Have you ever wondered how successful traders make their fortunes in the markets? In this episode of The Derivative Podcast, we explore the world of trend following with a master in the field, Andrew Strasman. Here first-hand about his journey as a trend follower, from his early days in the trading pit to his experience in the real estate market and the birth of high-frequency trading.
Throughout the discussion, Jeff and Andrew talk about the importance of risk management, position sizing, and having a stop order in place. We’ll also dive into the problem of shorting cryptocurrencies and trying to predict market winners.
Uncover the significance of monitoring trades from inception to conclusion and implementing stop orders, and delve into the no-nonsense approach towards the financial crisis of 2008, the global impact of central bank digital currency, the utilization of CTA indices, the methods by which conventional trend followers generated alpha, and a plethora of other captivating topics — SEND IT!
Sponsored by RCM Managed Futures group – Check out our newly updated Semi-annual Managed Futures Rankings now available:
Check out the complete Transcript from this week’s podcast below:
Stories for Traders: A Trend followers’ journey through it all with Andrew Strasman of Totem Asset Group
Jeff Malec 00:07
Welcome to the Derivative by our RCM Alternatives, where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Hello there I got an interesting guest coming to you next week chatting with Sarah Schroeder who’s with One Rivers digital fund trading group, which was recently purchased by Coinbase. So let’s talk about their. Onto this episode, we’ve got one of the true characters in our business and fellow Chicagoan in Totem Asset’s Andrew Strasman. We dive into his background at famed Chicago trading firm DRW, some of the cool trend focus indicators and tools he offers up to investors and of course all the nitty gritty on trend models, the trend fund industry and even trend investors it’s only Andrew can tell it send it This episode is brought to you once again by RCM is newly released manage features rankings want to see who the best trend callers are the best programs you can access with under 250 K, the best overall etc etc. Go to our RCMalts.com/rankings and download it today. Now back to the show. Hey everybody here with Andrew Stresemann. Do I ever pronounced that right? I don’t think I just say hey, you when I see you?
Andrew Strasman 01:28
Hey, pal, hey, buddy. You know, that’s good. That’s good.
Jeff Malec 01:30
Jasmine. Yeah. So let’s start with, for you listeners head over to YouTube because Andrews got a heck of a virtual background here. He’s got some QR codes, some boarded up. Nice, distressed logo look. So give us give us the breakdown on what’s going on with the virtual background.
Andrew Strasman 01:51
Oh, that’s okay, so I’ve got a link in there for my LinkedIn. And it’s pretty standard. Just my URL always be branding. Right. Right, Jeff, always be branded. And then there’s a QR code for the famous turtle quiz. I’m sure you’re familiar. Yeah. 66 questions. And it was the original, true false entrance exam by Richard Dennis and Bill Lockhart for the original turtle trading program. So I included that in there. What I did was I took I took the original turtle exam, and I want to just like put it online because you can find it. But you know, there’s no answer key or anything like that. So I put it online, and I filled it in with my answers. And I sent it to Jerry Parker. It was of course one of the original and most famous turtles. So he comes back with WTF, I only got, like 93%. And it so you got like five questions wrong. And I’m like Jerry, relax. Okay. Here’s the deal. I was the answer key? I guess. So there’s no answer key that I know that exists. I go. You were comparing to my answers. I go. So we disagree, I guess on five of the 66 questions. And I said, Let’s like go through them one by one. Well, he went my way on a couple of them. After we talked about it. I went his way on a couple of them. And then there’s one or two that were just kind of really ambiguous. And like he’s like, I had no idea what Richard was thinking here. Like there’s no, there’s no, I mean, I don’t know what the heck he was thinking here is only rich knows. Right. So I kind of left it at that I use that as the answer key. And I put it out there attached to our academic project called 1420. Out which which publishes transparent CTA trend every minute of every trading day and can tell you a little bit later about
Jeff Malec 03:50
that. Yes. So what was what are those some of those five questions that were on either side that had Jerry Parker confused? Oh,
Andrew Strasman 03:59
shoot. I told you on the spot. I can’t remember. I’d had to look back at the notes. Sorry, I don’t recall but they did a subsequent on the top traders unplug. top traders unplugged podcast, which is complementary to yours. They went through he’s Neil sprung it on Jerry one day said, we’re gonna do something different today. And they went through every question live. So that was that was pretty cool. But you know, side note, what we’re what we’re thinking about where we’ve been working on and I want to tap you on this. We need to modernize that. There’s a lot of questions on there. They’re just like, antiquated. Yeah. All right.
Jeff Malec 04:44
Well, let’s get we’ll go through and another day. Yeah, the but go back to that origin story. So the, the idea there was, hey, we put the ad in the paper. People came in, we gave them this quiz. Based on how they did on the quiz. We said you get into the program. We think we can teach you how to train.
Andrew Strasman 05:01
Yeah, I mean, that was the genesis, they were looking for people that thought a certain way. Now, I think they should have taken someone with a very low score and said, Can we turn this guy around? I mean, that would have been really interesting, because, you know, they already had already had people, they’re kind of moving or in the right direction. They’d said, like, let’s take these people and see if we can teach them to trade. Right. And the first there was 13 people in the first tranche of the turtles and then another 10 later, and they taught them the rules and they gave them a little bit of seed capital. Some guys bounced out and couldn’t do it, but the guys that were able to follow the rules, they subsequently funded with millions of dollars in trading and eventually gave rise to what we now know as the CTA, or managed futures industry that we know and love.
Jeff Malec 05:50
Right? Yeah. And Chesapeake Jerry Barker was cheval EMC still we have allocate to both those.
Andrew Strasman 05:59
Those a great guy bright, so Brian’s done a two, he was another guy, he got 95 96%. And we, you know, talked about the one or two or three questions that we kind of disagreed on, or, you know, I told him the whole story. These are Jerry’s answers. So he is right down the street from me, I’m in Highland Park, and they’re, they’re just down the street from me. So I see Brian now and again,
Jeff Malec 06:21
Brian practice. So, and we’ll talk real quick skiing just because I love to talk about that. And people complain in the comments that we talked too much skiing, not enough quant so give it to me. You were just out in Whistler.
Andrew Strasman 06:34
Yeah, we took the kids 711 I grew up in Vancouver. So we used to ski up there all the time. When I was there, Blackcomb wasn’t online yet, really. And I moved out here to work on the floor at the Board of Trade in 1991. So we used to get up at five in the morning. You know, grab an Egg McMuffin on the way ski all day and then till close and then it was the CO pilots job to make sure that the driver didn’t fall asleep on that treacherous Sea to Sky road.
Jeff Malec 07:06
Which date was that pre Olympics so
Andrew Strasman 07:08
yeah, we’re absolutely yeah. Yeah, it was treacherous. They I mean, it’s great. Now they’ve they’ve like some parts are still a little windy and they couldn’t do too much but they really straightened out and made it a lot safer than it used to be. But amazing, the p2p transfer, wow, that’s an engineering marvel. Because it used to be in the morning you’d be like you want to ski Whistler Blackcomb and you know right down in Whistler village, you can go up the Excalibur lift into black comb, or you can go up to Whistler gondola, and like you’d spend your whole day up there. Now you can go scooting back and forth because it goes right to mid station mid station. It’s really phenomenal. That’s a great process.
Jeff Malec 07:50
The valley you’re saying?
Andrew Strasman 07:53
Yeah, it’s it’s, it’s it’s an impressive engineering. These guys are clever. There’s only four towers. It’s Wow, it’s crazy. It’s something it was always on my punch list. So I’m glad we got to do that. On a beautiful day recently. Yeah.
Jeff Malec 08:07
Have they gotten hammered? Like the rest of the world? Country? Not world? Yeah. And not even really the rest of the Rockies?
Andrew Strasman 08:15
Oh, with snow. Yeah. There’s a huge base. And we they had like four inches of fresh right before we got up there. And right as we left, they got like six eight inches, which would have been real nice when we were there. The do you know about the peak to Creek?
Jeff Malec 08:33
In I believe so. But tell me about it.
Andrew Strasman 08:36
It’s an 11 kilometer run. Yeah, the largest like contiguous run in North America that goes from the peak of Whistler all the way down to the Creekside gondola. Unfortunately, there’s chunks that were not available to us on this trip. So that was too bad. I wanted to take the kids down that
Jeff Malec 08:55
yeah, when we when I stayed there. We stayed at that creek center. So oh, did that daily to get back? Sure. Yeah. Yeah, the
Andrew Strasman 09:03
lower Creek side. Yeah. Yeah, what a great hill though. I forgot how fun it is and beautiful. And then even within Vancouver proper, there were three really good local mountains. And you know, we could be from house to skiing in like 20 minutes.
Jeff Malec 09:19
And now from Vancouver quickly before we dive into some real stuff. What’s your take on Vancouver real estate and is Canadian real estate bubble?
Andrew Strasman 09:29
Yeah, bonkers. Got it is bonkers. So the crazy thing now I know they’ve gotten away from this. It used to be you couldn’t get more than a five year term. You could get a 30 year mortgage, but the term would reset every five years. So I always thought like ultra low rates. You’re like there’s gonna be some people that are going to wake up to a surprise one day when things reset. So I don’t know maybe. I don’t know how people like can afford in general they’re there. is like the shacks are 1.8 million Canadian. Yeah, it’s it’s, they’ve actually much like our 529 savings plan, they started to talk about introducing a similar plan so that young people can get enough for a downpayment, which I think is the bold, right. However, doesn’t this kind of put under a lying bid to the whole prices? You know, better than I suppose, but I don’t know that that bubble
Jeff Malec 10:34
is just sort of fused. The problem is Chinese money still have
Andrew Strasman 10:37
Yeah, it went goes back to 86. Everyone was worried about the Hong Kong handover. And it was a million dollars for, you know, a 20 square meter apartment in in Hong Kong. Or you could buy this stately mansion right by UBC. And people quickly did the math and go Well, that’s an easy swap. And candidate said, Bring me you’re tired, you’re hungry, you’re moneyed masses. And through the when I was I was actually a dual citizen. I was born in San Diego, and I became a Canadian citizen when I moved to Chicago to make five bucks an hour on the Florida runner in 1991. And I said, What if things don’t work out? I better Can I go home? So I applied for my Canadian citizenship, and got it around then they were doing entire citizenship, like swearing in ceremonies in Cantonese and Mandarin, like a roomful of people. It was nuts. And so part of their citizenship. That’s great. Yeah, yeah, they, you know, they didn’t Yeah, they just, they just turned them out. And like that’s yeah, they caught hung Coover is is affectionately now. Yeah, there’s a lot of that money’s over there. It’s,
Jeff Malec 11:49
it’s impressive. And that’s the depressing part, right of like, all these young people, how are they ever going to afford buy a home?
