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Developer/CTA Interview
Keith Fitschen
President, Tradesystem, Inc.
Program(s) Developed: New Aberration and Probability Trader
Interview Date: June, 2007
Interviewed by John F. Gallwas ? Founder of Striker Securities
A follow-up interview with Keith Fitschen, the President of TradeSystem Inc., a registered Commodity Trading Advisor (NFA # 271285) located in Charlotte, NC. He is the developer of a number of successful trading systems and is considered by many to be one of most dedicated professional technical analysts in the industry. While in the Air force, Keith Fitschen split his time between flying and engineering, but it was his engineering studies that led him begin to focus on developing systematic trading models for the markets. He introduced his first award winning trading system in 1993 and his Aberration longer-term trading system was ranked in the February2007 edition of Future Magazine as one of the top 10 trading systems for 2006.
John Gallwas: Has there been any change to report on in the ?longer-term trendiness? of markets you spoke of in our November 2005 interview?

Keith Fitschen: I?ve spent some time looking at market data over the past 25 to 30 years and have found a significant difference in price action starting about the year 2000. Since 2000, the markets have become increasingly volatile. Aberration?s initial stop is based on volatility and from 1980 to January 2000, the average dollar value of the stop across a basket of 55 commodities was $2,106. From January 1, 2000 through September 2006, that value had increased to $2,909 ? almost a 40 percent increase. That means that an average trade post-2000 is incurring almost 40 percent more risk than it did pre-2000. This risk increase is not unique to Aberration. Every trend-following strategy I?m aware of has seen more risky trades of late. I suspect that the problem was caused by the dramatic increase in managed money entering the futures market, including sector funds that aren?t trend-followers, just asset-class collectors. But it doesn?t matter what the cause, it?s a reality that?s probably here to stay.

John Gallwas: What adjustments have successful developers like you found necessary to make in order to keep trading systems current?

Keith Fitschen: The volatility increase is so significant that it has to be addressed in order to have a tradable strategy. I?ve come up with a trading filter that indicates when a commodity is becoming abnormally volatile. When the filter determines that activity is within a normal range, trading can take place with any suitable strategy. But when abnormal volatility is detected, on-going trades are exited and new trades are not entered in that commodity. I?ve tested this on a dozen or so strategies I monitor, and without exception the filter significantly reduces draw-down, and increases the ratio of profit to draw-down.

John Gallwas: Why has Aberration, your longer-term trend-following system which was honored by Futures Magazine as one of the top 10 systems for 2006, been such a success?

Keith Fitschen: I?ve marketed Aberration since 1993 and the feed-back I get from my clients is that they are comfortable with it. It is simple to understand and provides daily insight into where you are in the trade. It is fully disclosed, uses the same rules for all commodities, has a money management overlay for both small and large account traders, and, until recently, has been very consistent. People want to trade something they fully understand and are comfortable with.

John Gallwas: What is new about your updated Aberration trading system?

Keith Fitschen: I call it the ?Aberration Strategy? to differentiate it from the original product. The entry rules and exit rule are identical to Aberration but two ?filters? and an additional exit rule have been added. The first filter addition is an entry filter aimed at reducing the number of times an entry is made at the peak of a price move. This filter eliminates about 20 percent of the trades the original Aberration entered while increasing profit-per-trade by about $30. The second filter addition is the volatility filter I described above. This is the heart of the new strategy and it dramatically reduces the risk. On a basket of 70 commodities from 1980 through February 2007, the original Aberration averaged about $100,000 per year in profit, averaged about $100,000 in max draw-down each year, and had a worst case draw-down of about $300,000. The reward-to-risk ratio of that trading solution (Avg. Annual Return divided by Avg. Max Draw-down) is about 1. The Aberration Strategy?s return-to-risk ratio over the same basket and time-frame is over 2. That?s a huge change.

The additional exit rule is a dollar stop. The original Aberration?s stop was volatility-based. In many cases it was many thousands of dollars away from price, and in those cases our money management kept people out of the trade. The additional dollar stop allows a trader an opportunity to participate in those trades. All our material shows results using a $2,000 stop.

