One of the early pioneers in algorithmic trading, Larry Connors, has announced that he will discontinue providing his service, The Machine, to the public at the end of this year, and he will return to private money management. For those traders using The Machine, it begs the question, ‘What do I do now?’ One such option is Quantitrader (QiT).
For those who don’t know, The Machine is Larry’s program that allows traders to mix and match his trading algorithms in order to build a portfolio of trading strategies. The Machine provides not only daily signals but also shows the back-tested results for the portfolio. However, the cost of The Machine is not insignificant and is usually bundled with Larry’s other services, such as the Chairman’s Club or Swing Traders’ Summit, which gives members access to new strategies as they come available on a monthly basis. If you don’t subscribe to these additional services, the new strategies are not available in your Machine access.
The flexibility of being able to add and change strategies practically monthly can be a double-edged sword for traders. On one hand, having the newest strategies is great, you are able to expand your portfolio options with the latest research. However, it can lead undisciplined traders to constantly change their portfolios as they chase the newest ‘fad’ trying to capture past returns. As we have all learned, long-term trading success comes from identifying a trading edge and then applying that edge to the market in a systematic and consistent manner. No matter how great the strategy, there will be times when market conditions are not favorable for that strategy. Nothing hurts a trader’s psyche more than to abandon a strategy only to see that strategy ‘catch fire’ while the new strategy goes into a period of under-performance.
When I first heard back in the fall of 2013 that Larry was discontinuing The Machine, I began a search for other alternatives. This search led me to QiT. Taking some of the principles pioneered by Larry on mean-reversion and Connors RSI, QiT developed some unique and truly effective strategies for both IRA and non-IRA portfolios. It then bundled them into an on-line service. But QiT didn’t just stop at providing daily signals, it transformed the service into a full portfolio management tool; incorporating position sizing, money management, and an equity curve circuit-breaker (something that is lacking in The Machine and we will discuss below).
QiT vs. The Machine
One key difference between QiT and The Machine is that while Larry’s group is continuously bombarding traders with new strategies, QiT focuses on a core-group of strategies and then performs a rolling optimization monthly on key variables used in the algorithms. This optimization keeps the strategies more reflective of current market conditions. Trading strategies in The Machine do allow users to define some of the variables, such as the exit rules and the pull-back percentages required to enter a trade. But users are unable to perform a true optimization on a particular strategy because many elements are hard-coded and cannot be changed by the user.
Another key difference, and one I consider critical in portfolio management is the circuit-breaker feature provided by QiT. As algorithmic traders, one question that we must ask ourselves is when is a strategy broken vs. just going through a drawdown? QiT answers that question through its circuit breaker. When a portfolio drops below a dynamically changing threshold, we take no new trades. The service will continue to monitor signals and track results, but we will be in cash until such time that the portfolio returns above the threshold. This feature alone helps prevent a catastrophic portfolio meltdown when a strategy no longer works in the market. The Machine doesn’t have such a feature, leaving it up to the individual trader to make that determination.
If you are an algorithmic trader or considering this style of trading, you owe it to yourself to check us out. I first joined this service back in 2013 and for a period of six months, I ran two portfolios, one with QiT and the other with The Machine. I subsequently canceled my subscription to The Machine and now solely use QiT for my portfolio trading for the two key reasons outlined above. I like the set-it-and-forget-it trading style of QiT vs. the emotional turmoil of being hit with a new strategy monthly and constantly questioning whether my portfolio strategies are up to date with the current market conditions. I sleep easier at night, and lo and behold, my returns are greater. To discover for yourself the benefits of QiT, click the button below and kick their tires for a few weeks.
Eric Wolf, Lifetime QiT member