Andrew Strasman 11:54
Yeah, exactly. And then you’ve got these some young, wealthy Chinese that have a Lamborghini and can’t get it out of put the car into reverse. You know, you might want to start with a Jetta or something to you know, get get you down with hole driving,
Jeff Malec 12:14
you might want to learn how to drive before jumping into the Lamborghini.
Andrew Strasman 12:19
Just a thought.
Jeff Malec 12:25
So you mentioned being a runner at the Board of Trade. I was a clerk Board of Trade bond pit, what pit were you in again.
Andrew Strasman 12:34
So I my first gig was assistant controller in Vancouver. And I quickly kind of revamped all of their back office things and was doing some really early, early stuff that like led to Gus and notice. And anyway, I had pretty good command of the back office and a fella came out to Chicago and he said, anytime you want a job you got it is five bucks an hour, no benefits. And yeah, I’m like, Yeah, you drive a hard bargain. And he explained to me, but what you guys access in a batch, and you get down there and he goes, You’re gonna meet people, and then you can he goes, You got to bootstrap your way up. Unless you’ve got a rich uncle. That’s where everybody starts. So I really took that to heart and said, Yeah, I’ll let you know. And I’m serious. And I felt like I had to do it because I saw the Vancouver Stock Exchange go fully electronic. And that happened like on my watch, I saw your board markers. And I was gonna be a board marker and work my way up. And I saw it happen on the VOC when all electronic and like, well, that’s gonna happen in the futures markets. So I better get my butt over there. So at first, so I had been trading for myself. Also, that’s kind of noteworthy
Jeff Malec 13:50
for you went to Chicago? Yeah,
Andrew Strasman 13:53
I was actually I backed into trend following in a weird way. So my eyes show up. And they’re like, We need you in the green room. And it was MIT. We used to clear Statler than everything turns out that it and I thought to myself, MIT, London, interbank trust, I’m gonna go to Chicago for a few years, then I’ll go to Europe for a few years, because I’ll clearly work my way up the chain. And then I’ll come back to the west coast where your day starts at five in the morning. You know, but you’re basically done it one in the afternoon, you’ve got your whole day ahead of you. So that was kind of the loose 20 year plan. And I started in the green pit in the green room. My first day was the Russian coup and yeah, well and like so I you know, already had a sense for markets and trading and I mean, it’s obviously it’s very overwhelming and I was looking around going, I got to get this piece of paper to the person in the middle of that pit. Like this is bonkers. There’s got to be a better way. And I my pretty much my first day I I became a sub deck holder in the in the bean pit. Because by the time you beat your way into the middle, I mean people are sopping with sweat and everything. And you got people with these running these orders and it’s a cancel replace that’s like out of range. You know, it’s a straight cancel this out of range in the wrong direction. And they’re running in like it’s a 500 lot market order and shoving it in people’s face. I’m like, You have no idea what’s happening here do
Jeff Malec 15:29
Right, right. No need to put that in your pocket that doesn’t. Yeah, I
Andrew Strasman 15:33
mean, no one’s gonna be upset, get upset if you take your time with that one, because it’s out of range in the wrong direction. So I quickly took it under myself to like, just grab all the paper sorted and like give it to our filling broker. And if you need this, you know, like sword sword sword. And like, then take the Phil’s coming on the other way out and handing it to the people. That runner is like, hey, take this back to the desk. Give this give this to Joe.
Jeff Malec 16:06
I tried to try and explain to people the amount of paper that was on the training phone. I can’t I don’t think anyone realizes like literally how much paper there was.
Andrew Strasman 16:15
My My favorite is Jay Holman.
Jeff Malec 16:18
I don’t know Jay, oats. Okay. Oh, yeah,
Andrew Strasman 16:22
there’s four guys standing around in the oats. And you could bring a piece of paper to him with a market order right. And he’d like bang it out his see there and he didn’t Doris it, you’re standing right there. And he just drop it right in front of your face. Are you serious, sir? Okay, I got it. Okay. Yeah, the paper was ridiculous, isn’t it?
Jeff Malec 16:46
Which they’re like, why? Yeah, of course, it went electronic like to manage all that and did like what you were doing? Intuitively, but that’s now what electronic of like, okay, this order is an important ticket back out.
Andrew Strasman 16:58
Yeah, yeah, exactly. There’s some fuzzy logic, right. I mean, I, the other thing I remember was being in the wheat pit. And I got to be good friends with some yet well, cabbie, he’s my caveat. Caveat was kind of part of this circle. And we had a really great execution team and good filling broker. And I remember being in the pit. And, you know, it’s like, whatever the handle, it doesn’t matter as like 523, or whatever. I’m a, sell your 20s Sell your nine, sell your eight. So your 17 Sell your six to sell your fives, it still says 23 on the board. And I’m thinking, the fast moniker goes up, and then you see a 20. And then you see these scattered prints. And I just remember thinking to myself, and I kind of knew this intuitively, when I was in Vancouver. I was like, I’m so far away from the action, that by the time these things are occurring, like that ship has sailed, sir, like a long time. Yeah, like, you know, eight cent move and weeds like huge. And I’m just singing myself, if I was in my office in Vancouver, I’m picturing these guys sitting around with a cup of coffee, and like, like getting on the phone, and going, you’re screwing me Chicago. And like thinking just the lag time with them getting their information. And I remember watching this and like, we go from 23 down to 15 in like, just the blink of an eye. Right? Pause. People are getting totals, they start endorsing, checking orders, three to one, the phone bank starts lighting up. Right now all come all these, these panic orders come flying in. And anyway, it was just that was that was pretty cool to see that stuff happening in real time. And it kind of affirmed what I already kind of knew, or suspected and like, back in the office in Vancouver was like, wow, these things are, I don’t think they’re out to screw us. Like, single handedly. It’s just we’re very far from where the price discovery is happening.
Jeff Malec 19:09
We used to take people who wanted to trade online if they ever came to Chicago, and we were like, hey, we’ll take you on a tour of the floor. And we’d walk over and there was like the dot matrix. And that’s where the online orders were printing. Yeah. onto a thing and then some clerk would rip them off and take them into the pit and I’m like, and there was a pile we came down there one day there’s a pile of them stacked like this like it hadn’t been ripped off the printer. Yeah, I’m like that’s at least 10 minutes old your market order that’s at the bottom of this stack of paper. So it’s so head on line to trade your life away.
Andrew Strasman 19:45
So was one day we had a bunch of this really good wheat that’s these guys are great, really strong execution team. So like a five for your listeners a 500 You know 500 initial order in the WWE is a pretty big order. And
Jeff Malec 20:04
we had a contract. Yeah. Or if you know,
Andrew Strasman 20:07
a 500 lot, right, which is not contract if you 100 contracts now, because it was you know, the stupid 5000 Got it? Yeah, yeah. Anyway, so. Alright, so the we’ve got the customer says we’ve got like a lot to do today like 5 million of this stuff. So he’s coming in in 500 lot increments and so he would to get our brokers attention that’d be a clap, right? Hey Greg. He’d like poke his head out 500 market Okay, and he got a bang it out and do whatever. Well, one of the locals was on to us. And he kind of after three, three times, he Greg comes over he goes, boys, listen up. Now I’m that’s over there as picking us off. All right. So what I want you to do, and this is at your discretion. You You know, do the regular thing call me over I’ll poke my head up. You give me the bunt signal. Like the like this? Yeah, yeah. I will disregard the next and only the next one order. And that’s it. And so, okay, okay, so we kind of sit around I’m watching this all go down. I’m like this is hysterical. So Greg. What up, buddy? Yeah. Bouncing okay. Because of our market really slow, slow, actually. Okay. All so 500 turns around, and that’s it guys cleaned out everything else. Carter bed for fried about it? Because he just cleaned out everything you sit in there make it easy for you about quarter quarter. 500 I got nothing. What do you mean, you got nothing? What do you mean, you got that? I just saw you. Oh, you’re watching my clerk. Hey, guys, this guy’s watching my clerk. Anyway, they ramp it up on this guy a few cents just on principle to teach them a lesson. And okay, I guess that pretty much covers the picking off and watching my desk. Okay.
Jeff Malec 22:26
Right. cutting that out. We’ll do baseball signs all day long.
Andrew Strasman 22:30
Oh, yeah. Right. Yeah. Keep this up. This is just our early stuff.
Jeff Malec 22:35
And do you feel like that’s what scared a lot of people out of futures markets like all that run out on I hesitate to call him shenanigans, but they were kind of shenanigans and all this floor trading stuff. And like you said, you’re in an office somewhere in LA trading, whatever. And Oklahoma trading oil and you’re like, they’re screwing me in the pits. But it was they’re providing a service. They’re filling these orders best they can and then it’s like, there is gamesmanship? It’s a live pit. They’re all competing against each other in the moment. So I don’t know if there’s a question in there. But yeah, what’s your stop?
Andrew Strasman 23:08
No, that’s not what drove people away. I mean, of course, the great stories from the pork bellies and everything. are in this. There’s been some outrageous things have happened, for sure. And yeah, I’m shocked, shocked to find the gambling has been going on. But I don’t think that’s the real reason that they got scared. And they’re still scared. There’s still this this this ongoing theme in the futures markets. I wouldn’t trade that that stuff is scary. Are you kidding me? Honestly. Yeah. The only thing they’re scared of is like they’ve got poor risk management. And there’s a lot of leverage. So they start with 10k. I mean, 95% of people who start with 10k trading futures are going to at one point lose all their money. I mean, there’s just the risk of, of absolute ruin is super high, right? Because they can’t manage their risk. Right? If
Jeff Malec 24:01
you’re trading at 200k, nominal level with 10k, or something, right?
Andrew Strasman 24:07
Like that’s another example of you like not being in it, you know, if you have $5 million, and you’re trading a 20k account, like you could do this all day, like, you know, you’re not ever going to be concerned. So they’ve got problems trading the futures but they’ve got no problem trading equities. And the issue is the equities didn’t have the same sort of leverage happening. Right. So they it’s but it’s okay, these meme stocks have gone that crazy,
Jeff Malec 24:35
right? Yeah. traded some call options on AMC, and yo, it Yeah.
