Yeah, it was. I mean, there was a whole lot of…

I feel we do not give luck or fate enough proper credit for our lives.

So the best way, I mean, the story, the best way it happened is the day Microsoft got here to my university during those years, firms would come to college, arrange booths and also you’d walk around and also you’d refer to them.

That day was a football game I desired to go to.

I used to be like waffling with my roommate.

“Guys like, I don’t need to go to this because I actually have to dress up, go to campus, come back, get back into normal clothes, and return to campus to go football game”

It’s like, I don’t need to do that.

And he goes like…

“I’ll drive you, drop you off, call me, I’ll pick you up and we’ll do that”

Like, okay, high quality.

I just happened to attach with the recruiter there who was a developer in Excel.

I ended up connecting well with him.

Then what happens from there may be it’s extremely typical.

They flew me back out to Microsoft, a round of six, eight interviews with an entire bunch of Microsoft people.

Well, yeah, I might say I didn’t do thoroughly in my first person.

I used to be very frightened after my first interview because I didn’t do thoroughly on that query.

But after that first one, I’m either, I believe I got the gist of what they were asking.

I loosened up, after which after that, I began doing well within the interviews.

I went through six or eight people after which you already know, I do not know shortly thereafter got a job offer from them.

That is how that every one worked out.

The nice part is the interesting part is the guy who interviewed me at my university remains to be friend and only lives like two miles from my house and I see him a minimum of once a month or so.

Rayner (14:49)

You said there have been like six to eight rounds of interviews.

That is so much, right?

Cesar (14:53)

Yes, it’s so much.

But it surely’s typical. It’s still pretty typical nowadays, even my son just has passed through the interview process, you already know, with the tech firms and it’s you already know, six interviews isn’t that unusual.

You understand, sometimes it’s six interviews in multiple days, which I believe is ridiculous.

I believe I believe three is enough, in my view, if I were running an organization, I probably would do three.

But I do not run my very own big firms, just me myself, and I

Rayner (15:22)

Perhaps I can, lately they’ve a whole lot of options.

So, you already know, let’s have filter after filter after filter, you already know, but then like in trading terms, I actually have too many filters, you sort of like, you already know, over-optimized and it might not work in the true world.

So, I’m just, you already know.

Cesar (15:33)

To me, all good interviews are good for it, I feel is determining whether you just like the person and determining in the event that they’re an idiot.

Beyond that, it is a toss-up on how good anyone is.

I’ve done numerous interviews, I’ve done numerous hiring and I’ve realized.

When you get them inside your organization, it is a toss-up of how well they work out.

Rayner (15:58)

You said that you simply were doing Excel back within the day.

So perhaps could you explain what a part of Excel that you simply were doing back then?

Cesar (16:07)

Yeah. So, I mean, for me, it was sort of exciting to get to Excel because I used to be using Excel on my wife’s Mac at the moment.

So I used to be conversant in Excel after I began there.

But I worked on the charting engine.

I worked on all the beautiful charts that you’ve got in Excel.

So that is the a part of Excel I worked on.

The really funny and interesting part, I suppose, then, I do not know what the proper phrase could be, is I got there, we began doing stuff, after which the Japanese market contacted us, the Japanese people for Microsoft contacted us, and said…

“Hey, there is a chart type that the Japanese really like, we would really like you so as to add it to Excel”

Guess what it’s?

Candlestick charts.

Guess who added candlestick charts to Excel?

I added candlestick charts originally to Excel.

I hope my code is not dirty straight away, after 30 years, but I originally added candlestick charts for the Japanese market.

The cool part is, that something that happened at Microsoft then, was after, if you used to ship a product.

It was a physical product we used to ship.

So we would get boxes.

There have been boxes that we needed to go to the stores.

People had to purchase Excel. You obtain this big box.

I actually have the Japanese version box of Excel sitting right up there on my shelf.

Because I added that to them, they sent me that box from Japan saying…

“Here, you should have this box”

Rayner (17:39)

In order that box isn’t, I mean the Japanese candlestick isn’t on every Excel.

