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THE ABERRATION TRADING SYSTEM vs. THE ABERRATION STRATEGY I'm Keith Fitschen and I developed the Aberration Trading System in 1986. I first marketed it to the public in 1993, and since release, it's consistently been one of the best commodity futures trading systems around, always being named, "One of the Top Ten Trading Systems of All Time" by Futures Trtuh. None of the four portfolios we recommended in the trading manual had a losing year for nine straight years. But starting about the year 2000, the basic commodity markets were becoming increasingly volatile. I sought to find an answer to commodity futures trading in the new, more volatile environment and focused on risk throughout a signaled trade. The answer I found was relatively simple: if risk is outside normal bounds when the trade is signaled, the trade should be bypassed. Or, if risk gets outside of normal bounds during a trade, the trade should be exited. The original Aberration Trading System was augmented with rules to implement this logic, and the result is THE ABERRATION STRATEGY. DISCLAIMER The commodity trading futures performance reported in on this website is hypothetical. It is based on the use of computerized system logic on CSI data. Trading costs (slippage and commission) have been accounted for by deducting $50 from each trade. Please note the following Commodity Futures Trading Commission disclaimer on hypothetical trades:
PROFITABILITY BY COMMODITY The following tables show the performance of THE ABERRATION STRATEGY on a basket of 60 world-wide
commodities from 1980. A slippage/commission figure of $50 has been deducted from each trade.
The performance of the strategy is fairly consistent across the commodity groups, with the currencies, energies, US financials, and metals trading the best. In this group of 60 commodities, only 3 have seen a loss over their lifetime and 2 of those are domestic stock indices. This is remarkable considering the fact that the exact same rules and parameter values are used for the whole set. The Aberration Trading System starter portfolio is suitable for accounts starting in the $10,000 to
$30,000 range. The portfolio is diversified across seven commodity groups to gain exposure in uncorrelated markets. The commodities in each group have been carefully chosen for their profit-to-risk characteristics. The portfolio is: Corn, KC Wheat, Live Cattle, Feeder Cattle, Cotton, Sugar, Palladium, Copper, Crude Oil, Reformulated Gas, the Dollar Index, Swiss Franc, 10-Year Notes, and 2-Year Notes. Only one commodity in each group is traded at a time, and a one-lot is traded. A slippage/commission deduction of $50 has been taken from each trade. The following equity chart shows portfolio growth since 1980.
The Aberration Trading System Starter Portfolio Equity Curve As the graph shows, equity buildup is fairly smooth and consistent. With an average annual profit of $15,299, the average first-year return on a $10,000 to $30,000 account would range from 50 percent to 151 percent. From the risk point of view, the average start-trade draw-down a trader could expect when initiating trading this portfolio would be $2,972, between 10 and 29 percent of starting equity. But the trader should note that in 1987 the maximum start-trade draw-down was $15,217. As equity builds, the portfolio can be expanded to maintain a high rate of return. The following table shows the Aberration trading system starter portfolio performance year-by-year. The column marked average start-trade draw-down is compiled by finding the start-trade draw-down for the portfolio starting at each trade origination and then averaging the results. For example, if the portfolio generated 30 trades in a given year, 30 portfolio equity curves would be generated, one starting at the trade origination of each trade, and the low equity point found for each equity curve. The maximum start-trade draw-down for the year represents the largest point below starting equity a trader would have seen had he started trading the portfolio at the worst possible time that year. (Note that the start-trade draw-down tests every trade originating in a given year, but that the low equity point may occur in the next year. These are reported in the trade origination year averages)
By looking at the distribution of all start-trade draw-downs, a probability of success can be determined. The following figure shows the distribution generated by the software. It shows the probability of experiencing a start-trade draw-down of a certain amount of dollars or less. For example this portfolio’s distribution shows that 70 percent of the time traders initiating the trading of this portfolio would experience a start-trade draw-down of about $4,000 or less. And about 91 percent of the time, the start-trade draw-down would have been about $8,000 or less. Conversely, 9 percent of the time the start-trade draw-down would have been greater than $8,000. The Aberration Trading System Starter Portfolio Start-Trade Drawdown Distribution If margin estimates and starting account equity are factored in, the probability of success can be determined. On average, there are 3 group trades on at a time. Assuming an average margin of $1,500 for each commodity in this portfolio, the average margin requirement would be about $4,500. If starting account equity were $15,000, approximately $10,500 of reserves above the average margin requirement is left for a start-trade draw-down cushion. Entering the figure with $10,500 and reading over to the line, historically there was a 98 percent probability of success. But if an account was initially funded with $10,000, the $5,500 of reserves would yield only an 80 percent chance of success. This type of analysis is instructive, but remember the maxim, “A STRATEGIES’ LARGEST DRAW-DOWN IS ALWAYS IN THE FUTURE”. The Aberration Trading System MIDSIZE PORTFOLIO THE ABERRATION STRATEGY mid-size portfolio is suited for accounts starting in the $30,000 to $50,000 range. The portfolio is diversified across seven commodity groups to gain exposure in uncorrelated markets. The commodities in each group have been carefully chosen for their profit-to-risk characteristics. The portfolio is: Corn, KC Wheat, Bean Meal, Feeder Cattle, Live Cattle, Lean Hogs, Cotton, Sugar, Coffee, Palladium, Gold, Copper, Crude Oil, Reformulated Gas, Natural Gas, the Dollar Index, Swiss Franc, Euro-Currency, 10-Year Notes, 2-Year Notes, and 30-Year Bonds. Only two commodities in each group are traded at a time, and a one-lot is traded. A slippage/commission deduction of $50 has been taken from each trade. The following equity chart shows portfolio growth since 1980.