Andrew Strasman 24:40
And what they do is they’re still seeking that leverage, because they can’t take down 5000 shares of XYZ. So then they start reaching for these, you know, one week options, like you’re It’s bonkers there.
Jeff Malec 24:55
It’s crazy how a day now.
Andrew Strasman 24:57
Yeah, as you Yeah, I mean, It’s crazy. And it’s so if they only knew how bad this is for themselves, because what we have in the equities is the front running. Right? And if you think is bad in the outright equities, it’s double bad in the options. Yeah. And you might have a good trade on Good luck getting out, you know, and it’s a hot potato, you’re not gonna get out till they let you out. And they’re wider. And they’re generating long gamma. So they’re buying them and they’re melting. And they, they, they’re buying them into the worst part of the melt. And when the theta really kicks in, so, I mean, they’re just, they want leverage, you know, and they’re comfortable with stocks. And it’s just if they only knew how bad they’re getting ripped off…
Jeff Malec 25:47
in most cases, my thought is I was at some point that should self correct, right? There’s not an unlimited bucket of retail people who want to blow through their savings yoloing these options, like, at some point, you’d think they’d be like, oh, cool, I made some money. But generally, I’ve been getting hammered on this. And they realize that the spreads are wide, and that the market makers are not nefariously. But just like, hey, they’re protecting their risk, they’re doing what they do. And they have the edge over that retail investor. So I don’t know, to me, it’s kind of self correcting, they’re gonna be like, all this option, volume is going to turn over a little bit as they’d be like, Okay, this isn’t a quick way to wealth.
Andrew Strasman 26:22
They’re just gonna ultimately throw it all into view and call it a day. Right. So it’s hot here, equities. I got a fun story for you talking about like equities and structural edge. Because now all the structural edge, like, most people don’t even understand, like, Ken Griffin’s the other side of us that are trades, right? And all the dark pools and this sub penning the as legalized front running is what it is right? And every time you get a better Phil, just know you were used as leverage against someone else, right? Yeah. So I mean, the whole thing kind of makes me vomit in my mouth. But back in the 2000s,
Jeff Malec 27:09
where did they bring payment for order flow to futures? Oh, great. We’ll get into that in a minute. Sorry. Go ahead with your story. So
Andrew Strasman 27:19
I for a nanosecond there I was doing you didn’t remember the SOS bandits?
Jeff Malec 27:25
Oh, yeah. Some of my good buddies were neck deep in that telling me to get in sending the statements like we made 600k. About yesterday. Yeah, it’s just who can hit the button fast enough to That’s right, jump in front of an institutional order.
Andrew Strasman 27:38
Right? Well, it was, you know, Pecos would be half did and it’d be offered at even on the app on Amex. And you can if you are fast, you can, you know, click click, yeah, you’d lift the evens and sell the house and you’d make a free half point. And so it was pure price inversion arbitrage. And some people came out with some software and opportunities would pop up, and you would click click. And if you were fast, which I was, it was it was kind of a good deal. And then what started happening is that they would started to decay or bust orders, and say, No, that never happened. Like that was four hours ago, bro. What do you mean, it didn’t happen? I’ve been It most certainly did happen. No, are busting it. Oh, and the reason code would be like inverted price at market. You’re like, that’s not my problem. That’s like, not a thing and talk to the pit committee. I am the pit Committee. It was when they started busting trades, that game was over. Because you couldn’t really rely on everything on your fills that you were getting. But this one fella who had funded a group that I was part of. He says you got to talk to the guy that’s backing all this. He needs a programmer. I’m like, All right. I mean, this thing’s pretty cool. But like, Yeah, I’ll talk to say go meet with this guy. He’s got a small enclosed office embedded within first options before they were bought by Goldman. And he smokes. He’s the chain smoker. And it’s him and this other guy. And he’s like, I need some help with something like alright, I’m out here as well. What he was doing was basically a Toby Crable ask opening range breakout type system where it since the opening print would come out. He put in a buy stop above the market sell stop below the market to initiate a new trade. And once he got in a trade he’d be, he’d be doing some add ons. And he’d use a trailing stop. And he was doing all this by hand. Yeah. And I’m like, oh, bro by hand. That’s kind of tough. So I mean, but it was working and he was making some money and he wanted to ramp up operations. And he was this this crazy thing though. Whenever I remember with the uptick rule, a sell short a Good till cancelled sell short stop order must be filled on an uptick. Well, they weren’t get being filled in a timely fashion, or if at all. So he’d be getting short, short, short. And this is all kind of under the radar stuff like nothing more than 600 shares at a clip is all kind of like penny ante for the most part. But you know, they would if you got four add ons, you know, you’re looking at 3000 shares, that’s not a bad line. And the crazy thing is, he would get all these. These trades were elected, they were due, but he wasn’t getting filled. And he’d be trading as if he was filled, because he knew they’d come in eventually. And he would either lock in a small loss or lock in the profit or whatever the case may be. But he let’s say he got short 3000 shares. He’d be covered at all, and it shows his long 3000 But he knows he’s flat. But he doesn’t have the Phils yet. Well, an hour would go by or something or two. Now he’s getting triggered on the upside. He’s getting long. Now he’s long, like 3500 shares, and now he’s long 4000 shares. But he knows he’s really only wanting 1000 Well, I don’t want that stuff now. Selling 3000 shares three bucks ago. No, thank you. I don’t want that cancel. Right. You are out. Like, you kidding me? Yeah. Is gave me $9,000. Like, Thanks for shopping at Walmart. So he’s like, I don’t understand why this is happening. But it is happening. And we’re kind of exploiting it. And I call it Oh, it’s like a free call option, either with them not filling this order in a timely fashion. So we had fella came in from New York, and we went out for a drink. And I said so what is happening? He explains to me, those orders are kicking out on little ticket printers in at the specialist post. And while the specialist, he’s got a $5,000 Armani suit, while he’s moving blocks. Yeah. Is like he’s got minions below him that are dealing with all this other penny ante stuff because he’s got a $5,000
Jeff Malec 32:10
Armani suit. Yeah, blokes don’t bother me with the little
Andrew Strasman 32:13
Yeah, right. And it would be like the kid that did Jumoke kid or the nephew of the guy he didn’t really like that he knew from grade school, that was like filling this. And doing that a particularly good job of it. So we said, we’ll, we’ll do that for you. Like we’ll monitor these trades. And in with they did fill us poorly, like on the low of the day, we’d be at 942, we’re do this price at 1010. We’re do this price, and we call them into dot services. And we get all the fills per exchange rules. Yes, we were watching every tick. And this thing we went out we didn’t have a losing day for years.
Jeff Malec 32:54
But it’s almost like the early days of high frequency kind of little bit of right of like, hey, knowing the order types, knowing how the orders route knowing where you have to get filled. Who what can you share the name, who was oh, it
Andrew Strasman 33:08
was a small group of us. It was emerald trading and I was promised a piece of the firm we’d start the day flat and end the day flat. And I think our biggest one day was up 450k. So he brought me in and I automated this stuff because that’s what I do. And boy, we really we ramp things up. We just ramp them up as then some of the specialists were kind of on to us. The three M guy was notorious. And I kept the table because each specialist at each post, he’d have like a couple of marquee names, then he’d have a bunch of like garbage like these debentures and just other tertiary stocks and the one traded and I kind of kept the table of by post of what their their stocks were. So a guy with for example, open down $3 The first print, you know, down to and we went through decimalisation by the way down to 98 You’re filled you sold 3000 down to 98 down one did even bid up $1 bid, right? But boom, like you’re filled so 3000 in the hole. Have a nice day. Those we got the Fill immediately on right? i Oh, golf clap. Congratulations, sir. You figured us out. So then I had a sub routine just especially for those guys. I call the tormentor and I would just I would get the tormentor and I would just go okay cancel orders in this in this stock and this issue, but I also know he’s got these tertiary stocks and debentures and everything. So I just ran a tormentor and it would place a bunch of orders, order, check, cancel, replace, and every time these activities occurred, guess what? Same ticket printer It did it did it did that. So I, the guy, I get a call from thought services specialist has asked if you would mind not doing whatever the hell it is you’re doing, because I’m picturing him running out of rolls of paper. And I’m like, listen, I propose that the specialist does his job.
Jeff Malec 35:22
Yeah, he is more special. Yeah. Right.
Andrew Strasman 35:25
Instead of like, worrying of like, yeah, anyway, we would put them into the penalty box for like three months, and then we would slowly reintegrate and we get the money back. We just like, hey, remember me? I want that money back. Yeah. So basically, I think what what the by the wholesaling of orders are doing, like they’re able to do this sort of thing. And people just don’t know. They’re just
Jeff Malec 35:54
right, you’re saying like you’d like basically said it. I was doing that on a massive scale these days. Basically, thing ish,
Andrew Strasman 36:01
you know, by sub penning instead of standing in front, they can for sure lock in a point one loss with a good chance of getting a point nine gain, right? If I could do that all day. I will. Yeah, I would, too. And those crocodile tears drive me crazy. You want to take away our single biggest expense? Go ahead, we’ll be more profitable. Oh, Bologna.
Jeff Malec 36:31
So let’s shift gears. So speaking of big Chicago prop firms, you worked at TRW for bid design, it will tell us what you’re doing there and what it was like there.
