The AppleInvestor AutoTrader service is patterned after successful hedge fund strategies. The main premise is to employ multiple non-correlated strategies on a variety of stocks from low-correlated markets. This has the effect of a hedge, while each system individually is a solid performer. The effect is a smooth equity curve, with minimal drawdowns, and consistent performance under a variety of market conditions.

The equity curve above shows the combined performance of four strategies and four stocks (AAPL, FB, NFLX, TSLA), for a total of 16 systems. The dollar risk is distributed equally about the systems to minimize the exposure of any disruptions due to exaggerated market conditions, such as price shocks, surprise economic reports, earnings shockers, etc.

Monitoring Strategy Health

In environments like the current one, here in June of 2015, where volatility is extremely low, and the markets are near record highs, grinding it out in what appears to be consolidation, most trading strategies in the industry have a hard time maintaining peak performance. The AutoTrader systems are no exception.

So we monitor that performance of each system, and rate it using statistical analysis and weight it relative to other systems and the market. The scale we use goes from 1 to 10, with 10 representing peak performance. This can be used by a strategy trader to adjust position sizes to minimize risk.

Notice that the DBOL strategy is not performing very well in this environment. One could assume this is because the DBOL strategy is based on reacting to market volatility, and with volatility at an extreme historic low, this strategy would naturally have a difficult time performing. So, as a trader, if part of your portfolio included systems using this strategy, you might adjust positions sizes lower, to reduce risk exposure.

Strategy Adjustments

Information like strategy health can lead to superior performance over time, if you have a well structured way to react to the information. The wrong approach in my opinion, would be to pick and choose the strategy you play, based on this spot health check. And that’s what it is, a spot health check, as this health value is constantly changing as market conditions and strategy performance changes.

Trying to chase after peak performers is no better than trying to time the market, or chase winners. It never seems to work out. It would be better to set up a campaign, and run with a set number of strategies, with rules for adjusting position sizes based on the varying conditions.