Advice in quest for capital?

Discussion in 'Automated Trading' started by greaterreturn, Jul 8, 2008.

  1. Folks,

    Please offer any practical advice you have about what to do when you have a working mechanical system and need capital.

    After many years of trading and working on mechanical systems. I now have a mechanical system worthy of major funding.

    My approach will be to Google hedge funds and start contacting ones with lower return rates. I plan to offer a deal to trade an account for 30% of profits.

    I assume the relationship would start with a smaller test account and become fully funded after a testing period.


    Is there a quicker way to find funds looking for working systems?

    Are there other terms to watch out for?

    Any other concerns besides retaining intellectual property rights?

    Any thoughts about finding funds with offices closer geographically?

  2. Hmmm. Googling brings up paid services to find funds. Any other ideas? I'll keep trying.

  3. wayne,

    your best bet is to hookup with a prop firm. there is a prop trading firm forum on elitetrader, you could post there.

    honestly what I'd recommend is just trading it yourself, if you're feeling so strong about it it's the smartest way to go.

    Besides anybody with any sense will require you to put some of your own money up to trade your idea, your best bet is just to take an exam, hookup with a prop firm, put up 3-5k or whatever and trade it 10:1 and keep 99% of the profits.

    if you do some kind of a side deal with a prop firm where they putup most of the funds and you dont' want to be registered, eg you get 20% or something like that... I'd post this to the prop forum and see what response you get. Still though I'd recommend just going your own way, capital is in many ways the easiest hurdle.
  4. Have you read Timothy Sykes' book? The guy has become somewhat of a joke on ET, and his book isn't useful for much else... but it really <i>does</i> help detail the difficult process of raising capital for someone in your exact situation. I guarantee you wouldn't regret taking the time to read the few relevant chapters towards the end, where Sykes walks you through the whole process. (For those who are <b>not</b> looking to raise capital, please don't take this post as a book recommendation for <i>you</i>).

    Idea #2) Collective2. You know what that is, right?
  5. No. In fact there is no quick way to find funds for a backtested mechanical system. Nobody will trade your system with $10m of their own money, carry all the risk and then give you a % of the profits and eat all potential losses.

    Get a real trading track-record with real money. Get it audited. Use your own, friends and family money. Try to pool together ideally > 500k-$1m and start trading. 3-4 years of audited returns will be a good start.

    If you produce decent returns - especially under tough market conditions - you will get more investors through mouth-to-mouth propaganda from your friends and family circle. Then, once you got a solid audited track record, you can try to get outside more investors.
  6. No serious hedge fund would talk to you so you'll have to trade it yourself. Sorry
  7. Do you have a live track record for that specific system ?

    How long and how many trades ?
  8. chvid


    You need a live track record.

    If you have companies or clients offering you to trade their money on a system that is only validated on historical backtesting they simply do not know what they are doing.

    These are not the people you should be looking for.

    Having said that: I think you will get something out of posting on some internet forums provided that you present a solid case for your system.

    Present a solid case for your system.
  9. Thanks for the feedback.

    Of course, it will be fully tested for reliability in both a demo and live trading account using personal funds in the coming weeks before accepting any major amount of capital.

    A more specific question: What measurements or statistics will help an individual or institution based on the back tested system to make a solid case for, say, $20,000 to run with after initial testing?

    I personally use Profit Factor, weekly and monthly returns along with visual inspection to make sure the trades all enter and exit as expected.

    What other measurements will help make a solid case?

    As far as the strategy itself:

    The big insight (for me anyway) was to diversify a portfolio of models per each instrument. That smooths out the equity curve very nicely.

    So the system operates a variety of models including trend, channeling, and counter-trend models simultaneously per instrument and on multiple instruments.

    Right now it uses Forex pairs.

    It has all the necessities like adaptive bad tick filtering, auto restart, etc.

    It was tested on 5 years of tick data using common forex pairs.

    While I traded other mechanical systems live, this particular one has not gone live yet. The integration with MBTrading broker API is under way.

    Still, since I trade both discretionary and automated for years, I know this model is the real deal.

    The plan will be:

    When the switch flips to live in a couple weeks, it will trade a number of trades on a demo account for testing.

    Then it will trade using my personal money through a fair number of trades to work out any kinks with the order processing on the live system.

    So it will still be a month or more from being fully live yet.

    About the software itself: It's built using C# on Windows and was done entirely in-house except for the open source graphing component.

    This system has taken a ferocious ( by that I mean absolutely dreadrul) amount of hard work and pain to implement. That's because it included:

    1. Solving tick data performance issues to rapidly backtest. 2. Building object oriented framework for speedily making adjustment. 3. Adding total flexibility for multi time frames, per model, per indicator, per anything. 4. Automated adaptive tick filtering for bad ticks in real time. 5. Automated regressions testing the code using NUnit. 6. Creating the graph display for visual inspection of trades. 7. Designing smart genetic algorithm for quick solutions to multi-variate models. 8. Making flexible plug and play framework for connecting and multiplexing separate models onto each instruction. 9. Implementing trade statistics calculations for trade, daily, weekly, monthly, all with winner and losers separately, etc.

    Last but by far not least was actually building, testing, scrapping, fixing, redoing, starting over, fine tuning, optimizing, avoiding curve fit and generally figuring out how to make the the models themselves make MONEY!

    So now it has a very clean performing trend model for the back bone. It uses multi-timeframes for indicators, entry and exit.

    That trend component feeds in to the various channel and counter trend models to trigger them.

    Obviously, there's a limit to how much detail about the models themselves can be divulged here.

    Please advise on my questions.

  10. chvid


    I use the sharpe ratio of the running total net liquidation value of my portfolio.

    The profit ratio may hide the volatility of the return in some cases.

    What is your average holding period?

    Are you only asking for 20k usd?

    (I would think it would be possible for you to raise this amount by other means.)
    #10     Jul 8, 2008