Andrew Strasman 36:42
So I was I had learned trend following in 93. From a firsthand source. I can’t tell you what it is. I can’t. I didn’t learn the the turtle model. I learned like facets of it like ATR based stop sizing. Yeah. And, you know, it’s significant highs and lows and things like that. So I got it was even better than being taught the turtle program, I had enough to begin my process of discovery. And when I had my aha moment, I went, Holy crap, I’ve been looking at this wrong. I’ve been worrying about MACD and RSI and all these other things that just really don’t matter. And I figured out like, Oh, this is how you do it. And so I started trading for myself. And you know, I like 10k my account, and then I had to have 60k in my account. And it was like shooting fish in a barrel in the mid 90s. It was a great trading time. So what I was at a French company called fina core vondom. And we had a fantastic execution task. It was execution only we did a little bit of clearing, but it was mostly just execution. And we had the best guys in the world on the bond box. And so they would be telling you they’d be called out your town alone, you know, 100 10s trading at a at seven Baldwin Nica for passing it even to trading. Like there, we’d be getting that kind of color. And it was the best execution team I have ever worked worked with. They were fantastic. I used to get calls, we’d have the trolley system with a hoot and a holler and I’d have like eight slots for people to listen in. And you could talk to them on microphone. I’d have before the payroll report that I always get a few people call me up, Can I listen in like you can listen in, but I’m turning you down if you talk I’m not going to hear you. And you know, this is privileged information you’re hearing. So back when stocks and bonds traded together. So I covered one of the clients I covered was Dr. W one a Dr. W’s basis traders basis trader and so with a good rapport, and we used to shoot them all day, you know, 50 lots, Hunter lots and all that sort of thing. So DFW was a customer. And we would have pre
Jeff Malec 39:08
electronic or in the early days of electronic,
Andrew Strasman 39:11
this pre electronic. Yeah, no, that was a pipe dream at that time. We I mean, I was excited for it. But it was pre electronic for sure. And so I was covering a couple of these guys. And you know, we throw parties and champagne and stuff and I got to meet Don and Don it’s a very you know, he was very people were in awe of him, right? Yeah. Smart guy, really? Engaged smart guy. Yeah. And he people were just kind of in awe with him and he was a customer so we always got along and as nice and polite. And then he we started talking sailing and I had sailed in Vancouver and I he was looking for some crew. So I started cruising on his boat and And of course, he could have any boat he wanted. But he chose the tartan 10 fleet, the T 10 fleet in Chicago, because there’s about 85 boats in the fleet based out of Chicago Yacht Club, and they have very strict rules about buying new sheets and earn new sales every year. And all that sort of thing is a very well run thing. It really came down to tactics and crew. You know, each race was very competitive. And he you know, he’s not one to shy away from competition i.
Jeff Malec 40:31
So that was before being a sailor myself, that was kind of before the one design movement, right and write the 30 fives and all that were people like, oh, okay, it’s all the same boat, and it’s just coming down to your skill. versus my father, actually, in my sailing career was on the other side of that, where he was like, No, we’re gonna buy our way to victory. We’ve got the best sales. We’ve got the North sales reps on giving his strategy like he was good, like Kevlar. Yeah, that was the flip side of that was like, Hey, you can spend as much money as you want to make your boat as fast as possible. And you’re racing next to the guy who has a year old sails. Yeah, we had a word of a handicapping system. But it wasn’t
Andrew Strasman 41:07
Yeah, right. Then the mixed class were like, you see these two boats and like one clearly beats the other. But he loses because of the time hand. Yeah, you
Jeff Malec 41:17
gotta give him a minute per mile. Well, yeah. And like, you know,
Andrew Strasman 41:20
we like the head to head competition was great. You know, that’s what was nice about the one design and so I was cruel for him. And I told him to tell him about all this money. I was making, trading, doing trend following. And he basically said, Well, shit, why did she come do that for me? Like, indeed, why don’t tie. Yeah. So he, yeah, so he this would have been, I was in Paris for a year he was in London. came back it was covered some guy we kept in touch. All of this sort of thing is kind of a long story. That’s boring. But he said once you can do that for me, he grubstake me 300 grands account size to start. This has been 97 into 98. And my first year trading I made a million bucks. And I remember being up. I remember being up a couple 100,000. And this is like, do you remember 98? There’s too much stuff. It was a deflationary spiral. There was unsold boxcars of apples would stretch from Washington State to Chicago. We overbuilt all this stuff. It was a big theme at the time was too much stuff. And a deflationary spiral. So yeah, I would I’ve ever been up a couple of minutes. He’s like this a lot of money for you, you can take it, you know, there’s a split, right? And like, yeah, I don’t think we’re done yet. I think this, the positions I have on are gonna be worth a million bucks. And then there was like a test, and they tried to shake you out of everything right? Then I have a size up only 50 grand. And he’s like, You sad. Take that, take that money. I’m like, son, here’s the thing. I still have these trays on. I’m still it didn’t get me out of much of anything. I go, I’m now more convinced than ever. This is gonna be worth a million bucks. And then, so then, you know, the 98 the Asian crisis happens and everything went like, like we were warning about. And so that was that was pretty good year for me. And, yeah, that was a good year. And a good time was a great,
Jeff Malec 43:37
weren’t you rules based anyway, so it didn’t matter. You weren’t gonna get out. We’re not set again.
Andrew Strasman 43:43
We’re not computerized yet. Right. So the deal is this like, and I mean, I would sit there and like I used Aspen graphics, which was like a CPG offshoot, remember? Yeah. And I, you know, had to excel and I had spreadsheets and I would incorporate into a database and I create all these trades. And so I was on my way to automation, but I still had to call New York to place these orders. Right. And once you get a human on the line, as like placing orders Yeah, we weren’t I couldn’t type into computer yet. Globex is just barely coming online at the time. Project day wasn’t quite yet out there. So once your calling or like all those watch it or I’ll put an alert right? Give it a little a couple of ticks room now you’re introducing something else in there.
Jeff Malec 44:40
Yeah, like oh, I wouldn’t do that right now. You have the big whatever your
Andrew Strasman 44:44
reports coming out in three minutes, would you would you Nydia, you’re gonna put that
Jeff Malec 44:50
Goldman just added 20,000 with their role and remember, yeah,
Andrew Strasman 44:54
yeah, there’s a million Yeah, really. It’s what you would you would you finally on Stan and hopefully, sooner rather than later, it’s always you against yourself. Right. And that is the chief, the chief theme of all trading is you versus yourself markets are going to do whatever the hell they’re gonna do with or without your participation. And sorry, your five lat 15 lat 60 lat one lot, ain’t gonna change much of anything at all. So really, you realize it’s just you against yourself. And so the closer, you know, I was able to match what I had on my paper, that was always kind of the goal match that I have on my paper. Now, here’s the other rub is my I would calculate my margin equity ratio. And I mean, 40% 45% like, these are not levels I could even get to now being like, fully automated, I couldn’t even get anywhere close there. There’s too many risk overrides and protection in place. My stops automated right now, and it would never get there. So I didn’t
Jeff Malec 46:02
just listeners, the average across the trend following industries 10% 12 and a half percent, something like that.
Andrew Strasman 46:10
Yeah, I’m closer to 6% and never over 15 now, but at that time, it was it was rock and roll, baby.
Jeff Malec 46:20
Yeah. But do you think that model is dead? Just like hey, here’s the Chicago prop from it’s gonna give you money to train because you have your been making money. Way more now. Just all computerized? What edge can we find and mine until it’s dead? And then find the new edge?
Andrew Strasman 46:38
I don’t know, the guys like, you know, the Euro dollar market makers. You know, they were looking to make like four bucks to trade. You know, that’s down to like 12 cents and a pick and market. Yeah. So like good luck there. And I, I’ve been approached to talk to several prop shots. And I’m like, Look, I’d like to ramp things up. Once you I’ll give you guys a very good split, you know, 25 million. Let’s go. And a lot of them that I’m talking to now. They’re like, Yeah, well, we can wrap things up. But we want you to be the first million in loss. Yeah, like, I don’t need you for that. I get 100% Like, I don’t need you. I mean, I’m offering you the opportunity to get some diversification and make some money got positive Eb, like you want it or not? And like they said they’d I don’t know. So the prop model. And then like, Dr. Wu, I mean, they’re, they’re doing fine, I’m sure. With their market making activities and they don’t have any outside money to deal with. Ron,
Jeff Malec 47:43
they went heavy into crypto and market making and crypto and mining the crypto. Yeah, what I understand.
Andrew Strasman 47:50
Yeah, a lot of them have. I find that a funny story. That’s like, he used to be the king of the Eurodollar options, right? And, or he’d be in like the Euros trading strips, packs, bundles, or he’d be the Euro dollar options. And I remember one day, he called me up and he’s like, we got a sugar on. Like, what? What are you talking about? You should be talking like volatility cones and, and smile. Like what are you going on about sugar? He’s though all the guys in here talking about sugar. I’m like, oh, geez, are you kidding me? We’ve been lying for 85 days now. Like, and now they’re talking about sugar. We we must we must be reaching at Terminus Yeah, I need to take some off on principle just because these jokes are talking about it. But when you’re like, when you’re in one of these prop shops, you know, you’re in one sector. Like I would go nuts. I mean, I don’t
Jeff Malec 48:55
like like sitting there for five years just doing one thing.
Andrew Strasman 48:59
And hoping it does something at some point, you know, and they’re banging out ticks and they can’t you know, the forest through the trees. They’re banging out ticks. Meanwhile, the things consolidated in a three year range. And when it pops out, they’re ill prepared for like, hilarity ensues.
Jeff Malec 49:15
Yeah. Like the and then we’ll get into we’re still haven’t got into our real stuff. But this has been fun. So what are your thoughts on you starting out like, hey, just make your name for yourself in the pit and like climb up the ladder? Like that’s gone. So what happens to that next layer of people such as yourself, such as me, like, where did those people come from? Start on the floor. Right? That seems to be a problem.
Andrew Strasman 49:41
I don’t know. And like, you know, this whole work from home business. I mean, it’s great for us, because we’ve got kids. You got kids, they’re older now like minor 711 is great for us. But we earned it. Getting on the damn L train at 530 in the morning. by freezing me fully, like, ding, ding, ding, market opens at seven, you’re here, you’re not here, right? And a lot of guys didn’t make it.
Jeff Malec 50:11
Hey, we’re at a point. You can’t be like, I’m sick today, like, no, no, that thing’s doing and whether you’re sick or not,
Andrew Strasman 50:17
that’s right. And I mean, I occasionally stuff happens, right? But, you know, repetitive, you know, like, is this the straw that breaks the camel’s back, you know, you can party at the boys, you gotta get up with the men. You know, like, you didn’t have to be out till two. Or if you were and you still showed up, like good on you, you’re 23. And you shouldn’t be doing silly stuff like that. Right. But, you know, I don’t know how these guys earn their stripes now. And we’ve
Jeff Malec 50:45
talked in the past on this pod. I can’t remember who was but that was a big difference between Chicago and New York, right? New York. It felt like in my mind, had to go to the right school. I know the right people have that to get into a Goldman get into JPMorgan, Chicago, hey, you could bust your way in through that door without even going to high school. And if you could think on your feet and yell and push people around, you could make a living. So right, it seems like it now it’s Chicago has kind of lost that part of it. And now you have to have the same stuff as New York.
