President of TradeSystem, Inc.
Program(s) Developed: Aberration, Aztec, I-Master
Interview Date: November, 2005
Interviewed by John F. Gallwas, Founder of Striker Securities, Inc.
A follow-up interview with Keith Fitschen, the founder of Tradesystem, Inc., a trading system developer who is registered Commodity Trading Advisor (NFA 271258). Although Mr. Fitschen has been an active developer and trader since 1993, it was his engineering work, while in the US Air Force, where he learned to use some of the tools used for systematic trading. Prior interview with Keith Fitschen (April, 2004) is also posted here.
John Gallwas: Before we talk about your new service, it would be helpful to our readers if you would explain the correlation between the research you used in the Air Force, and research you continue to use in the development of profitable trading systems
Keith Fitschen: The Air Force sent me to school to get a Masters degree in Stochastic Estimation. It is a branch of Electrical Engineering that deals with extracting information from noisy time series data. During my Air Force career, I helped develop guidance systems for aircraft and weapons using this expertise.
Commodity and equity data are the ultimate examples of noisy time series data. Toward the end of my Air Force career, I started analyzing these data streams to try and find profitable trading strategies. Trading is just determining what the trend is and acting appropriately. The degree the Air Force provided me is the foundation of my work.
John Gallwas: As a true student of the markets, system developer, as well as an active trader for over 20 years, in your opinion, has there been any recent changes in the markets behavior that has effected the performance of system trading?
Keith Fistchen: Yes, I believe there are a number of factors in the market that have affected traders of late. In the commodity markets, I believe there has been a prolonged period of below average "trendiness". Using different time periods and the Average Directional Index (ADX) function developed by Wells Wilder, I've seen that over the last three years there has been normal "short-term trendiness" and well below normal "longer-term trendiness". Since most successful commodity strategies are longer term, this lack of "longer-term trendiness" has made it difficult to trade successfully of late.
A second influencing factor in the commodity markets is greater risk per trade. Though longer-term "trendiness" has been abnormally low, longer-term volatility, which directly correlates with trade risk, has been abnormally high. The deadly combination of low trendiness and high risk makes the whipsaw losses longer-term trend followers are experiencing particularly painful.
In the equity markets, we're at volatility levels last seen in 1995. The things that worked in the high volatility "bubble" period of the late nineties don't work anymore. Traders used to trading equity indices are finding the going tough.
John Gallwas: Your new service, "Keith's Trading Corner", is a consolidation of your three existing programs with two new programs which are "fee-based" and can be accessed via the internet. Please tell us about your new programs and how the new internet platform works?
Keith Fitschen: I'm primarily a longer-term trend-follower in commodities. The lack of longer term trendiness over the last three years has been challenging environment for trading. I've looked for alternate strategies and found two I'm confident in.
First, I've developed a short-term strategy that has worked well over the last 25 years, including the tough environment of the last three years. This strategy trades a large basket of commodities and holds trades about one week. It wins about 60 percent of the time and averages about $200 per trade.
The second strategy involves the CFTC published Commitment of Traders ("COT") information. This strategy also works across a large basket of commodities and is longer term. The great thing about the COT strategy is that it not correlated with any other strategy I've tested. That strategy is up over $100,000 this year trading a one-lot at each signal.
We offer the trading signals for these two strategies, as well as signals for our other three products on a website: www.keithstradingcorner.com. If you subscribe to one of the services, you go to the website each day and login. You then have access to the signals. The orders are done "market on open" so once you place your orders, you're done for the day.
John Gallwas: Many of our readers have never traded futures and do not understand the "mechanics" of using a service like yours to trade. What steps should a novice take in order to start trading any of your systems on the right foot?
Keith Fitschen: We provide extensive information on all three services we offer on the site. Everyone, novice and experienced, interested in our services should read that information very carefully and contact us with any unanswered questions. Once you understand the potential risk and reward of each strategy, you have two decisions to make. First, "Is the risk versus reward potential attractive enough for you to trade?" If yes, then you need to decide whether you want to trade it yourself, or have a broker trade it for you.
It's my experience that most traders "shoot themselves in the foot", even with the best of trading strategies. When things are going well, they tend to over-leverage and when the inevitable drawdown comes, they suffer more than they should. When in drawdown, we all have a tendency to get "defensive" and skip trades, or back-off on size. When the run-up comes, the under-leveraged position takes longer than it should to see new highs. That's why I highly recommend traders let a broker trade their account for them. They're paid slightly more than the discount rate to execute the strategy exactly so these trading mistakes are avoided. They also provide a professional edge to your trading. They know when rollovers should be accomplished, and work with their clearing houses to arbitrate bad fills. I've used a "system assist" broker for all my futures trading since 1999.
John Gallwas: Do you have any projects in the "what's new" department that you can share with us at this time?
Keith Fitschen: I've been seriously researching equity trading over the past few years and have developed a "market neutral" trading approach that has had fantastic performance over the past five years. Long and short trades are issued each day for entry on the open. It is market neutral because we recommend half a trader's equity be in long trades and half in short trades. Trades last five days. I'll be offering that as a subscription-based service within the next three months.
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.
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, www.striker.com. 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.