2011 Year To Date (System):  +20.66%
2011 Year To Date (Actual): +0.40%

2011 Year To Date Options (Actual): +0.00%
2011 S&P:  -(5.54)%
BladeTrader Performance Against S&P: +26.20%

 

  Its been a difficult summer for the markets, but the S&P is only down 5.5% as this is being typed with a huge rally off the 1075 lows to now a 1180 high, this represents a nearly 10% move in just a few days.  Volatility is extreme and has many whipsawed to no end.

"The market is literally waiting for Europe's Lehman moment and as such the market is pricing in a European banking crisis.  In the short term we expect little from Obama's speech and many more issues to surface as the markets tests 2011 lows (1080)."

The above represents our last comment on the current economic crisis and the prediction has come to pass and fairly accurate.  Our 1250 target for 2011 still stands. Look for a test of 1230 as we gear up for 3rd quarter earnings reports.

"20% in the trading system for 2011?"  Yes.  But we haven't been trading much this year unfortunately, but this year has been following much of the same pattern as last year. 

There has been a lot of energy focused on automation, full automation with no intervention whatsoever and as such, we are not going to continue the options trading for remainder of the year other than what we currently hold.  The options trading will be a significant portion of the strategy, but it just can't be automated at this time without much more significant work; however, the trading system is fully automated requiring zero human intervention.

Additionally, we have had some very long talks with TradeStation to resolve some outstanding issues which do require human interaction.  Overall their platform is the best out there, but it still has some issues that require constant monitoring.

Where do we go from here?  From March when we first disucssed opening the fund, we didn't realize the response would be so good.  At first, I firmly believed we could handle the accounts, but looking back on 2010 I realized I needed to make some major changes.  Some of the items in 2010 that needed resolution:

1)  24-hour monitoring

2)  System configuration

3)  Network connectivity

4)  Prime brokerage

Item #1 was by far the one thing that needed resolution.  Having individuals wake up for Europe, then review for 6:00 connectivity refresh, then 9:30 open then 4:15 close, then 8:00 Asia open was way too much on me and others to maintain.  In the end, it was difficult for anyone, let alone me to keep this kind of vigilence--I did it for a year, I can't do it again.  This part has been resolved.

Item #2 is related to #1 in that the systems requried some training and configuration at the close of each day.  Depending on certain things, we would need to be LONG or SHORT and put on a Strangle.  This complexity seemed low, but to non Wall Street individuals, it was very high.  This had to be automated.

Item #3 is something we can resolve, and its purely cost related.  In other words, we need to have the applications running on a cloud rather than on PC's.  This was evident several times throughout the year when connectivity came into play and we either missed a move, or suffered through a loss.

Item #3 is something we will work on over the next 12 months.  We need to open a lot of accounts before TradeStation will move us into this category, and thus the reason we needed to focus on #1 and #2. 

I have been testing Version 4.0 for the last month, things are GREAT!  It is something that many said was "Impossible" and those are the challenges I like and find myself drawn to.  I am posting all the risk and reward in this report below.  PLEASE REVIEW THE RISK DISCLOSURE.

 Please find the risk and reward below.  Take special note of the drawdown as well as other criteria that you may consider important, P/L is good for 2011, but drawdown is something you have to assume will happen when you open your account and must be reviewed and considered.  This is based on a $100,000 account.  Note that most of this years returns are from the SHORT side.  If you were long only you would have only earned 5%, but becuase we trade both the SHORT and LONG side (we make money when the market goes down as well as up) we can improve our earnings by 3x--THIS COMES WITH HIGHER DRAWDOWN

How about the last 15 years?  We have that too, and I will disclose that on our next issue, the numbers are basically the same.  There are many more investment strategies to create, none of which will be hard as this, since this required a significant build out.

I would just like to say that this largely comes with disbelief, and I am ok with that, but the numbers from 2010 don't lie and the reports don't lie either.  The walk-forward optimizer by TradeStation also gave us a green light that this will perform with similar results int the future when we ran it from 1997 to present.  Overall, I set out to do one thing, beat the market, I think we did that.  Now its time to simply grow our fund.