It’s just for the Japanese version.

Cesar (17:43)

No, it was for each Excel.

We added it for each Excel, it’s just the Japanese asked us for it at the moment.

So, in Excel 3, let’s examine if it says there, I can not tell from here.

But yeah, it was probably Excel 3 that it got added into, perhaps Excel 4.

So, you already know, that is back in probably 91/92 when Excel finally got candlestick charts.

Rayner (18:07)

Can I trouble you to indicate me the box?

I’m curious.

I believe the listeners are curious to see how the box looks.

You possibly can wait 30 seconds since it’s up high.

I want to get a chair.

Rayner (18:14)

No problem. Take your time.

Cesar (18:23)

That is on the best way…

Rayner (18:30)

Wow.

That may be a huge box!

98,000 Yen I suppose?

Cesar (18:35)

Yeah, probably 98,000 yen.

Rayner (18:35)

Wow.

Cesar (18:36)

This box is heavy.

This box might be five kilos.

Rayner (18:42)

What do they put your entire manual of Excel inside?

It’s only a CD-ROM.

Cesar (18:47)

Yeah, so there are manuals, and there are probably 3.5 floppy disks in here.

Rayner (18:55)

A keeper, yeah? Perhaps you’ll be able to sell it on eBay for a better price.

Cesar (19:02)

I’ve got an entire bunch of old boxes, but this one’s my favorite of all of them.

It’s similar to…

“Okay, Japanese Excel”

Rayner (19:08)

It’s blue. I believed Excel had the trademark of green color. Perhaps back then it was blue?

Cesar (19:11)

Uh, no. I do not know.

Back then, I’m taking a look at the boxes.

We had numerous weird icons back then.

Rayner (19:20)

Okay, Thanks for sharing. It was so insightful.

And to know that you simply were the one who did candlestick charts for Excel.

Cesar (19:26)

Yeah, it’s funny. Once I got into trading, I spotted, wait a second, I did candlestick charts.

Rayner (19:35)

I’m guessing back then once they used CD-ROMs, each time you guys do a serious update, then you definately guys have to supply an entire recent batch of CD-ROMs after which ship it off to all world wide again.

That’s how it really works.

Cesar (19:43)

Yes, that is how it really works.

No, these boxes are 3.5 disks.

So, they’re floppy disks.

They are not CD-ROMs.

Rayner (19:54)

Don’t floppy disks just have, like, 1.4 megabytes?

That is the capability you’ve got?

Cesar (19:59)

Yeah, there are probably five… there are probably several in here.

 

Rayner (20:02)

 

So you should put it one after the other to finish the installation.

Wow. Yeah, the CD-ROM got here after that, where I believe you’ll be able to increase the scale.

Cesar (20:10)

Yes, CD-ROMs were probably, when was probably CD-ROMs?

Probably 95 or so might be after we began using CD-ROMs is my guess, somewhere around there 94/95.

Rayner (20:20)

So how did you then go from working at Microsoft and that, if I’m not fallacious, you were also working for Larry Connors or helping him develop his strategy?

So how did the transition come about?

Cesar (20:31)

I began Microsoft in 1990 and I left it in 1996.

The explanation I left Microsoft, I didn’t want to go away Microsoft.

I developed tendonitis on each my elbows from working too hard.

Rayner (20:47)

What’s tendonitis?

Cesar (20:52)

So, tendonitis is a pain sort of like right here.

You really can get it each inside and outdoors.

I had it on each the within and outdoors of each arms.

It’s sometimes called golfer elbow and tennis elbow, depending on what side of it, whether it’s on the within or outside.

So I used to be spending three hours a day or thrice a day, an hour, an hour at a time, I see my elbows so I could just work because I used to be just in a lot pain.

At that time, my wife and I were beginning to take into consideration having kids.

I couldn’t even take into consideration attempting to hold a baby because my arms just hurt a lot.

