Schindler Trading up 17% YTD

Discussion in 'Trading' started by islands111, Aug 7, 2007.

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  1. the fund went up 17% in august

    he's up about 38% for the year
     
    #41     Sep 2, 2007
  2. Midas

    Midas

    Laugh now, but you have to start somewhere, and with documented returns like that it will not take long to significantly increase that fund.


    Good job and good luck with your business.
     
    #42     Sep 2, 2007
  3. Today, I am pleased to be joined with Aaron Schindler. Aaron is a CTA who actively
    trades in the short term. He has experienced substantial returns over the last several
    years, despite a few dramatic drawdowns. Let’s get rolling to see what we can learn.
    Aaron: Hi Dave, thanks for the invitation.
    Dave: Sure, lets start at the beginning. I know you were in academia for a while and then
    you stepped into trading, can you tell us a little bit about your history?
    Aaron: I actually have a physics background;. I went to MIT as an undergraduate, then
    went to UC Berkeley also majoring in physics. I got my masters in particle physics and
    was working on my PhD. I was doing research at FermiLab outside of Chicago. I
    dropped out of the PhD. program and went to work with Monroe Trout in downtown
    Chicago.
    Dave: What triggered that radical change from particle physics to trading?
    Aaron: Well, I was on the experimental side of particle physics. People involved in
    theory do a lot of equations on the blackboard, and write papers and teach. Experimental
    physicists build experiments, collect data, analyze data, write papers and do some
    teaching, too. Part of my job as an experimental physicist was working with technicians
    and building these experiments with a lot of soldering, and the use of hands on
    electronics. Another part of my job was taking the resulting computer data files and
    writing programs to analyze them looking for signatures for new particles, or other things
    that we were studying. I really liked the part of programming and data analysis. I found
    out that working for Monroe Trout in quantitative finance, that I could get a job doing
    exactly that. So when I went to go work for him, I was writing programs analyzing
    market data, instead of physics data. I read your interview with Emanuel Derman with
    interest since we are from the same field.
    Dave: Right, I believe Dr. Derman was on the theoretical end of things, however, but
    same field. How did you hook up with a legendary trader like Monroe Trout? He’s in
    Market Wizards and is considered one of the greats.
    Aaron: It was through a head hunter in Chicago, actually.
    Dave: How long were you with Trout Trading?
    Aaron: I was with Monroe for about one year in Chicago, and then he moved much of his
    operation to Bermuda. I moved with him to Bermuda and continued working with him
    there for a couple more years. This was in the mid-90s.
    Dave: Was the switch in careers difficult ?
    Aaron: No. Instead of programming in Fortran to analyze physics data I was writing
    programs in C to analyze market data. Learning about the futures, options, and currency
    markets was fascinating.
    Dave: What did you do next?
    Aaron: Well, I took a detour into insurance and reinsurance where I was an actuary for
    several years. I first went to work for a reinsurance company in Bermuda. They were
    looking for someone with derivatives experience. Someone that could hedge balance
    sheet risk, and also someone who knew about various commodities that were traded on
    the futures exchanges. During my years as an actuary, I developed my risk management
    philosophy. At Trout Trading I learned how to create futures trading strategies and as an
    actuary I learned risk management.
    Dave: I see, those two positions came together, leading you to start your own firm.
    Aaron: Right, after working for the reinsurance company in Bermuda for a few years, my
    wife and I moved from Bermuda back to the Midwest. There I went to work for an auto
    insurance company near Chicago. They were bought out and I was without a job in early
    2000. So I started trading on my own at that point, and worked on developing trading
    strategies. In September of 2001, I became a CTA and started managing money for other
    people.
    Dave: For our members who may not know, can you please explain what a CTA is?
    Aaron: A CTA is a Commodities Trading Advisor. It is a designation of the CFTC, who
    regulates futures trading, just as the SEC regulates equity trading.
    Dave: What is involved in becoming a CTA?
    Aaron: It’s similar to the process a stock broker would go through. There is a test you
    take to make sure you understand the mechanics of the market.
    Dave: Ok, so Schindler Trading, as a CTA, can manage both a fund and separate
    accounts for its clients?
    Aaron: Correct. We manage futures trading accounts on behalf of institutions and
    individuals. The set of strategies we use in trading and managing these accounts is called
    the Schindler Trading Program. We trade about half a dozen futures contracts in trying to
    make money for our investors.
    Dave: What futures instruments do you trade?
    Aaron: In the equity markets, we trade the NASDAQ and the German Dax Index. We
    trade the 10 year Treasury note, the Euro-dollar exchange rate, the VIX volatility index,
    and most recently we have been trading crude oil. All these are futures, of course.
    Dave: Can you tell us a little bit about the methodology that you use in a general sense?
    Aaron: Sure, we typically use short term trading strategies. We avoid the long term
    trend-following strategies that other CTAs use. They try to jump on a bull or bear market
    and ride it for a few months. What I try to do is a short term trade that is 1-3 days on
    average. We are just trying to capture the ripples on those longer term waves.
    Dave: Is this automated trading or is it actually you placing the trade?
    Aaron: The strategies are 100% automated. The realtime market data comes from
    eSignal. The strategies are coded in eSignal EFS script. When a trade is triggered, the
    trade is sent out directly through the Interactive Broker’s programming interface, via
    DynaOrder, and is executed automatically. All the contracts we trade are on electronic
    exchanges. So from my office to the exchange, the trades are executed automatically
    without human intervention.
    Dave: Do you monitor the computer’s activity while it is working?
    Aaron: During the day I do monitor it, but allow the computer to execute. At night, the
    German Dax trades starting at 2am, so the computer trades unattended. I do have an
    alarm that goes off just in case the data feed goes down or the link to the exchange goes
    down, so I can get up and make sure things get back on track. The most common reason
    I need to get up because of the alarm is usually just a simple internet connection problem.
    Dave: When you guys are trading the NASDAQ futures, do you trade the E-Mini or full
    contract?
    Aaron: I trade the E-Minis. I originally wasn’t sure whether to trade the E-Mini or the
    large contract, so I traded them both side by side and watched my results. The better fills
    and less slippage in the E-mini more than made up for having to pay 5 times more
    commission.
    Dave: What is the average size of a trade you would make?
    Aaron: Well, today
     
