Advice for a Systems Programmer

Discussion in 'Professional Trading' started by ratso_rizzo, Dec 28, 2012.

  1. Hi Folks,

    I am new to posting on this; I've been just a reader for a while, so let me introduce myself. In my day job, I am a systems programmer in the IT field. I've written a trading system that's been running well for the past year.

    I don't have a ton of money, so the system I have is very risk averse. The return is only about 9%, but I have beaten the market in that the system earns consistently month-to-month and is market neutral. I could have gotten better returns had I used some leverage, or even increased my position sizes without using leverage, but again, I am a risk averse person, and the system I made is risk averse.

    Allow me to post some statistics (S&P 500 performance in parentheses) for YTD:

    Max Drawdown: 2.8% (9.6%)
    Sharpe Ratio: 2 (1.2)

    My question to you, the experienced traders, is what my next step should be. One option I've considered is, having shown with statistical significance that the system works through backtests and a year of real trading, is to up my leverage to 6x, or increase the leverage even further by buying options contracts on the underlying securities (I am trading long/short S&P 500 components).

    But it seems like a better plan would be to find some institutional money, according to the thread:

    Forums ›› Trading for a Living ›› Career Trader ›› A Fund vs. Your Own Money

    So my question is, how do I get some of that institutional money? Should I run my system for another few years and come back when I have a longer track record?

    Or, is it possible that given a record with enough trades to be statistically significant and a system that would easily be defined as low-risk by any institutional risk model, that this track record would be at all interesting to an institutional investor?

  2. drm7


    Take your black box to an equity prop shop, like Bright or Echo. You can get all the leverage you can handle, and they have people who can help integrate it into their execution platforms.
  3. heech


    If you have any amount of starting capital, then the right path is to start with your own money. Leverage it up with whatever path is appropriate... although my first thought is that options seems like a strange path to leverage, since it adds many new dimensions to your strategy that you haven't dealt with over the past year. I don't really know a lot about prop trading, but seems like that's one easy route available to you. There are various funds out there who will give you essentially huge leverage (disguised as 'first loss' investments), if your broker isn't giving you enough.

    Raising institutional money is very challenging + time intensive, and frankly a waste of your time if you're too risk averse to invest your own net worth in the project. It's definitely an option down the road, but almost certainly NOT where you should start.
  4. I talked to Bright managers extensively about 5 years ago...
    There is nothing the OP has done...
    That they have not seen a million times.
  5. Well, it is pairs trading, which has been around for a while. So I don't expect to surprise anyone with new ideas, just show that the implementation is solid.
  6. I think you should read about money management and gradually build your own capital.

    Money management, properly done, can be used to leverage your system and you can still have sound (safe) foundations for avoiding risk of ruin.
  7. Mr_You


    Most people do not suggest using leverage and I tend to agree. Only consider using leverage with other peoples money (OPM).

    If you are confident in your system and since you are risk averse I would suggest:

    * increasing your trading account size from your day job earnings.
    * increasing your trading size according to proper money management methods.

  8. There are some sites where you can put your system out there and people subscribe to it.
  9. Sounds like he wants a free ride, someone to take on all the risk and only get limited upside.