I asked to get a sabbatical.

Because I used to be not high enough up within the hierarchy yet, it got denied.

I ended up just quitting Microsoft.

The part that annoyed me was about six months later, they modified the policy such that I would not have needed to quit.

That is why I left Microsoft.

I desired to heal my arms.

The most effective ways of doing that’s to stop what you are doing and just rest.

So I spent six to nine months just not using a pc, using a pc as little as possible, resting my arms, and getting my arms to heal.

Now they’re in what I call remission because I can if I overdo my martial arts or exercising, weightlifting, stuff like that, I may cause it to get, I won’t say bad, but to begin to feel a little bit little bit of pain.

That is why I left Microsoft.

So I took six and a half months off.

We had our first child.

Then I went back to Microsoft as a part-time contractor.

Back on Excel, just working on something else.

Just working part time.

I spent a couple of yr there.

That was probably 97-98.

Then from 98 to 2003, I worked at various small startups part-time.

Mostly part-time, mostly because I began having fun with part-time work and just also desired to not work too hard due to my arms.

I used to be doing various software startups during that point.

Also, after I left Microsoft, I used to be all the time all in favour of the stock market and that is after I began moving into the stock market myself.

I began trading individual stocks probably in late 97.

I got to consider I used to be a superb trader from 97 to 99.

I had stocks like JDSU, which a few of you old folks would know.

Those were some great trades I had.

Fortunately, when the bear market hit 2000, I didn’t lose an excessive amount of.

I did lose some, however it impacted me, like a whole lot of traders who thought they were just great traders, following all these great things straight up.

That point, around that point, can be after I discovered Amibroker and realized…

“Oh, I can start testing things and testing ideas and as a pc programmer and engineer”

To me, that is like…

“Oh, this is basically what I like. I need to check the”

I began testing things and commenced to understand a whole lot of things I used to be reading in magazines and what few web sites there existed then, really didn’t test out.

I used to be quite disenchanted that a whole lot of things I tested within the early 2000s were just not working.

Then probably, what’s it, 99 or so?

Larry had began tradehard.com, which then he renamed to tradingmarkets.com.

I do not remember when he made the name change.

But I used to be sort of like a member of that website.

It was a sort of a complete bunch of traders there giving their trading suggestions, their trading advice.

I purchased a pair.

I purchased one thing from Larry and tested it.

It’s like…

“Oh wow, this works”

I used to be like…

“Wow, the very first thing that worked”

In 2002, I took a course from Larry.

He was way ahead of it.

This was an internet course that I took.

It was a mean reversion strategy.

I took the course and enjoyed it. In fact, I needed to make a spreadsheet of the fabric he gave me, because I really like spreadsheets.

I gave it to Larry.

Larry was like…

“Oh, wow, that is great”

Then I said…

“Hey, when you’re on the lookout for help, you already know, testing ideas or making spreadsheets, you already know, I’m here”

I’m available.

He said…

“Yes, yes”

He was very polite, but you already know he wasn’t interested.

About six months later,

I contacted him and said…

“Hey, you already know, just me again, you already know, are you interested?”

He said…

“Yeah, thanks, thanks, yes, I’ll keep you in mind”

Six months after that, I contacted him.

He goes…

“Oh, we just hired anyone, I’m so sorry”

And I used to be like…

“Ah, man”

Then sometime in 2003, he contacted me and said…

“Hey, we have this strategy we have developed”

We want some external verification because we’re getting really good numbers.

We just need to be certain that these numbers are correct.

He hired me, he said…

“We’ll hire to do that”

I used to be like…

“Oh yes, my great, my break into all this”

He gives me the project

I began the project, I sent him the primary spreadsheet, and I made a silly mistake that I didn’t catch on how I computed compounded annual return.

It was just the worst mistake.

He responds going…

“That is fallacious, there is a mistake here”

I checked out it, it’s like…

“Oh crap, I just ruined my probability to interrupt in”

I sent it back in the e-mail saying…

“I’m so sorry, you are right, this can be a mistake”

Here’s the corrected version.