Andrew Strasman 51:16
Oh, by the way, you know, an impressive pedigree doesn’t mean you can trade. Oh, yeah. Yeah. You know, smart people do dumb things all the time. I use an example all the time that slide. You know, 2828 primary dealers are looking for this to happen in interest rates in the you know, what actually happened? Not that.
Jeff Malec 51:36
Right. So that was on our two weeks ago. Part of that we actually pulled that up on the screen, those that squiggly line chart where all the right the rates go like this. On the video listeners, I’m pointing up to the right. And the squiggly lines are always way off way. Yeah. And those are the estimates. So the
Andrew Strasman 51:54
worst, the worst of projections of the Federal Reserve, right? Yeah.
Jeff Malec 51:59
Right. And we’ve all seen like, I hire a quant you get them in there. They build this model. And it is terrible. And they have no idea because they don’t have the street smarts to be like, Oh, it should work. I don’t understand what the problem is.
Andrew Strasman 52:09
I remember we when I was there at TRW, this in 9799. There was with a PhD on staff and he was actually a terrific help. He really did help with a lot of things in my some of my early research efforts. But he was all hell bent on doing this high frequency stuff. I’m like, Lester. I mean, listen, I was just the I was just sitting at the Globex machine. And it doesn’t matter what the handle was 4003 o threes are trading it said offered at 95 on the screen. And I was selling some of the threes and my twelves are trading I sold some twelves. And the matching server and the quote server weren’t really talking to each other at that time. Yeah. And I’m like, guys start teens to train. They’re like, No, it’s 39 year. I’m gonna try to buy them then I gotta go. You try to buy them? Go for it. Go for it. Yeah, go for it. I’m telling you. Thirteen’s are trading. I’m telling you, I’m
Jeff Malec 53:13
trying to build a model on the quote server basically, well, well, it
Andrew Strasman 53:17
was like, he’s doing this sub second stuff. I’m like, bro, like, the thing is so broken right now. You know, I wish there was an API at a time, but like, you’re getting a little ahead of yourself, bro. It’s like, I maybe will be there one day. Well, you know, here we are 20 years later, and they’re there. So you know where to go last year. But at the time, I thought it was like Don Quixote chasing a windmill and like, good luck with that.
Jeff Malec 53:54
So let’s shift gears, talk a little bit about your models about 4020. Where do you want to start?
Andrew Strasman 54:04
Well, okay, roots of the academic project. How about that? Sure. It was actually an idea we had back in 2006 was to like publish a transparent trend for CTA returns. What we do now about see the industry as a whole is a lot of the managers got away from the trend falling routes. I mean, that should be clear. They went multi strat, that should be clear, they started to target vol. You know, that should be clear. And, you know, they didn’t look a heck of a lot like a classic trend follower at some point. And yeah, you know, it seemed like their goal was to like raise assets. And which they did like, you know, look at Winston has 32 billion AUM and, you know, I’m sitting there I’m like, you could be a trend Follow up if you tried.
Jeff Malec 55:02
My joke was with Winton, right. And their marketing materials, it was like we have 86 PhDs. And my joke was I was 80 of them are in asset raising.
Andrew Strasman 55:11
Right? That’s right. Like, I mean, literally, you couldn’t because like, you know, the power of trend is in its diversification, right? I need a diverse portfolio, I don’t know you’re on your, which of these three instruments is going to make an ass of themselves, but often they do. Occasionally, a lot of them bump along in rhyme or a concert. And that’s when you make the bulk of your money in very short periods of high cross market correlation. But you know, you’re on your, you’re going to expect like one or two things like, Man, I really wish on January 1, it was going to be here on December 31. If only so that’s why you got to can’t take every trade. And, you know, and take the small losses, you know, they’re all exploratory bets, as you try to uncover those outliers is, I guess, a really good way of saying that. But these guys aren’t doing that, really, they focused on financials, because that could take the size, they barely traded, you know, they barely took their foot off first base, which is an approach. But I don’t know why people are paying one and 20 or two and 20, for you to not really take your foot off first base. So what my argument was pretty simple. If you are going to do an efficient frontier, or Markowitz bullet and use data going back the last 3040 years, you’re fooling yourself, because the CTA indices are dominated by firms that don’t really do that stuff anymore. So you should clearly delineate between like the new asset gatherers and multi Strads versus the old school CTAs. And what we need is a reliable index to for the returns. And most of these indices are dominated by these firms that have, you know, morphed over the years for whatever reason, and there’s no right or wrong there. But they’ve morphed, yeah, but you should be aware that
Jeff Malec 57:09
the argument on the other side is like, hey, no, this is what the investors want. This is what the institutional investors want. They want lower vol, they want lower activity,
Andrew Strasman 57:16
that’s fine, then don’t use a 40 year efficient frontier. Right? You know, yeah, right. Don’t use that. Yeah, that’s fine. That’s good. That’s great. Just don’t you dare blend that in.
Jeff Malec 57:27
Right. And this is the confusion for investors, they get upset of like, oh, I bought this managed futures program. But I was sold on trend following on crisis period, performance on all that, and now I’m getting something else. COVID very important to look under the hood. Not all, all trend followers are managed futures. Not all man futures are trend followers.
Andrew Strasman 57:48
Correct. And that’s fine. And everyone should find and plot their own path in life. And, you know, let the market determine what they want, you know, you’ll find out right? So it still doesn’t change. The issue at hand is like, I do want to do a 40 year efficient frontier using Trend, how am I going to do it? Like, that’s the that’s the problem? How am I going to do it? So what I had proposed, and one of my investors, he gave a nice endowment gift to his alma mater, University of Idaho. And what they do there, they have 405 100 level courses, where they actually trade because as you know, you can’t tell to you bet. So instead of just like pontificating, they actually have funded accounts or the kids trade. Now, they give them a very short leash. But if you could probably remember, it’s been so long for me, when you pit it out, get the instance sweat, because you realize you just lost a whole month’s rent in 10 seconds, you know, oh, f9 recalc. Now, that’s not going to help, that doesn’t change anything, right? So hopefully, you know, you go through that at some point in your life, you learn what not to do is probably more important than anything else. So if they could help these kids kind of get some actual real life trading experience, they would be more marketable and have a lot more skills. So I was asked to speak at with these with these guys. And, like 30 kids in the class and I’m talking to the Dean of the Business School, I’m like, here’s what I think you guys should do. There’s a need for an index of just pure trend returns. Just a real baseline model, nothing, nothing too fancy. You know, single entry single exit. explainable defensible. Very, very, very vanilla. Yeah, and I think you guys should produce it. I think you should publish it every day. I think it could become like a something like University of Michigan. Something It says subscription based. And you know, University Michigan didn’t happen overnight. They’ve been publishing since the late 40s. Right. But now, lots of firms are paying for advanced details and, you know, in advance information in advance details and all that sort of thing. So I go, you guys could be the guy’s the standard bearer. I got, because as a CTA, I mean, I could publish something, but who’s gonna listen to another? Peer or colleague right?
Jeff Malec 1:00:29
To the vandals, right? Or the vandals? Yeah, that’s right. If you dangle out University of Michigan, the University of Idaho. Oh, yeah. That’d be nice to be somewhere in that. Or, or Yeah.
Andrew Strasman 1:00:39
Yeah. So I said, and they even had a stipend of, you know, three or $4,000 a month to pay the kids to run this right. I don’t know what the problem was. Well, the problem was like, who’s gonna run it during Christmas break? Or summer break? Like Well, come on. You figure it out, bro. Like, come on, guys. Can you can figure it out? It paid our
Jeff Malec 1:01:02
position pewter science department and automated some more, or do something
Andrew Strasman 1:01:06
right anyway, I thought it would it was good idea. And they drag their feet, drag their feet. And I finally I just said, Look, honestly, I’m doing this stuff internally anyway. And I’m sure many of the manager you speak managers you speak to are running like parallel tracking ideas in real time. And seeing, I’m sure, I hope so I sure hope so. But I’m kind of doing this anyway. It’d be no big deal for me to like, put it out there. So I mocked it up in like a weekend that said something like this. So I was really hoping they would pick it up and they never did. So but I just started publishing it, we formed a separate LLC, and call it the transparent index group. And we started publishing this thing every minute of every trading day since 2014. Monitoring the trades from cradle to grave. And if you think back, the original turtle program was a 20 day breakout and 55 day breakout two systems. We picked the 40 day breakout just one. So it’s you know, not too close, not too far. Risking 25 basis points of AUM on any trade, which is pretty close to standard and trading portfolio of 29 different instruments from a different market sectors and said, We’re gonna monitor monitor the monitor these things from cradle to cradle to grave and see the results. That’s it. So that gives
Jeff Malec 1:02:37
20 out so that’s 40 in but 20 on the way.
Andrew Strasman 1:02:40
Okay, so the first thing you need to have an initial protective stop, right? And we’re we use 120 Day ATR. Okay, as the initial stop, some people will say, that’s way too close, they might risk like three to five atrs. Some others might risk point two, five of an ATR or half an ATR. We’re not here to discuss, like, what the best answer is as if there is a golden, perfect answer because none exists. But it’s a good place to start. So the initial stop would be like one ATR away from entry, then as the trade the losses take care of themselves, right? They get stopped out, lose 25 basis points. Have a nice day move on to the next trade. So the question is about handling the winners. In the case of a winning trade in it, like for a long, we would use the the highest of the initial protective stop, because that’s your no go line. But as the trade advances, the lowest low of the last 20 days would become the trailing stop. So 40 days to get in the trade 20 days to get out 40 and 20 out and 20
Jeff Malec 1:03:56
Yeah, let’s dive into the ATR things just for people who don’t understand so and when we ran our trend miles use the same thing. So right if you say I want to risk 25 pips of my equity per trade. Okay, what does that mean? Right? So if I’m trading cotton, do I say the things worth $100,000 worth of cotton and I’m risking 2500 and divide that by the contract size. You could do it that way. So, explain the ATR method, basically, you’re using that as a proxy for the risk.
Andrew Strasman 1:04:28
Okay, so, let’s talk about the 25 pips of risk first. So we’re resetting we’re calling us a $5 million notionally sized account and you’re risking 25 pips of that and that resets monthly, so it’s always 5 million. That’s $12,500. Right. That’s how much you’re gonna risk that’s your max dollar risk is 12 and a half k on a on a $5 million account size, or spoken another way, give $100 Bill, you’re gonna lose 25 cents. Right? Big what I mean, I would be upset about breaking the 100 It’s nice to have a crisp handle and looks nice at all times. But you know, let it go with that because pandas is a little painful, right? Unless you really need it like a tow truck or something.
