[pyrrhotech]

Building algorithmic trading models. So far results continue to be good with every model outperforming the market on both absolute and risk-adjusted basis since going live.

Since launching https://grizzlybulls.com in January 2022:

Model | Return | Max drawdown

-------------------

S&P 500 (benchmark) | 21.51% | -27.56%

VIX TA Macro MP Extreme | 64.21% | -16.48%

VIX TA Macro Advanced| 59.13% | -19.12%

VIX TA Advanced | 35.20% | -22.96%

VIX Advanced | 33.39% | -23.93%

VIX Basic | 24.29% | -24.23%

TA - Mean Reversion | 22.30% | -19.92%

TA - Trend | 27.07% | -24.98%

This is an unleveraged, apples to apples comparison. These are not high frequency trading models. Most of them only change signal once every 2-4 weeks on average. During long signals, the models are simply long the S&P 500 and during short signals, they go to cash.

One of the pros of this macro swing-trading/hedging style is high tax efficiency, by holding a core ETF long position that never gets sold and then selling S&P 500 futures (ES or MES) of equal value to the ETFs against the long position. This way your account will accumulate unrealized capital gains indefinitely and you'll only pay tax on the net result of successful hedging. The cherry on top is that the S&P 500 futures are section 1256 contracts that are taxed at 60% long term / 40% short term capital gains rates regardless of the duration they are held.

The models use a variety of indicators, many of them custom built. Most important are various VIX metrics (absolute level, VIX futures curve shape/slope, divergences against S&P 500 price, etc), trend-following TA metrics (MACD, EMV, etc), mean-reversion TA metrics (Bollinger Bands, CMO, etc), macroeconomic (unemployment, housing starts, leading composite), and monetary policy (yield curve inversion, equity risk premium, dot plot, etc). They've been backtested very cautiously to avoid overfitting to the best of my ability.

[agumonkey]

I've been curious about doing algotrading for both the data engineering aspect and the quant. Do you have suggestions about books or others sources to get inspiration from ?

Is this a one man venture or do you have a group discussing edges ?

[pyrrhotech]

For inspiration, I highly recommend "The Man Who Solved the Market" about James Simons and Renaissance Technologies. Some of Ernie Chan's books are great for learning about the basics, but ultimately finding an edge is the most difficult part. Books can teach you some of the best practices for researching edges, how to avoid common pitfalls in backtesting, etc, but no book will ever lay out the details of any strategy that contains alpha of course.

Grizzly Bulls is currently a one man (and wife) venture :)

[rr808]

I've looked before for good online communities but never found one, I'd be interested if anyone has a source. The best people work for hedge funds so wont disclose anything and the individuals out there mostly are clueless or lucky, I suspect its too hard to find an edge without the resources of a large firm.

[sabareesh]

If so good why are you selling it as a service ?

[pyrrhotech]

I expect the long term CAGR for the top models to be in the 20-40% annual range. That's certainly high enough to get wealthy over a couple decades, or sooner if you are already starting with 8 figures, but it's not overnight Roaring Kitty style fast money. Grizzly Bulls' growing revenue helps even out my overall income, and I could definitely see it growing to $10M+ ARR over the long term, very significant even with a 9 figure net worth.

The models are not HFT. Swing-trading the most liquid instrument in the world (ES futures) has extremely high strategy capacity, well into the billions or perhaps 10s of billions, so selling signals does not (currently) in any way negatively impact my own returns.

The alternative would be to start a hedge fund, but that's an expensive and highly regulated endeavor that appeals to a different audience.

[amelius]

It would make more sense to start a fund.

[idk1]

How would I even go about starting investing using this? Let's say I have a trading212 account or similar? Where do you even start? Do you have a "how to get started page" assuming someone knows little about investing.

[pyrrhotech]

https://grizzlybulls.com/how-it-works is the best page I have explaining the basics, but I probably need to be more accommodating to complete beginners. Grizzly Bulls is intended to be a great complement to the buy and hold passive indexing strategy that most people use.

The easiest way to use Grizzly Bulls is to hold VOO in any brokerage account, sell it when the model generates a sell signal, and then rebuy it when the model generates the next buy signal. A slightly more advanced but more tax efficient approach would be to open a margin account with futures trading permissions and sell S&P 500 Futures (ES or MES) of equal value to your VOO during sell signals, then repurchase the contracts you sold during the next buy signal. With this method, I've found you can usually reduce your overall tax burden to less than 15% and you'll only owe taxes on the net result of your futures trading.

[wruza]

The models use a variety of indicators, many of them custom built

Do you run it with good volumes or are these returns “as if”?

[WorkerBee28474]

> Do you run it with good volumes or are these returns “as if”?

This trades the S&P 500. The SPY ETF along trades 21 billion dollars a day of volume. He'd probably need to trade a billion dollars to impact it.

[mzmoen]

Where are you sourcing your data from/what are you trading through?

[pyrrhotech]

I use Interactive Brokers for automated trade execution and as data source for real-time ES and VIX data. Data for the other indicators comes from a wide variety of sources. One of my favorites is https://fred.stlouisfed.org/.

[chirau]

Does your book have a digital version?

[pyrrhotech]

Not yet, but I plan to write a revised edition incorporating some of the feedback I've gotten in the near future. I'll include a digital version with it.

[eps]

Do they work in non-bull regimes?

[pyrrhotech]

Yes, in fact non-bull regimes are where they earn most of their relative outperformance. During buy signals, it's impossible for the models to outperform as they are long the S&P 500. During sell signals, they are in cash with the hopes of rebuying lower (doesn't always work out as they are of course imperfect). When the market is rising with low volatility, there aren't as many opportunities for outperformance.

[octopod12]

wont your strategies incur short-term cap gains ? so, they will have to outperform the S&P 500 index to account for it.

great start, and good luck.

[pyrrhotech]

Yes, but that's why the preferred method of implementation is using the S&P 500 futures (ES and MES) as the hedging tool during sell signals. With this method, you hold your preferred ETFs/stocks of choice forever and continue to accumulate unrealized gains indefinitely. Then on sell signals, you sell ES and MES of equivalent value to your long holdings to effectively go market neutral.

At the end of each year, you'll only owe taxes on the net result of your hedging with futures, and futures are section 1256 contracts so they are taxed as 60% long term gains / 40% short term gains regardless of holding period. In practice, I've found that this usually works out to an effective capital gains tax of less than 15% of annual profits. If a strategy returns a gross 30%, then the after-tax return would be about 25.5%.

Also, if you implement in a retirement account which many of our members do, capital gains are irrelevant.

[bdjsiqoocwk]

You have a point, but it still makes sense to report before tax performance. Before tax performance depends on model only, but after tax performance depends on model and the user. this website couldn't report that even if it wanted.