If you should fire me, when you don’t need me to give you the results you want, that is high quality.

You needn’t pay me for the work I’ve done for you.

That email struck him.

I wound up my mistake and the incontrovertible fact that I told him, don’t pay me for the work I’ve done.

He said…

“No, no problem”

From then on, I slowly began working increasingly for him.

Inside six months or so, yr tops, I ended up being the director of research for him.

Then spent 10 years with them.

Rayner (27:16)

Wow!

What a story of grit, being a president.

You speak about you are trading the markets or perhaps speculating the markets before the dot-com bubble.

I’m curious.

How were the markets back then if you were speculating?

What do you think that is the changes like now?

Cesar (27:35)

Yeah, it’s really funny. I’m seeing so much, especially in 2020 after we saw the meme stocks.

They began to be very, very conversant in similar to the stocks that just go up.

But I believe the one, difference in 99 versus 2020 that I used to be seeing was in 99, it appeared to be a much wider set of stocks that were going up.

You understand, in 2020, it appeared to be a smaller set of stocks.

For 1999, you possibly can throw a dart.

It wasn’t just the meme stocks were just the massive cap stocks.

It was as if the whole lot was going up, you already know.

It didn’t matter what it did.

So long as that word.com was in its name, it was going up.

But you already know, that speculation, that just going straight up, that considering that…

“Oh, I’m a genius because I occur to be on this meme stock and whatnot”

To me, it was like…

“Okay, I do know exactly how this story goes to finish”

Yes, some people may get lucky and get out at the proper time, but most of them find yourself losing a whole lot of the cash that they make.

You understand, in the event that they’re In the event that they’re lucky, they break even.

A few of them ended up losing so much, all their money, after which some.

The opposite thing was, you bought to recollect, the web was much smaller, much quieter, so information traveled slower.

It was an interesting time.

Like I said…

“You thought you were a trading wizard during those times since it was really easy simply to throw a dart”

The stock would go up during that point.

Rayner (29:14)

Would you say that back then, as information travels slower, so a whole lot of these stocks have so much more momentum behind it in comparison with lately now when information is far faster, the momentum isn’t as apparent or strong?

Cesar (29:29)

I believe yeah, I believe momentum is nowadays much quicker, so it’s quicker to go up and quicker to go down nowadays, simply because the knowledge just comes out.

There are more reasons to sell because there are such a lot of more boards that you already know you bought forums, TV, web sites, YouTube, podcasts. You bought all these people telling you either to purchase or to sell.

It’s just so far more information coming at you that I believe the reactions are only as much faster nowadays.

 

Rayner (30:03)

 

Got it.

Back to Larry…

Back there if you were working for him, so I’m assuming that he asked you to confirm certain projects.

He has a team of individuals helping him to run the test already.

It’s just you as a 3rd party, simply to be certain that that the numbers are aligned.

Cesar (30:17)

Larry all the time had a small team.

He’s never had an enormous team of researchers.

I believe after I got here on, I believe it was only two individuals who were working for him on the time, and I used to be the third.

That is even common nowadays that I’ll do is I’ll go to an external person to confirm my strategies.

The explanation for that is, that it doesn’t must necessarily be an external person, however it must be anyone else who didn’t write the unique strategy and knows nothing about it that you would be able to only give them sort of English rules.

Then they go off and do it because this fashion the likelihood of them making the identical mistake that you could have made could be very small.

To not say it hasn’t happened or it isn’t possible, however it is just much less prone to occur.

Because I’ll often have clients come to me with incredible looks, I’ve got one straight away.

He’s got a technique that is making 110% a yr with a 15% drawdown.

I can almost guarantee you, he’s either looking into the long run or he’s got some major coding mistake or he’s way over-fitting the information.

Certainly one of those three things.

Because this is sort of a 10-year backtest.

This isn’t like a one-year backtest. This can be a 10-year back test.