Jeff Malec 1:05:19
But this is where people get confused. Like, okay, cool. I put on one contract and get out when it loses $12,500.
Andrew Strasman 1:05:26
Well, it’s not one contract. Right, right. Yeah, it could, it could be zero contracts, in some cases. So your your max dollar risk would be 12,500. Now, okay. Boom, Max notional dollar risk. 25 basis points. 12,005. Next,
Jeff Malec 1:05:45
it’s outside of the trade setup. That’s basically it was like, hey, on each trade, I want to risk this much equity. Equity, put it at risk. Correct.
Andrew Strasman 1:05:52
That’s it. That’s my pure dollar at risk. Yeah. Next week. Now we need to determine how many contracts and like, you know, it drives me crazy. When I see someone has a back test model. It’s one lot one line, one line, one line. Okay, I actually now know everything I need to know about you. Yeah. I mean, I’ve done it, everyone’s done it. And it’s a real simple way of doing it. But that’s not real, very real world of you, is it? So let’s take that $12,500 of notional risk. Let’s figure out how many contracts you’re going to trade. So ATR or average true range, I can cause poor man standard D. So if you take the the range from high to low of the of each trading day, and you stack them side by each and take an average of that, basically, the the average true range, True Range takes into account the possibility of pianos. Yeah. So, you know, just ignore that for the moment. So it’s basically an ATR is what we can expect on any day from high to low, the range of the thing, basically, what we can expect the thing to move, and occasionally, there’s a catalyst or something. And we can also, by the way, call that N. N is what the turtle is called the ATR. So one n, is what we would expect the thing to trade on a normal day.
Jeff Malec 1:07:29
And let’s talk crude oil. Most people know, right, so last 40 days, it’s trading between 60 and $75. Yep. And on average, each day, it moves a buck 50. From the high to high to the low,
Andrew Strasman 1:07:42
let’s say, Yeah, let’s say a buck to keep the math easy. Yes.
Jeff Malec 1:07:46
Yeah. Right, moves a buck. $100. So that value of its range is 1000. ohms.
Andrew Strasman 1:07:54
Correct. So, so what we would do is, let’s play this. If you can’t take one days of heat, what do you even do it? Right, trading this thing? Right? Like, honestly, if you can’t take one day he forget it. You belong elsewhere, you should put all your money in food.
Jeff Malec 1:08:14
Right? So that’s where that’s where other guys are. Like, if you can’t take five times one day, he
Andrew Strasman 1:08:19
correct some people risk five n, right. So like, this is where you start thinking about this and like, yeah, it this is this is where we get real with minutia, right. So in this example, we’re crude as a, an N, or a 20. Day ATR of $1. You say when I get in, I’m gonna risk $1. away, I’m going to put my stop, right. 12,500 divided by 1000, which is the the notional dollar risk of one end, we’ll give you 12 and a half contracts since you can’t trade. Well, trade half contracts. Yes, you micro. Let’s stick with the bigs for now. Yeah. So you would trade 12 contracts?
Jeff Malec 1:09:08
Yeah. point six, trade 13. That’s a whole nother discussion.
Andrew Strasman 1:09:12
But yeah, maybe maybe now you’re technically risking more than 12,000. Exactly to do right. It also should be the important disclaimer, a stop order doesn’t necessarily
Jeff Malec 1:09:23
write it down, be limit down four days in a row and you’re so but this is important for people to understand about trend. That’s not necessarily a way to control risk, even though it does control risk. To me, the bigger power of it is, that’s what you do on crude oil. That’s what you do on corn. That’s what you do on cotton. That’s what you do on Japanese yen. So you’ve now normalized your risk across all those markets. And if one right if your natural gas a little tamer these days, but back in the day, or palladium was always one right, like you’d be hard to get one contract even with $5 million ours JGB right on palladium, some of these contract sizes are very big and the true range is very big and you can’t even get to one contract.
Andrew Strasman 1:10:08
You know, it’s sometimes, so to speak and extremes, right? Like if, if you have 50 nat gas on and one corn doesn’t really matter what the grain market did today,
Jeff Malec 1:10:17
ya know? Right. You’re just a nat gas trader at that point, you’re not a diversified trend file. That’s right,
Andrew Strasman 1:10:23
you’re turning apples and oranges and all into a common banana, right? Like, yeah, you and
Jeff Malec 1:10:29
it’s more than just the risk side, right? So now that I’ve normalized the risk, I’m putting the same bed essentially, I’ve volatility I’ve read Average True Range adjusted all of these bets to be the same. Now if there’s a, we can talk outline, if there’s a Six Sigma move in corn, I make the same money if there’s a Six Sigma move in yen. Right, that’s another side to it that people don’t quite understand it. Like it’s to capture the same outlier profits when the outlier moves happened in the different markets.
Andrew Strasman 1:10:59
You got to make sure every bet is the same bet. And then, you know, there’s another dirty little secret as a pro tip. If it’s exciting, you’re doing it wrong. This stuff real life
Jeff Malec 1:11:14
tip does that. Yeah. Not in the bedroom. That doesn’t.
Andrew Strasman 1:11:21
So it’s yeah, it’s boring. I mean, done correctly. This stuff is super, super boring. And I mean, what does it say about me that I have this high passion for something that’s so boring?
Jeff Malec 1:11:34
Right, but you’re not waking up in the middle of the night? Like, who should we have so much? Yeah. unexposed around No, no. Yeah, it’s
Andrew Strasman 1:11:42
it just doing it’s doing what it’s supposed to do. Yeah. And I will, as I was explaining before, when I was, you know, prop trading in, you know, early times, there would be times I would sleep with the computer on right in the bedroom, like, cuz I probably had too much on right. Yeah, that’s probably
Jeff Malec 1:12:04
got to mention. And this is why why trend followers don’t make good podcast? Usually, cuz they’re talking. They can’t talk. They don’t care. Like, what do you think about the yen? What didn’t? I don’t know? I don’t care. Like it’s all the same bet. Right? Yeah. That’s what people understand. Why does this guy have no opinion on any of these more?
Andrew Strasman 1:12:21
I don’t predict. It’s all very boring. It doesn’t make for good copy. I’m the first to say that.
Jeff Malec 1:12:27
Yeah. The Alright, so that’s out there. 4020. So what’s people can go check it out? 4020? What is
Andrew Strasman 1:12:36
it 40, the number 40 in the number 20 out.com. And we apply this simple, stupid model. I don’t trade the 40 day breakout system, okay, I’ll just share that too. It’s perfectly reasonable. It’s a good place for people to like, cut their teeth and begin their research. But if you have a command of that, you’ve probably retrained your mindset. Already, because there’s a few things people do that are wrong. They always, they always want to be right. Okay, that’s probably the number one thing they will not be correct. trend following. You’re right. Maybe 34% of the time is a pretty good number. And that’s okay.
Jeff Malec 1:13:22
Because all of Famer
Andrew Strasman 1:13:24
baseball. That’s right. Yeah. You lose one lose one, lose one, lose one, lose one, lose one, lose one, make five make 15? Make 30. Yeah, keep doing that. And the numbers quickly add up. So
Jeff Malec 1:13:39
which is another way of saying positive skew for all you? Matthews out there?
Andrew Strasman 1:13:43
Correct. And then. So that’s one thing they always want to be right. And, you know, this helps like after many observations, and you see how these things work, probably, they get bored, and they move on is my guess is and we see that we have about 800 subscribers right now following the academic project. And, you know, every day some people new people are coming in, some people are exiting. But hopefully they pick something up in the process. And like, by the way, the reason we’re doing this is a better informed investor is a better investor. And if we can help open people’s eyes to how Trump finally works, you know, that’s probably a win for everybody. But that’s one thing they do. Their thing they do is they ignore the short side. And, you know, you think about water and the phases of water. You know, it can be liquid, it can be a solid or it can be a gas. We think about taking a position in the market. It doesn’t matter what market you’d be long, flat or short. So trend following helps you to determine if I’m long, flat or short, and you know, that part’s pretty easy. What’s more interesting is the part we were talking about with the risk management and position sizing. And that part is a little more nuanced. But people tend to ignore the short side is another common mistake that people have. Now, I’ll say this, in some cases, I remember I was getting a short signal in arc. And I use as my prime broker for my own stuff. I haven’t some accounts at Interactive Brokers. And I tried to get short arc at what I would call the right time. Yeah. Hard to borrow impossible couldn’t get any. Yeah. I’m like, You gotta be kidding me. Yeah. And I’m talking certainly less than 1000 shares. Okay. Yeah. Give me a break. So, about a week later. Getting is we got some you want it? And I’m Mike now, and I’m Yeah. But I’m interested. 20% juice? Get out of here. Yeah. You know, can add I eventually did put some on. But um, you know, we the, there’s this theme of ergodicity, where things can be any state any time and some markets. Over the years, I’ve determined You just must treat differently than the futures markets that we know and love. Because we can freely get short, it’s just as easy to get short is to get long, not true in equities or Kryptos. in equities, you need to locate a borrow, there could be a punitive loan attached to it. So there’s, you know, I treat equities and Kryptos a little bit differently for those reasons,
Jeff Malec 1:16:44
because that’s probably why. Right, the biggest and the best trend followers in the world don’t do single name equities or crypto.
Andrew Strasman 1:16:51
Yeah, yeah. And the problem, you know, you can’t get freely short the Kryptos either. I guess you could do CMEs version. But it most of these, I trade, the cash only and Kryptos. On the line is big news are happening on the weekends, you know, two in the morning, and the CME is not open. So I don’t like that. But so I don’t know where I was going with all that. I don’t
Jeff Malec 1:17:18
remember if they saw the 40 2040 and 20 out. So it’s just out there, like to me, so you have sock gents trend indicator similar? It’s on a daily basis.
Andrew Strasman 1:17:29
That’s a 20 120 day Moving Average crossover system. That trend indicator. Yeah, that’s out there daily.
Jeff Malec 1:17:36
Yeah. And then there’s another firm I’m forgetting the name is doing like 50 different trend models. And kind of doing okay, here’s the average across all these. I’ll send you that name.
