Fully automated futures trading

So this time, just for kicks, I fitted everything on a per asset class basis. One of the main reasons is that my fitting just broke with all the instruments present, my laptop literally fell over. And from here, I know that asset class fitting (ok there I used clustered groups but close enough) is as near as dammnit

And here are the parameters I used:

Code:

    system.config.use_forecast_weight_estimates = True
    system.config.forecast_post_ceiling_cost_SR = 0.13
    system.config.forecast_weight_estimate['pool_gross_returns'] = True
    system.config.forecast_weight_estimate['ceiling_cost_SR'] = 9999
    system.config.forecast_weight_estimate['date_method'] = 'in_sample' ## because production
    system.config.forecast_weight_estimate['equalise_SR'] = False

That means that expensive rules aren't just ruled out at the end, but will also have a lower SR in the optimisation. I'm using my historical SR incorporation (the complicated way), but it's not a full MVO because that would produce bad results. This results in weights that can be quite different within an asset class.

I also removed all weights less than 1%, which is why the weight matrix is so sparse eg for Bitcoin.

I've become fairly blase about this because I just have so many instruments, and so many trading rules most of which are highly correlated, that almost any vaguely sensible fitting process will produce almost the same outcome. Perhaps this is a case of do as I say, not do as I do....?


Rob

 

why aren’t you allocating more money to your strategy vs passive investments in mainly equities?

 

er ... that's literally what I'm doing?

 

i meant more than 50%. like why not 80%.

 

OK to be clear it's currently 40% and used to be significantly less. I've covered some of these reasons before, but:

• Having 80% of my wealth in a leveraged futures account with a single broker controlled by software written by a complete amateur developer feels risky. It's taken me 10 years to trust this combo enough to move up to 40%.
• A good proportion of my wealth is in tax shelters, which in the UK at least are difficult if not impossible to use to trade futures. Although some of this can be offset by the higher risk target in my futures account, and therefore better tax efficiency, I would struggle to get near 60% even if I put all my non sheltered investment money into the account. Since I fill my tax shelters to the maximum every year, this constraint will bind more as time goes on.
• Although I'd like to get higher than 40%, the speed of this will be limited by how quickly I can liquidate long only investments without incurring capital gains tax. Getting to 40% was the most I could do this tax year.
• As I alluded to in the original post systematic futures trading is quite tax inefficient compared to long term holding of investments where I can time the sale. However the UK capital gains tax free allowance has been reduced to just £3k as of April, so this benefit is worth much less than it was.
• My equity/bond holdings are long only, but not passive; I do rebalance them (slowly) using simple simple momentum and value rules; so my risk allocation to eg momentum is higher than you think.
• More of a problem than before, but I preferred the steady drip of long only dividends as an income stream. However in the last 10 years things have changed, my non investment income is higher (it started at zero), and with more of my savings in tax shelters I was receiving much less in dividends anyway; plus with higher interest rates my IB account pays a fair chunk of interest even if the futures portfolio isn't performing. Nevertheless, I know I will still find it easier to pull dividends received out of a long only account than mark to market gains that feel less real out of my IB account.

Rob

 

if you didn’t have the tax shelter issue would you scale more to your futures trading (even with long term).

would you return stack your long term holdings and futures trading?

 

The theoretical optimal weight on the futures trading is probably somewhere between 50% and 75%, so yes if I didn't have these other issues I would allocate more.

"Return stack" - I see this phrase a lot, I have no idea what it means.

Rob

 

1) When you increased your futures account, did you pay attention to the low expected risk level of your portfolio? Or low level of leverage?

2) How do your UK shares fit into the 40/5/55 allocation? Is this part of "55"? What part?

 

1) Huh?

2) It's in the 55%, and it's about half of it.

Rob

 

I suggested that you could wait for a relatively low expected risk before adding capital. Smaller positions, lower trading costs, less chance of adding at the end of a trend.