I saw this, and I do know after I refer to this client, it’s me, is it possible that he’s found some holy grail thing?

Yes.

Would I bet against him?

Yes.

Because I do know each time I get any strategy after I’m testing that appears half pretty much as good as that, if it was 50% return with a 30% drawdown, I will be considering…

“Perhaps I made a mistake, but 110% with a 15% drawdown?”

That is the sort of thing that, I will tell him…

“Look, I do know you don’t need to share your strategy, however it’d be really good when you found anyone that you simply trust to do verification”

Yes, I could do it, and if he doesn’t, however it’s considered one of those things.

Verification can prevent a whole lot of money and grief.

Rayner (32:30)

Yeah, and this brings me to my next query is that, you already know, people often once they think, right, they found something really good.

They’ve problems sharing the principles with another person to confirm.

What is the top strategy of perhaps Larry and even that client of theirs who’s willing to provide you the plain rules after which allow you to confirm?

Cesar (32:50)

To begin with, I completely understand not wanting to share the principles.

I mean, no person wants their trading secret when you found the Holy Grail of getting on the market.

I completely understand my tranquility trading service where I give out black box signals for what I trade myself.

But I’ve had people approach me saying…

“Hey, can we, I need to purchase the principles to the strategy”

I tell them…

“No, because I don’t need my technique to get on the market because if it does get on the market, the sting will disappear”

I completely understand this.

Now I did get those, my strategies verified because I asked anyone I trust and know and worked with for a very long time to confirm my strategy.

How does a 3rd person, this person I’ve told you about…

He has to balance. Does he trust for example me?

I have been, or anyone else, to confirm to not steal his idea.

I have been doing this for not greater than 20 years now.

Not less than each time anyone says…

“Hey, how do I do know you are not going to steal my strategy?”

 I tell them, look…

“I have been doing this for 20 years. I’m not some fly-by-night person”

I actually have a status on the market.

If I took your strategy and sold it as mine or did something and gave it on the market, it might spoil my status.

No one would give me any more work.

I’d get roasted on the market.

For me, that is how I try to elucidate it to others this is the reason you’ll be able to trust me.

Since the downside for me doing that’s just way too high.

I have been out by myself for 10 years now, doing testing for people like yourself, Rayner, and tons of of other people.

In that point, I believe I’ve only asked once anyone, say, can I take your trading idea?

I don’t need to take the system that you simply had me test.

I just need to extend it. I need to go barely different area and make it my very own.

I asked his permission before I did it.

So though I actually have tested tons of and tons of of strategies for people, 99.9% of the time, I don’t need to trade them for whatever reason.

Just one time I even come close, have I even asked, can I take your idea, not necessarily your idea itself, but your idea and extend it to something.

I need to place some twists on it to make it different out of your idea a little bit bit and trade that.

Even then, I do not trade other people’s strategies.

You’ve got had numerous great strategies I actually have tested for you right?

Lots and numerous great things.

I have never come to you and asked you…

“Hey, can I trade this?”

I’m not trading any of your strategies, simply because I attempt to keep that wall there up.

That is your IP. That is your idea.

Now, will we share?

Do we’ve got commonalities?

In fact, because there are all the time so many things which can be on the market.

There’s mean reversion, there is a trend following, and there is a breakout. So, yeah.

All our strategies are somewhat common, you already know, even I hate it, but you already know, I do not, yeah, I do not trade other people’s strategies.

So for this person, if I were in his shoes, I might find anyone I could trust and say…

“Are you able to confirm this?”

Because if he does have something great, then you already know, anyone else says…

“Yes, this looks good”

You understand, I will have a call with them and sort of indicate, here’s my concerns together with your strategy.

There are numerous concerns I actually have.

You might have something here, but listed below are my concerns.

You might want to address these if you should feel comfortable trading this.

One other thing people sometimes…

Anyone can come to me and say…

“Hey, why don’t you sign an NDA?”

Truthfully, NDAs are worthless.