Andrew Strasman 1:17:49
Oh, is that Max Keiser? Yeah, maybe Monaco. Or Alex Kaiser? Or
Jeff Malec 1:17:57
I can’t remember it. But I mean, are you paying I’ve had talks with a beer company in Europe worried about aluminum hedging, and they always get screwed, because these trend followers are on it. And they’re like, can you tell us what those guys are doing? I’m like, Well, yes. But no, like, you can just run this simple model. Yeah. Oh, my God, I want to talk to them. Yeah, I’ll set up but there’s real world applications for this stuff. Right?
Andrew Strasman 1:18:21
Of course. And, you know, the, here’s the thing like they should, they should when it comes to hedging, they need to know their hedge ratio and what they’re comfortable with. Yeah.
Jeff Malec 1:18:35
Their point is more than a lot of these are like, every time we go to hedge the floor gets pulled out or like weird stuff happens in the market because of these hedge funds. I can’t. Oh, yeah. This guy,
Andrew Strasman 1:18:47
it’s again, it’s you against yourself. Yeah. Do some of your orders get bastardized and mistreated? Yeah. But you know, that’s just a cost of doing business in my opinion. You should build that into your model. Yeah, what’s more important
Jeff Malec 1:19:01
point there if you could identify like hey, these guys are all gonna get stopped out at or right like 80% of them may get stopped out on a new 20 Day low Should we go hedge by like two ticks above the 20 day low? Maybe not right so there’s there’s some things there of like, Sure. And don’t place your orders right before huge trend falling industry driven stuff happens. I would agree with that. Yeah, although I think that’s overdone a lot of stuff. What’s the guy? Mugello kid or something like right, he’s always out there and Bloomberg and Wall Street Journal like CTAs have driven the market this way and that way, so I think some of that flow stuff is overdone.
Andrew Strasman 1:19:44
That’s it’s horseshit. Honestly, it’s it’s worry about your own stuff. How about that?
Jeff Malec 1:19:55
Alright, so speaking of your own stuff, so you said you don’t use that what give us What the totem what’s different with how you’re working, I
Andrew Strasman 1:20:03
mean, I would urge people to look at a longer look back window. And so it’s kind of a trade off, right? The longer look back window, the higher the quality of signal, and the less frequent of signal. And I’m a big fan of not overtrading. But you also run the risk of leaving a lot on the table. So you’ve got to kind of try to spark a balance between boldness and humility. And I would, I think 40 days is a little too close. Certainly not something like a 20 day. And you got to always understand there’s gonna be a lead lag relationship. So when 40 and 20 out is beating me. Yeah, I’m a little pissed. Yeah. But that’s just, you know, that’s just life. I know why it’s beating. And then when I’m beating it, I’m like, Yeah, take that. Right. But I think you know, there’s no right and wrong answer. And I think if you can find greater diversification by overlaying multiple strategies, that’s one of the things I’ve done. The other thing I’ve done over the 13 years,
Jeff Malec 1:21:17
and what do you mean different strategies, different timeframes?
Andrew Strasman 1:21:20
So yeah, I’ve got like a couple of, I’ve got two systems working in concert with each other. And one is a little bit of a quicker reacting, the other one’s a little bit slower. I just find like, blending them together helps smooth things out for me a little bit. I like it. i It’s it makes for an easier ride for me. Then the other thing, I’ve call it what it is, okay, like 2008 was awesome for trend following what people I think forget about it is like, we’re not supposed to talk numbers on the on the pod, right. But the first quarter was really good. If you stopped trading in April, it was a good year. And we are generally long, all commodities and short dollar long commodities, long stocks, it was a great trade in the first part of a week, then things went, you know, quiet, then went sideways, and then they reversed and that was even better. And that it made for a fantastic 2008 So people you know, we recollect 2008 We think about the crisis, but we forget about the first part of the of the trade. And when I was crewing for die, you’ll you’ll you’ll remember this the roll tack? Yeah, you know, you get all the crew weight on one side of the boat. And then when you tack over, it’s movable ballast. And the idea is to keep the boat speed up. Because if everyone just sat like a bump on the log, you’d come over you like, you’d Bob there for a minute till the sails filled up, and then you’d slowly start to regain your momentum. If you can use this movable ballasts concept or roll tack, then you get inertia working with you to keep the boat speed up. And that’s the theory. So I’ll even go back to 97 on that. The Thai baht blew up. It got stronger immediately before it got decoupled. So I I’ll never forget that because like, as a stupid trend follower, I would have been long the bot. Right. And then I would have a good trade there for about a week. Yeah, and then I would have got stopped out of the box. And then I would have gone. Shit. I’m your Huckleberry I’ll go the other way on the bot. Right. And that turned into the good trade.
Jeff Malec 1:23:47
The N 22 is a lot like that, in my opinion, right? Like you had commodities drove the first part of the year. And then short bonds drove the second part of the year. And but the transition was super smooth. Like a lot of these other years, you’re gonna have the gains a quarter where there’s big losses as it transitions and then maybe another quarter or two of gains. 22 seemed to be like this nice, smooth transition of like commodities like hey, we’re out of steam. Here you go bonds you run with. Yeah, that’s without that big sharp drawdown, which was nice.
Andrew Strasman 1:24:16
Yeah. Yeah. And so, like, translate makes most of its money in short periods of high cross market correlation. And we can actually measure this. This we’re publishing this thing on our site and called the totem trend index. And basically that’s my attempt to quantify standardized quantify the strength of market trends. And I don’t care which manager you throw at me. If I take a look at the monthly average of that, I can usually, usually my opinion based on observation that of running this on mobile Well, managers, I can usually tell you which months or show you the correlation between a high trend index and the months they’re making money.
Jeff Malec 1:25:12
And so the question would be, why not filter for that trend index and only put on risk when the trend index is at a certain level? And that’s
Andrew Strasman 1:25:21
a great idea. And it’s a notion that I’ve kind of implemented and that’s one of my differentiators. The rub is on Jan, on April, it’s too fast. Well, we don’t know. You know, on April, what are we April 6 today? We don’t know, the end of the month, what the thing is going to be the average for the month. We don’t know that at this moment in time.
Jeff Malec 1:25:44
Do it run it daily, in theory, right? Oh, yeah. No, I
Andrew Strasman 1:25:47
run it every 10 seconds. So I am, I can tell you exactly where it is. And then, you know, so it’s actually it’s not a bad way to be. Like, we may want a high trend index value the first quarter of last year and it’s been very quiet ever since. So like, people ask me, What do you think? I don’t know. I’m very not very motivated right now. For the outlook for trend at this moment in time. And now it’s obviously subject to change. And I am excited for the fourth quarter of general election years. So I mean, I think he got a dog paddle for a while until things become more clear. But we also know that 13 years of money printing is not good for Trent there wasn’t then and was on March 13. We’ve got a brand new four letter acronym to worry about.
Jeff Malec 1:26:43
Yeah, but which I’ve ignored it. I don’t what is it?
Andrew Strasman 1:26:49
BTF P Yeah. Which closely on us by the FN Ponzi. Yeah, is how I’m remembering it. But you know, it shows right up in the central bank assets.
Jeff Malec 1:27:04
You you first showed me that chart long ago like track. What was
Andrew Strasman 1:27:10
yeah, the the growth of the central bank’s balance sheet it plotted inversely against drawdown and CTA and also the up move in the stock market. And it was Dimitri Alexei, Alexei from alphabet. He he gave a speech one time and we were out for lunch, he showed me that I’m like, Dimitri, you’ve got to amend this showing, including the ECB. Because that explains the next tranche of pain, like perfectly edit is perfect. And it’s, it makes perfect sense, right? They were on the spur people into risk taking activities. And they want to keep a lid on markets being what we would call fun. IE.
Jeff Malec 1:27:53
And to me that it came out as like we put a lid on volatility, that’s a little too simplistic. Probably it made fewer bets. Right, it made everything one big bed instead of a bunch of different separate beds, right, which we saw in 22 is on Oh, eight like, which is weird to say because you say when cross correlations rise trend as well. But it’s also does well when there’s a bunch of separate bets paying off at the same time when oil is doing its own thing, because Russia is acting up when cotton is doing its own thing, because there’s a drought in the southeast when right like cocoa is doing something because there’s a war and, and wherever that is Ivory Coast. So it’s like, you need all those different things to hit. And for whatever reason, when the central banks are asking in unison, which is probably mainly because it made the currencies one big trade. Right, that put a lid on trend, not on their performance, but on their ability to access different bets.
Andrew Strasman 1:28:52
Yeah, I think that’s a fair way of looking at it. And so here we are, again, with them actively in there. And you know, the swap lines bailing out Credit Suisse, you know, Swiss national, I always keep a chart of SMB on standby, because it’s the world’s biggest hedge fund. And you know, the, the 98 crisis was what was about a hedge fund blowing up, then oh eight was about a money center bank blowing up. And there’s a good argument to be had that the next crisis is one when a central bank blows up. And I don’t even know no one knows what that looks like. But it probably ends with the introduction of central bank digital currency around the SDR you know, which is Keynes’s on Keynes’s vision board dream board, right? Yeah. Like this checks all the boxes
Jeff Malec 1:29:45
occur. Then they just announced yesterday the central bank coin or whatever.
Andrew Strasman 1:29:51
Yeah, the problem is they kind of are really missing the point, right, like the point of the Bitcoin is a trustless. Network, which is verified by all willing participants and they want, they want basically a secured SQL Server version, right? Which they can they control that everyone can tap into. I mean, that’s ridiculous. They’re completely missing the point on,
Jeff Malec 1:30:16
well, I don’t or they’re too clever by half, they’re not missing the point at all. They want full control, and they want to be able to see exactly what you spend your money on and be able to withhold taxes directly and things like that.
Andrew Strasman 1:30:28
They want their cake and eat it too. And then, you know, you hear like anecdotal evidence of like, like Walmart sales at midnight, and one minute when the when the benefits cards kick in. And there’s this big spike in sales, and it’s, you know, baby formula and diapers. And like, if somebody’s waiting till midnight, and one minute, it’s because they need this stuff. Right. Yeah. So and then they don’t pay their employees enough that they actually qualify for those EBTs. Right, exactly. It’s just it’s cockamamie. And it’s just, it’s frustrating.
Jeff Malec 1:31:09
You mentioned some of these guys going astray and doing ball targeting. So I assume how you said that you think of that as a bad thing? Yeah, go dive into ball targeting.