One additional change is our money management. We still have portfolios for account sizes from small to large, but the portfolios now use ?first-N-in-a-group? entry logic. You trade a fixed number of commodities in each group, depending on your account size, rather than a set portfolio. Your grain trade may be corn this time and soybeans next time, but you?ll only be in one grain at a time if your account size is small.

John Gallwas: Your newest trading system, Probability Trader, is a departure from your other systems in that it is subscription-based from your website. Tell us about this new weekly and daily program which incorporates a risk control and volatility filter to improve performance.

Keith Fitschen: I am fully in favor of disclosing the logic of a system that sells for thousands of dollars. When I developed Probability Trader, I didn?t want to let my new approach get in the hands of other developers. It really is a powerful way of breaking down markets and it works on every trading vehicle I?ve looked at: ETFs, stocks, commodities, and FOREX. I decided to lease the signals by subscription, and built the website to accommodate that. I encourage everyone to take a one-month, no-cost, no-obligation trial by going to the website and signing up.

The weekly-data strategy uses weekly data to generate signals on domestic commodities, while the daily-data strategy uses daily-bar data to generate signals on a basket of 70 world-wide commodities, including most world stock indices. The daily-data strategy is particularly compelling.

John Gallwas: Is there anything in the ?What?s New? area that you can share with us at this time?

Keith Fitschen: Yes, this volatility issue caused me to examine risk from a number of perspectives. Along the way I got the idea of using daily risk measures to actively manage a portfolio of trades. The results I got significantly out-perform what I could do with traditional money management approaches. I?ve written a lengthy article that should be published in one of the major commodity-trading magazines in the near future.

The preceding information not guaranteed to be accurate by Striker Securities, Inc. and does not constitute a solicitation of any kind. For further information please e-mail or call Dan Neenan 800-669-8838 / 312-987-0043.
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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There is a risk of loss in trading. It is the nature of commodity and securities trading that where there is the opportunity for profit, there is also the risk of loss. Commodity trading involves a certain degree of risk, and may not be suitable for all investors. Derivative transactions, including futures, are complex and carry the risk of substantial losses. Past performance is not necessarily indicative of future results. Please read additional risk matters on our web site, It is important you understand all the risks involved with trading, and you should only trade with risk capital. This communication is intended for the sole use of the intended recipient.

About this report The information and links on this website are for informational purposes. The risk of trading can be substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Striker is a member of the National Futures Association ("NFA"), the Managed Funds Association ("MFA"), and the National Introducing Broker Association ("NIBA"). Striker is registered with the Commodity Futures Trading Commission ("CFTC"), and was formerly registered with the Securities Exchange Commission ("SEC"). Additionally, Striker is a former member of the Financial Industry Regulatory Authority ("FINRA"), and the Securities Investor Protection Corporation ("SIPC"). FINRA is the largest non-governmental regulator for all securities business in the United States. Please read Striker Disclosure Statement for the additional disclosure.

The trading performance cited throughout our web site is based on actual trading history, unless otherwise noted. The starting account balance is based on the system developer recommendation. Striker tracks actual performance by recording and maintaining each trade ticket for each system generated. The performance information assumes that no additions or withdrawals have been made. The rate of return for all systems disclosed in the Striker Report is cumulative from the day the system actually started trading at Striker. We maintain a "life" track for all 3rd party systems. We do not necessarily base our records on any particular client account. No one particular customer has achieved these results. The percentage returns reflect inclusion of commissions and fees.The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor participation (whether or not a client takes all signals for a system) in the specified system and money management techniques.

Striker is a revolutionary concept in action: an international, professional team of brokers dedicated to trading only for clients. It bears repeating: unlike most other brokers, Striker does NOT trade futures for itself or any of its employees. This policy has been in place from the start in order to guarantee that our entire focus remains on the interests of our clientele. Striker believes that when brokers are allowed to trade for themselves (or have in-house trading practices) there is a strong potential for conflict of interest, as the broker may place more importance on his own trading activities (or that of his firm's) than on those of his clients. Finally, Striker has no financial ties to system developers, so there no bias or pressure on how we report the actual trading results posted in our client section. This section is designed specifically for Striker's clients, so they may audit their results on a daily, weekly, monthly, or annual basis.