    #43     Sep 2, 2007
  4. Aaron: Well, today we got out of a 207 lot trade. That is for an account with $2 million
    under management.
    Dave: Do you find any liquidity issues with that size?
    Aaron: I don’t just blast a market order into the market. The computer program uses
    limit orders to execute trades over a period of several minutes. If we are trying to execute
    a trade after hours or early in the morning, we will work it for 30 to 60 minutes or so by
    scaling into it a bit at a time. When we get out we can use the same approach. Many
    times where there is lots of liquidity we can get out in a matter of seconds. But
    sometimes we will use a limit order with a profit target for example, and get out that way.
    Dave: I know you said you guys are not trend traders and are more short term. What is
    your opinion of trend trading?
    Aaron: Many of the large CTAs use trend following with a holding period of weeks to
    months. It’s a proven strategy. I consider it to be another asset class: stocks, bonds, real
    estate, and long term trend following. There is also alternative investments like the
    Schindler Trading program that are uncorrelated to all of those.
    Dave: Can you give us a couple of basic ideas from your trading strategy?
    Aaron: Well, some of the thing I love to look at are inter-market relationships. For
    example crude oil, I believe, is a China play. China is driving up the price of crude oil by
    adding that little extra bit of demand that pushes up the prices. It’s hard to quantify these
    things and make them into a systematic strategy, but that is one example of inter-market
    relationships. My suggestion to the readers is try whatever you think works, but do it in a
    systematic, scientific way. Try to program your trading ideas with some sort of
    programming language like TradeStation, or Wealthlab, or E-Signal. From there,
    backtest it and get some hard statistics to see if it works or not. Make sure your method
    is tested and make sure it works.
    Dave: What specific indicators do you relay on?
    Aaron: We have several different indicators in our strategy from trend following to mean
    reverting. The philosophy behind mean reverting is the idea behind overbought/oversold.
    The idea is that something has moved too far too fast and it’s due for a retracement. We
    have indicators, like stochastics, that look at that. Take a set of indicators you think work
    and try to combine them and backtest them and measure their performance.
    Dave: Ok, I see you use technical analysis when you trade. Are you purely a technical
    trader?
    Aaron: We use technical analysis and fundamental analysis. With the VIX strategy, we
    have a valuation model that underlies our trades. We don’t categorize ourselves as either
    technical analysts or fundamental analysts, but we do categorize ourselves as systematic
    traders, not discretionary. You can be systematic about your fundamental analysis.
    Maybe your indicators are P/E ratios, market capitalizations, or industry sectors. Or you
    can have a systematic technical analysis strategy. Whatever our indicators, we always
    want to be systematic. We want to be able to quantify things, measure things as trades
    progress, be able to take data and see how well things are doing. This is done so if things
    aren’t living up to our expectations we can cancel a strategy.
    Dave: I notice in your returns you have really awesome highs and then some deep
    drawdowns. How do you mentally handle these significant drawdowns?
    Aaron: Yes, our returns are quite volatile. The drawdowns are the worst part of trading,
    but they are inevitable. No trading strategy wins all the time. How I handle it is that my
    wife is very supportive. After a bad day of big losses, I feel lousy, but there are 266
    trading days in a year. I tell myself that in six months from now I won’t even remember
    that down day. It will just be a point in a data set at that time. I try to focus on the big
    picture. Over time, the trading program has done quite well and I expect it will continue
    to do well. It will have its ups and downs, but I have taught myself to not worry so much
    about what happens within the last 24 hours.
    Dave: Do you have any advice for someone that is in college right now that wants to
    become a CTA?
    Aaron: Take a quantitative major if you are able to. I use a lot of statistics like
    hypothesis testing, and Monte Carlo simulation. So anything that is of a quantitative
    discipline that is going to teach you to be computer literate and how to program is
    something worth looking at.
    Dave: How do you use Monte Carlo simulation in your trading?
    Aaron: Monte Carlo simulation is a statistical tool. The primary way we use it is to
    monitor a strategy. For example, after we have made 100 trades in a market, we have a
    set of data. We can then sample from the data set over and over again to build up a
    trading record that didn’t actually happen, but could have potentially happened.
    Dave: It’s a tool to compare actual results with the model?
    Aaron: Exactly, We can then compare that hypothetical track record to some back tested
    results and to the actual results, and they should all match. If they don’t match, and the
    real time trading is doing significantly poorly, then we can only assume that that strategy
    needs to stop being traded.
    Dave: How specifically do you use Monte Carlo simulation to develop strategies?
    Aaron: When we develop a new strategy, we divide our historical data into two data
    sets, the in-sample and the out of sample sets. We then do our “curve fitting” and
    parameter adjustments using our in-sample data set.
    Dave: Can you give a specific, real world example of what you mean?
     