Andrew Strasman 1:31:21
Yeah, I, you know, I personally think the vol of the portfolio, volatility of the portfolio is like a secondary reaction. Right? Like, I don’t think that’s like your prime directive, per se. I think it’s describes what your portfolio is doing. But I don’t think it’s like, should be your primary directive to target that, per se. I will say this. You know, most trades don’t get to like 100 N in profitability. There’s that n concept again. Yeah. You know, we we initially risk one N, or 120. Day ATR, for example. So if you are up one in, you know, your one to one reward to risk territory, if you’re up three, and on the trade, you’re 3.0, you know, your, your profitability index, or your risk reward, your reward to risk is three times. So if you RSA three, the five, most trades don’t get into, like 30. And in profits. Yeah, let’s face it, I’m getting the 50. And so if you told me, you took like, say, 20% of your profits off the table, converted open trade equity, into realized equity into realize profits, reduced risk, you know, starting at five to one, seven to 110. To one, I don’t think that’s a really I don’t think it’s a bad idea. I hope you’re getting out too soon. I hope it turns into a massive 120 and winter, but face it, most traders don’t get there. So you’ll
Jeff Malec 1:33:02
have not to put words in his mouth. But I think Jerry Parker would be like, No, that’s in typical to the whole point of trend following you got to go for those 100 ends.
Andrew Strasman 1:33:10
He says that. And then he also doesn’t say that he says, but if you want to take some off, that’s not the end of the world piecemeal profits, not a bad thing, I don’t know is kind of talking about
Jeff Malec 1:33:20
but I think that it’s weird. Those, I guess they go in one hand, go together. But you could also have the case of your just purely vol targeting, that things happen outside that profit. And now you’re getting out at 1.2. And just because the volatility of the whole portfolio expanded, and you want it to be in there at that 14 level or whatever you’ve targeted,
Andrew Strasman 1:33:41
right. And now you’re now you’re forced to like you’re picking winners now. Right? Like, that’s where we’re locking in losers. Yeah, right. And you like you got out of the good thing too far too soon, because this other stuff was getting Ansan in the pants. I don’t think that’s a very smart idea. I do think so I kind of look, I look at the overall portfolio. So I kind of over the years, this is what I’ve come up with, is we need to pay attention to where we are personally in the drawdown cycle is first. And you say like, if we’re making new highs, I want stuff, let it rip. We’re doing what we should let things go. But let’s say you’re in a 10% drawdown or a 20% drawdown or god forbid, a 30% drawdown, you need to refit in a little bit. And let’s say you cheap 10 million, like it’s 8 million or even 5 million, and then change nothing else. But you want to refit in by some factor like point eight or point five or something like that to say, look, we’re recognizing we want to be in business forever. And we’re recognizing we’re in in kind of a bad state right now. And we want to like refit in to you know, put in in You’re mainsheet, right? Put in a couple of reefs to weather the storm. So that’s one aspect. And the other aspect is where are we with in terms of the trend index? And say, is this a good favorable time for trend? Or isn’t it? If it is, let him rip? If it’s not, maybe we should put another refund, and say, Let’s just Bob, you know, bobble along here, and wait, and then when the time’s right, let them have it. So that’s what I’ve been doing. It’s been working good. I mean, the goal has been to truncate left hand losses at not a big cost to right hand returns.
Jeff Malec 1:35:42
Yeah. So that’s the idea. I think.
Andrew Strasman 1:35:45
And then we’ve seen that actually, in recently with some returns, right, with trends. Having such a great last year, and then getting, you know, gobsmacked recently.
Jeff Malec 1:35:56
Yeah, that was gonna be my next thing. So what are your thoughts on that? Well, you just mentioned it, they came up with the new acronym, and whether Coincidently, or in your case, not, like huge losses for trend, some of the biggest two three day losses I’ve ever seen across some of the managers we follow. Right, like in the seven and a half to 15 and a half range up to three day losses, which was basically everyone was short, the entire curve twos fives, 10s 30s, and the whole thing rallied. And, you know, they got smoke was too fast to get out. For a lot of them. So anyway, what’s your thoughts on on what happened there? Is that a feature or a bug?
Andrew Strasman 1:36:40
Yeah, I mean, last year is Darling was, you know, this year’s he’ll right? Yeah. The you had to be short, you’re not a trader? Yeah. Okay. And you got to take your lumps and move on. Or you’re not doing it right. Now, I didn’t quite see it the same way with the 40 and 20. Out project. So I think many, it, let’s just go back to the sock Jen trend indicator, which is a 20 120 day Moving Average crossover system. What I like about that style of trade is it trades infrequently. And you know, I’d rather make me money than my broker money. Sorry. Yeah. But like, you know, call it what it is like trade last make more is always a good idea. So I do like that feature. What I don’t like about the systems that are always longer short, is it doesn’t allow for any periods of consolidation. Yeah, you know, and, like forming a basing pattern. You know, like, it doesn’t really allow for that. And during those periods, it can get chopped up a little bit or whipsawed. So, I think a lot if they stayed there, like somebody point eight five correlated to the sock Jen CTA index, then I guess we can suppose many of the traders that are the constitute the constituents of the CTA indices do do a Moving Average crossover system. I think. I think the I was actually surprised by this. But I think the preponderance of CTA trend is in moving average systems. Yeah. Which I’m floored by.
Jeff Malec 1:38:25
would be surprising to me as well.
Andrew Strasman 1:38:27
I think. I think that’s the case. Which, fine, that’s all right. But they’re also prone to deep drawdowns. Okay, so they had these good trades on for a long time, and not getting out any day. Soon. They had these sharp reversals to it 8% down in a couple of days trading, right. Which is neither you know, they had they had it to give from last year. Right.
Jeff Malec 1:38:52
Yeah. Right. And that’s the flip side of all is if you made 30 and gay back 10. Yep. That’s kind of the bed you’ve slept in. That is Trent Vaughn.
Andrew Strasman 1:39:00
Yeah, right. And that’s fine. Now it compared to like, 40 and 20. Out model. It didn’t have you wouldn’t even notice those two days in the return stream. They were just mean. Did they give back a lot of open trade equity? Yep. Did he get stopped out yet? Did he get chopped up? Yep. Yep. And yep. But you couldn’t even tell from the return stream that anything was going on there that day. So. So yeah, I think that that’s just strategy specific. And I think it comes down to the Moving Average crossover versus breakout trend following.
Jeff Malec 1:39:35
And then our last bit I’ll ask you about, there’s been a bit of a movement to be like, hey, you know, at all this trend, following stuff, cool. Ad markets, all these models. I think we can replicate it with a simplistic model with 10 markets.
Andrew Strasman 1:39:50
Drives me nuts. drives me absolutely bonkers. I’m not going to use names here. I think we all know who we’re talking about, but I just have two simple observations. The same author, it was, I remember this pretty clear was, it was must have been 2013 or 14, because it was five years or so after it was five years after, oh 809 fell off the, like five year return stream. Yeah. And we were at a CFA conference here in Chicago. And one of the speakers said that the old school trend followers made all of their alpha, you know, we don’t even know what beta is. But go ahead and say they generated alpha, because we still don’t know what beta is because we don’t really have an index. But he said that all their returns were derived from the yield curve sitting on like fully funded accounts, and getting a five 6% yield. And, of course, that was helpful, right? Like, nobody, few people notionally funded accounts back then, I guess, for your listeners, you know, you can, if you have a $2 million dollar account size, you can either put $2 million in the accounts, which would be the preferred method, or you can do like a related or group account and have a master account sitting somewhere that has a pile of money in it. And then you have an account that you’re trading 2 million notionally. But it really has $0 in it. And any margin requirement is is sated by the master account. And so that’s what people are doing these days, you have a $2 million account, there’s like $0 in it, go get him kid. So that doesn’t exist anymore. That getting that extra 5% or 3%, or one basis point kicker doesn’t really exist anymore. So he said that and I’m like, You’re, you’re like you believe this? He believed that I’m like, show me the math, because that’s preposterous. He’s saying all these trades are doing and silver and crude. And this, you say, none of that matters. None of it. And that’s what he said. I’m like, I just I. That’s incorrect. That’s not right. So I already kind of had a beef with this one author. But then you go, and you take a look, and they’ve raised like, a billion dollars. Yeah, the ETF, which is great. Yeah. It’s great. But on their old website, the replica, they used to replicate 16 different things. Now you go to the site, they only have but two. So they’ve actually done trend following of sorts, by no longer offering, I imagine the other 14 things, because they found the two things that actually worked. And if anything says trend following, it’s actually that, right. Yeah. So I mean, I think it’s, I think it’s great. But I think people you know, trading once a week, using linear regression models, like, why don’t they just subscribe the 40 and Tony out? I’ll tell them exactly how, how many CTA trends should be positioned? Right. Like, I can tell you minute by minute. But I’m not a big fan. I think. I think the problem for managed futures and CTA and trend is, you know, if I need two and a half million minimum for my training programs, you know, it’d be nice to be able to offer things in 15 100k clips. But as you know, that you’re talking about a fun product, and those get very expensive to administer. And if any problem is right now with the trend, it’s like, give it give the give the investors an investment vehicle that they can use. And so I think they fill that niche. And then you see something like a point eight, five, risk expense ratio for those things. But what you don’t see are swap fees behind the scenes and all these other additional fees, everything that is so transparent in the CTA NFA regulated space. So there’s a few things that drive me crazy.
Jeff Malec 1:44:24
Good. All right. We’ve got a lot of time we’ll leave it there. Any other thoughts?
Andrew Strasman 1:44:30
No, you I love your your show, brother. And you Thank you. Do you ask great questions. You’ve had a great lineup of people. Yeah.
Jeff Malec 1:44:42
All right. I’m not going to tell you ask you to tell everyone where they can find you because it’s plastered all over the screen. Where he listeners go to the YouTube subscribe for our channel and you get to see all his stuff here the quiz the LinkedIn the name, Totem asset dot coms And we’ll put all that in the show notes do. Alright buddy, have a good one. Let’s grab beer here in Chicago sometime soon. That’s it for the pod. Thanks to Andrew. Thanks to RCM for sponsoring thanks to Jeff Burger for producing. Go check out Andrews 4020 site and trend indicator. See it in the show notes. Go check out our sands ranking paper or cml.com/rankings and go subscribe to the pod. We’ll see you next week with Sarah from one river peace.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.