Do you want to manage your own money, but worry that you don’t have knowledge necessary to be successful?
On Thursday September 2, 2010, a brand new feature was introduced to The Machine. For those not yet familiar, The Machine® is a web-based software application that offers the ability to build quantified portfolios of stocks and ETFs. These portfolios use high probability, backtested mean reversion (i.e. pullback) and trend-following strategies. The new feature, the Strategy Selector, allows users to sort through the 34 quantified strategies and almost 33,000 different variations all-at-once by modifying a variety of performance measures and strategy parameters.
Prior to releasing the Strategy Selector, the development team for The Machine introduced it to a group of 12-14 year olds. These 6th to 8th grades were spending a day at work with their parents during the final week of their summer vacation. Despite having parents who work in the financial markets, the group as a whole had only a limited knowledge of ETFs and Equities. In fact, one of their first questions was – “what’s an ETF?”
Before introducing the Strategy Selector, the team walked the youthful new users through the basics of The Machine. They introduced them to the broad categories of strategies – Long and Short, ETF and Equity, and Mean Reversion and Trend Following. They also showed them how to build a portfolio the old way, without the Strategy Selector. Although the kids had some success, they really were not engaged in the process.
When the Strategy Selector was finally introduced, there was an identifiable sense of interest in what could be achieved with The Machine – and in how easily it could be achieved.
Before the users could get their hands on the mouse, the team explained, in a simple manner, what the different performance measures meant. For example, Sharpe Ratio was described as “the higher the better” and Drawdowns as “the lower the better, but to a point”. As well as how to sort the strategies so that they could see variations with the highest return (CAGR), win percentage, or average gain.
After this brief introduction, the teens began quickly modifying performance measures and strategy parameters. If the initial filtering led to too many results, these future quants would seek variations with increased CAGR, higher Sharpe Ratios and reduced Drawdowns. Amongst the athletes and mathletes in the group there was an immediate interest in seeking high win percentages (the historical probability that a trade resulted in a positive return).
Without even realizing it, this group of young adults was narrowing total variations in line with increasingly selective performance measures that could meet the most seasoned traders target performance goals: Win percentages in excess of 70%, Sharpe Ratios ranged from 2.2 to 3.6, and CAGR with a 3-1 ratio over drawdowns. Simulated Returns, assuming initial investment of $100,000 in January 2001, were in excess of $3,000,000 as of July 31, 2010 for several portfolios.
One of the most interesting aspects of the experience was how interested these middle-schoolers were in continuing to optimize the portfolios they had already built. When the team offered them the opportunity to watch a video and grab a snack, after just 15 minutes of building quantified portfolios with The Machine Strategy Selector, their response was uniform: “Hey, can I still play with my portfolio, I’m trying to break 4.0 on the Sharpe Ratio. Oh and can I have some ice cream?”
If you’ve been looking for a way to manage your money that is based on a systematic, quantitative approach, then you owe it to yourself to see and hear the latest webinar on The Machine by Larry Connors, CEO and founder of TradingMarkets. The Machine is the first financial software that allows you to build and actively manage customized, quantified portfolios of both backtested strategies. For a growing number of traders and investors, The Machine truly represents the future of active money management.
To find out more about The Machine and to reserve your spot at the next presentation, Click Here.