the strategy can be seen by the green shaded plot. The Commodity Index Strategy averaged 28.73% per year or $18,935.28 per year.
The drawdowns are larger in the Commodity Index Strategy as compared to our Commodity Trading Strategy. However, as shown, the larger drawdowns in the index strategy occur after huge run-ups in returns. The Commodity Index Strategy uses larger stops that allow us to stay in the trades to take advantage of bull market moves.
Trailing 12 Month Returns
The 12 month return or decline from each day in the test. The majority of the time the chart is positive. This means your chances to make money the first year trading are very much in your favor.
Annual Return in USD
The return or decline at the end of each year. There has never been a losing year. The average return for all years is $18,935.28.
A Brokers Nightmare
Overtrading is the number one reason why traders lose money. This chart is the number of trades per year. The Commodity Index Strategy trades an average of only 20 times per year.
The metrics that we feel have the most value going forward are the standard deviation of daily returns and the average trade. The above standard deviation of daily return means that the daily change in your account value will be within $1047.95 approximately two thirds of the time.
The average trade is $947.98. This provides us with a good cushion for a rough period or higher costs from slippage or commission.
Below is the list of markets traded and the performance per market.
Download the Commodity Index Strategy pdf report.
Unfortunately, the Commodity Index Strategy is currently closed to new subscribers.
The Commodity Trading Strategy, however, is currently still available. You can learn more about that strategy here.
Not ready to be a client yet? Subscribe to our monthly real-time performance updates.
CFTC REQUIRED RISK DISCLOSURE
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those being shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. 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.
CFTC REQUIRED RISK DISCLOSURE
Futures and options trading involve substantial risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this website be construed as an express or an implied promise, guarantee or implication by or from our company that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Information provided on this website is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.