    #44     Sep 2, 2007
  5. Aaron: Sure, for example, if we were to develop a NADSAQ E-mini strategy and had
    10 years of historical data, we would take that 10 years of data and divide it into two
    parts, say two 5 year periods. One becomes the in-sample data, and the other becomes
    the out of sample data. We develop our strategy using the in-sample data. We will run
    our strategy with different parameters and different indicators over this in-sample data
    many times. Our final strategy will likely it will work real well on this in-sample data
    because it was built specifically to do well during this in-sample period. But…we want
    to make sure it does well in the real world before we trade with it. So we take the virgin
    out of sample data, and run our strategy on it. Then we get a real indication of how our
    strategy does on data that wasn’t used to create it.
    Dave: I like it. ‘What can be tested, must be tested” is one of my favorite quotes from
    Victor Niederhoffer. Sounds like you feel the same way.
    Aaron: Correct. Hopefully our strategy is also profitable on the out of sample data, or
    else we throw out the strategy and go back to the drawing board. When we run the
    strategy on that out of sample data, we will get a large sample of hypothetical trades. We
    then take those hypothetical trades and plug them into a Monte Carlo simulation to
    develop a whole range of what could actually happen if we trade the strategy going
    forward.
    Dave: Generally, the systematic aspect is the most important part of trading, more so
    than even your trading strategy being technical or fundamental?
    Aaron: Correct. Socrates said, ‘The unexamined life is a life not worth living.’ I say
    ‘The unexamined strategy is a strategy not worth trading.’
    Dave: Do you have any last words for our readers?
    Aaron: Sure. If you trade yourself, try to be as quantitative as possible with your trades.
    Keep records of your entries and exits. As you build up your trading data you’ll be able
    to see what kind of trades are most profitable. Maybe you do better on the short side or
    in a particular industry or market. Study your records so you can focus on your
    strengths. And if you are looking to outsource your trading to a professional, please
    consider Schindler Trading. You can find out more about us at
    www.schindlertrading.com. Feel free to email us at info@schindlertrading.com.
    Dave: Those are all great words of wisdom, thanks for joining me today !
    Aaron: My pleasure, let’s do it again soon
     
    #45     Sep 2, 2007
  6. He does not get to keep it all?
    Who is he giving it to?
    Do you know how much it costs to run a small fund...?
    Not much...

    If Aaron is up 38% at the end of the year, on 7 mill, that's another 500K in incentive fees...
    I'd say it's only a short amount of time before someone gives him 10-50 Mill...

    stocktrad3r has no idea that he's not an index chaser...
    This is a good thing!
     
    #46     Sep 2, 2007
  7. GTS

    GTS

    He does get to keep the 2% mgmt fee (in addition to any performance/incentive fees). Other fund expenses (operating expenses) are broken out separately and paid by all fund members.
     
    #47     Sep 2, 2007
  8. So why would someone want to invest in a fund that underperforms in a bull markt?
     
    #48     Sep 2, 2007
  9. Sheesh..
    it depends on what his benchmark is..

    I think that 1100% return since 2000 is pretty impressive...
    (is that what the 7 year record was?)

    This fund is totally uncorrelated to the Spoo...the world has much more to offer than just a fucking stock market.

    The US stock market is miniscule compared to the futures/derivatives markets
     
    #49     Sep 2, 2007
  10. instead of bashing him, perhaps reading my chat with him would open up a new way of looking at the market/trading for you.

    aaron is a winner in a world full of losers.


    surf
     
    #50     Sep 2, 2007
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