The Aberration Trading System mIDSIZE Portfolio Equity Curve As the graph shows, equity buildup is fairly smooth and consistent. With an average annual profit of $25,067, the average first-year return on a $30,000 to $50,000 account would range from 50 percent to 84 percent. From the risk point of view, the average start-trade draw-down a trader could expect when initiating trading this portfolio would be $4,450, between 9 and 15 percent of starting equity. But the trader should note that in 2006 the maximum start-trade draw-down was $25,956. As equity builds, the portfolio can be expanded to maintain a high rate of return. The following table shows portfolio performance year-by-year. The column marked average start-trade draw-down is compiled by finding the start-trade draw-down for the portfolio starting at each trade origination and then averaging the results. For example, if the portfolio generated 30 trades in a given year, 30 portfolio equity curves would be generated, one starting at the trade origination of each trade, and the low equity point found for each equity curve. The maximum start-trade draw-down for the year represents the largest point below starting equity a trader would have seen had he started trading the portfolio at the worst possible time that year. (Note that the start-trade draw-down tests every trade originating in a given year, but that the low equity point may occur in the next year.).
By looking at the distribution of all start-trade draw-downs, a probability of success can be determined. Figure 10 shows the distribution generated by the software. It shows the probability of experiencing a start-trade draw-down of a certain amount of dollars or less. For example this portfolio’s distribution shows that about 72 percent of the time traders initiating the trading of this portfolio would experience a start-trade draw-down of about $6,000 or less. And about 90 percent of the time, the start-trade draw-down would have been about $12,000 or less. Conversely, 10 percent of the time the start-trade draw-down would have been greater than $12,000.
The Aberration Trading System Midsize Portfolio Start-trade Drawdown Distribution If margin estimates and starting account equity are factored in, the probability of success can be determined. On average, there are 6 group trades on at a time. Assuming an average margin of $1,500 for each commodity in this portfolio, the average margin requirement would be about $9,000. If starting account equity were $30,000, approximately $21,000 of reserves above the average margin requirement is left for a start-trade draw-down cushion. Entering the curve at $21,000 and reading over to the line, there is a probability of success of about 98 percent. This type of analysis is instructive, but remember the maxim, “A STRATEGIES’ LARGEST DRAW-DOWN IS ALWAYS IN THE FUTURE”. The Aberration Trading System FULLSIZE PORTFOLIO THE ABERRATION STRATEGY full-size portfolio is suited for accounts starting in the $50,000 to $100,000 range. The portfolio is diversified across all eight commodity groups to gain exposure in uncorrelated markets. The commodities in each group have been carefully chosen for their profit-to-risk characteristics. The portfolio is: Corn, KC Wheat, Bean Meal, Bean Oil, Rough Rice, Feeder Cattle, Live Cattle, Lean Hogs, Cotton, Sugar, Coffee, Lumber, Orange Juice, Palladium, Gold, Copper, Crude Oil, Reformulated Gas, Natural Gas, Heating Oil, the Dollar Index, Swiss Franc, Euro-Currency, Japanese Yen, 10-Year Notes, 2-Year Notes, 30-Year Bonds, 5-Year Notes, the Eurodollar, Hang Seng Index, and the Nikkei. A max of four commodities in each group are traded at a time, and a one-lot is traded. A slippage/commission deduction of $50 has been taken from each trade. The following equity chart shows portfolio growth since 1980.
