Lincoln B. Fiske Jr.
President of TradingVisions Systems, Inc.
Program(s) Developed: Axiom, Impetus and Delphi
Interview Date: January, 2006
Interviewed by John Gallwas, Striker CEO/Founder
A follow-up interview with Lincoln Fiske, the founder of TradingVisions Systems, Inc, a registered CTA (NFA 347050), and one of the first system developers to recognize the need to package various trading systems for customers interested in diversification. "Vista Portfolios", launched in November, 2004, offers (1) multiple trading systems, (2) trading multiple markets, and (3) trading in multiple time frames.
John Gallwas: Before we ask about you new trading system, in our last interview you were pleased with your April 2004 released "AXIOM Index". Bring our readers up-to-date on its performance and why you think it will continue to do well in the future?
2005 was a very tough trading year for many systems, with range-bound prices, few trends, and low volatility. In mid-year the S&P cash hit the lowest range for the prior year (in % terms) since 1977. Daily average true range (as a % of the index) hit its lowest since 1996, and July-August and December had the lowest high-low range of any monthly period since 1993. This makes it very difficult for trend-following systems to carve out profits. Despite this, AXIOM Index had a profitable year, with AXIOM eMD the most profitable system tracked by Striker in 2005. I'm pleased that AXIOM was able to make money in such a difficult year, and its real-time performance gives me faith that it will perform even better when the markets open up.
John Gallwas: You were one of the first system developers to recognize the need for your customers to be able to diversify by using a portfolio of trading systems.
How do select the systems offered in "Vista Portfolio" and which combination would you suggest for a novice to system trading?
The ideal is to include systems with low correlations in their equity curves, and this is how I select systems and markets when creating recommended portfolios. The closer the correlation is to zero, the more likely it is that the different equity curves will cushion each other's drawdowns, which equates to minimized risk. When risk is minimized, it's possible to capitalize an account at a lower dollar amount, and the net effect is that you increase your returns. Diversification allows for the most efficient use of capital.
Here's a simple example. Let's assume we're willing to accept a 35% drawdown from initial capital. We'll start by deciding to trade AXIOM Index eMD, one of the best performers of 2004 and 2005. Going back to 1.1.1997 (using e-mini results from January, 2002, and 1/5th full-size contract data prior to that), the maximum closed-trade hypothetical drawdown has been $9,395, after subtracting $50 slippage/commission and lease fees. We therefore would capitalize the account at $26,800. Net hypothetical profits trading one constant contract over this period were $58,990, so our annual return (assuming we remove profits each year and restart with the same initial capital) would have been 25%. If we instead add AXIOM Index NQ, which has a correlation of .10, we start to see the power of diversification, because the maximum combined drawdown now drops to $8,245, but our profits increase to $113,176. We could therefore capitalize this account smaller, at $23,600, and our average annual return jumps to 54%. The equity curve also visible improves to a more even distribution. We could add a third element, Impetus, a daytrading system that trades the e-mini Russell. Because Impetus has zero correlation with AXIOM eMD and -.06 with AXIOM NQ, the maximum drawdown drops even more to $6,930, while profits increase to $136,126. With the lower drawdown, we can capitalize at $19,800, and our average annual return increases to 77%. By trading 3 markets with two systems, we've reduced the maximum drawdown by 25%, more than doubled profit, and tripled returns. If we want to take a final step and move from just trading indices to include commodities, we could add the AXIOM Long Term Starter portfolio, which includes 9 markets in 7 sectors. The maximum drawdown now increases to $11,464, but profits increase even more to $324,720. We can capitalize the account at $32,800, and our average annual return increases to 111%. We've gone from putting all our eggs in one basket with one system trading one market, to 3 systems trading 3 time-frames and 12 markets. In a world where a small edge can yield a big advantage, a diversified portfolio approach to futures can amplify your chances of success.
The Vista Portfolios include more than a dozen recommended combinations for varying account sizes. For an account of around $20,000, I recommend Vista II, which is Delphi eMD and Impetus eRL (I recommend Delphi eMD because its equity curve has historically been smoother than AXIOM Index eMD). For an account of around $25,000, I recommend either the combination discussed above of AXIOM Index eMD/NQ and Impetus eRL (Vista IIIb), or Delphi eMD/AXIOM Index NQ/Impetus eRL (Vista III). The latter allows exposure to 3 systems and 3 markets, which is a good amount of diversification for this size account.
John Gallwas: Your newest system "Delphi", we see is off to a good start. Tell our readers about the system, its performance targets, and how Delphi may fit into your basket of systems.
Delphi Universal is a trend-following channel breakout system that enters after a breakout or retracement from the main trend. What makes Delphi unique from almost all other trading systems is its ability to successfully trade both intraday and daily data from a wide range of markets and sectors. The biggest downfall of systems in the last several years has been that many (including some of mine) were developed to trade one market, usually the S&P. When that market changed, it meant many systems stopped performing because they had been too finely-tuned to that one market. By developing Delphi to be universal (I used more than 60 markets in my testing), I specifically avoided rules or parameters that did not favor all or many markets. This makes it the most robust system I know of, and it is this robustness that helps to ensure that a system is not overly optimized and will adapt to varied market conditions. I think it's fair to say that more than any other quality, a system's ability to trade a variety of markets and timeframes will determine its longevity and performance.
As a swing-trading system that holds positions overnight, Delphi is able to capture more extended moves, circumventing the limitations of lower intraday ranges. Two of its best markets are the S&P Midcap (eMD), and Russell 2000 (eRL). For these markets Delphi has an initial maximum risk of the lesser of $700 or an ATR-based value. A trailing stop and profit objective are also based upon ATRs, which keeps them in synch with market volatility. I especially like the combination of Delphi with AXIOM Index: what trend one system misses, the other usually captures. The two trade at different speeds, with Delphi being quicker to enter and exit trends. With a correlation of .30-.35 to AXIOM Index and Impetus, Delphi makes an excellent addition to portfolios.
This interview is for informational purposes only and is not intended to be
a solicitation of any kind. Trade only with risk capital. The risk of
trading can be substantial and each investor and/or trader must consider
whether trading systems are a suitable investment.
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