The Aberration Trading System Fullsize Portfolio Equity Curve As the graph shows, equity buildup is fairly smooth and consistent. With an average annual profit of $37,095, the average first-year return on a $50,000 to $100,000 account would range from 37 percent to 74 percent. From the risk point of view, the average start-trade draw-down a trader could expect when initiating trading this portfolio would be $6,233, between 6 and 12 percent of starting equity. But the trader should note that in 2002 the maximum start-trade draw-down was $35,345. As equity builds, the portfolio can be expanded to maintain a high rate of return. The following table shows portfolio performance year-by-year. The column marked average start-trade draw-down is compiled by finding the start-trade draw-down for the portfolio starting at each trade origination and then averaging the results. For example, if the portfolio generated 30 trades in a given year, 30 portfolio equity curves would be generated, one starting at the trade origination of each trade, and the low equity point found for each equity curve. The maximum start-trade draw-down for the year represents the largest point below starting equity a trader would have seen had he started trading the portfolio at the worst possible time that year. (Note that the start-trade draw-down tests every trade originating in a given year, but that the low equity point may occur in the next year. These are reported in the trade origination year averages)
By looking at the distribution of all start-trade draw-downs, a probability of success can be determined. Figure 12 shows the distribution generated by the software. It shows the probability of experiencing a start-trade draw-down of a certain amount of dollars or less. For example this portfolio’s distribution shows that 75 percent of the time traders initiating the trading of this portfolio would experience a start-trade draw-down of about $6,000 or less. And about 90 percent of the time, the start-trade draw-down would have been about $12,000 or less. Conversely, 10 percent of the time the start-trade draw-down would have been greater than $12,000. The Aberration Trading System Fullsize Portfolio Start Trade Drawdown Distribution If margin estimates and starting account equity are factored in, the probability of success can be determined. On average, there are 10 group trades on at a time. Assuming an average margin of $1,500 for each commodity in this portfolio, the average margin requirement would be about $15,000. If starting account equity were $50,000, approximately $35,000 of reserves above the average margin requirement is left for a start-trade draw-down cushion. Since there has never been a $35,000 start-trade draw-down on this portfolio, the historical probability of success was 100 percent. This type of analysis is instructive, but remember the maxim, "A STRATEGIES' LARGEST DRAW-DOWN IS ALWAYS IN THE FUTURE". ABERRATION TRADING SYSTEM PORTFOLIO COMPARISON Many traders will review the Aberration trading system portfolio material presented here (summarized in the table below) and decide that
when account size grows, it is better to trade more than a one-lot in the "Starter Portfolio" than move up to the
next larger portfolio. This is a mistake. those traders are focusing on profits rather than risk, which is the
crucial element in whether a small-account trader will survive and grow to be a large-account trader.
The trader who looks at profits will see that on a $10,000 to $30,000 account, an annual return of between 50 and 151 percent can be made. He reasons that if he can make 151 percent on $10,000 by trading 1 contract per signal, when the account size grows to $20,000 he can trade 2 contacts per signal and still make 151 percent. This is true, but what he is neglecting is risk. Trading the starter portfolio with $10,000 yields an 85 percent chance of success; about a 5 out of 6 chance. That’s like playing Russian roulette. Doubling the number of contracts at $20,000 still yields the 5 out of 6 chance. Sooner or later this strategy will lead to a trading blow-out. FOR LARGE ACCOUNT TRADERS, The Aberration Trading System GLOBAL PORTFOLIO THE ABERRATION STRATEGY Global Portfolio is suited for accounts that are larger than $100,000. The portfolio is diversified across the commodity groups to gain exposure in uncorrelated markets. The portfolio consists of: Corn, KC Wheat, Bean Meal, Bean Oil, Rough Rice, Oats, Soybeans, Feeder Cattle, Live Cattle, Lean Hogs, Feeder Cattle, Pork Bellies, Cotton, Sugar, Coffee, Lumber, Orange Juice, Palladium, Gold, Copper, Platinum, London Alloy, London Aluminum, London Nickel, Crude Oil, Reformulated Gas, Natural Gas, Heating Oil, Propane, the Dollar Index, Swiss Franc, Euro-Currency, Japanese Yen, British Pound, Canadian Dollar, Mexican Peso, 10-Year Notes, 2-Year Notes, 30-Year Bonds, 5-Year Notes, the Eurodollar, Canadian Bond, Euro-Bund, Spanish Bond, Simex JGB, Hang Seng Index, Nikkei, DAX, Nasdaq mini, and the S&P mini. The following table shows the return and drawdown when risking two percent of equity on each trade and limiting group exposure to four trades, or less.
This example illustrates the power of implementing the money management strategies available to the large-account investor. He can achieve a very high rate of return for a relatively low max annual draw-down. Moreover, he can adjust the percentage of equity risked to either increase his return or lower his draw-down until he achieves a risk/reward scenario suitable to his trading temperament. If, for example, a max draw-down of 38 percent and an average max draw-down of about 24 percent is too high for him, he can lower the amount risked and have lower expected draw-downs. Conversely, if he can stand more risk, he can up the amount risked and achieve a higher return. YOU'LL LOVE THE DIVERSITY AND EASE OF TRADING
YOU CAN HAVE AN EXPERT TRADE THE SYSTEM FOR YOU In my seminars, I stress that most traders fail due to an inability to execute their strategy as they planned. Even with great systems, traders throw away their edge by letting their emotions over-rule their plan. I have a network of brokers who will execute the systems for you at a rate only slightly above the discount rate. These brokers are all highly experienced with ABERRATION and routinely it for clients like you. So if you purchase ABERRATION, you can open an account with one of those brokers and have confidence that they are being traded expertly by a registered professional. GUARANTEE I've sold Aberration, and now THE ABERRATION STRATEGY, to the public for over 15 years. In all that time no-one has ever claimed my numbers are "fudged" or inaccurate. WHAT YOU GET
PRICE THE ABERRATION STRATEGY can be purchased for the reasonable price of $1,695. You can order by credit card through a secure server by clicking the following link. Or, you can send a check to: TradeSystem, Inc. 11276 Ballantyne Crossing Ave. Charlotte, NC 28277 For questions, feel free to call us at our toll-free number: 800-372-3942
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