You do not know when anyone’s broken an NDA, quite truthfully.

So, I find NDAs worthless.

I do know Larry Connors probably had people do NDAs and I do know a few of our stuff hit it up on the web.

We do not know who did it, but once it’s on the market, it’s too late.

Now your edge is disappearing.

I believe you’ve got to search out anyone you trust to do some verification.

Rayner (36:57)

Earlier you mentioned that you don’t need to provide out the principles of, I believe, the signals that you’ve got.

I take into consideration tranquility, and I can understand it since the edge may be eroded.

Like perhaps certain markets where the market is so huge, I do not know, Russell 500 stocks, I mean, S&P 500, Russell 1000, those huge markets,

Will the sting still sort of be affected if like…

Cesar (37:20)

Oh yeah…

I mean, definitely depending on the strategy and depending on the liquidity on the stock

I mean, a number of the stocks can have very low liquidity or not even that low.

But I mean, when you do the mathematics sometimes, you work out…

As an example…

“You simply have 100 subscribers, okay?”

As an example each subscriber is simply trading $10,000.

Let’s do that. Some math here.

These are very small accounts that under subscribe, very small, you already know, service 100 subscribers, $10,000, very small amount.

They are saying you are doing five positions.

So, you are doing $2,000 per position.

When you time that by 100, that is $200,000.

Now dropping $200,000.

Now, when you’ve got one, it is a stock one which has a liquidity of 1,000,000 dollars a day.

That is a fifth of the quantity.

That is an issue.

You possibly can’t put that much, and that is a small amount.

God forbid when you’ve got either large accounts or a big service.

That is something you’ve got to watch out with just in itself on services themselves, with how big are they?

Something I do is I don’t want to grow my service big.

What I really like from the cash point, from bringing in the cash for my services.

Yes.

But again, I need to maintain my edge.

That is something I don’t need my service to get too big.

I don’t need my rules to get out because I trade those strategies and I need to maintain my edge there.

Rayner (38:51)

Got it. Okay.

So, since we’re on the subject of strategy, let’s speak about…

What’s your trading approach there, for the listeners to know?

Cesar (38:59)

I have been doing this for a very long time. We have been doing trading for 20 years systematically.

It has evolved through the years.

I mean, because I began working for Larry, I used to be a mean reversion guy.

For the primary probably eight years, that is all I traded.

It was just mean reversion.

Certainly one of the principal explanation why it worked well back in 2003-2005, even through 2008.

Oh my God…

Getting 10-30% winners was not unusual.

Seeing my account going up or down 5% in a day was very normal.

Those were great trading days because we were early.

This was the early timeframe for mean reversion trading and the perimeters were still huge.

Individuals are there though we were publishing so much about this, there just weren’t a whole lot of people trading this on the time.

Especially like I said, 2003, 4 and five. Oh my God, those edges were huge then. Um, in order that’s all I did for probably the primary eight years of my trading profession.

I used to be all mean version on the long side. I do not remember exactly when, but eventually I began doing shorting.

Something I’ve come to understand in shorting is the perimeters are stickier there since it’s hard to short emotionally.

There are numerous issues with shorting, just trying to search out shares to short, getting partial fills, just shorting just so much scarier also. I mean, I’ve had short positions where I’ve woken up and checked out it and it’s up 100%.

Trust me, if you’re in a brief position and it’s up 100%, life isn’t good.

It’s hard to trade a system that may have those sorts of losers.

Next within the Mexican evolution was going from long-only mean reversion to short-mean reversion.

Then you already know in 2013, I left Larry and took out by myself.

At that time, I began to branch out more. I began researching more.

I added a breakout method.

I’ve added trend-following methods to my strategy.

Now I’m still trading stocks only.

I have never gotten into futures, I have never gotten into options.

Despite the fact that I’ve done numerous options testing, I still have not, I get tempted by options, but I still have not pulled the trigger on options.

Forex, none of that stuff.

For me what’s happened is I’ve expanded the range of sorts of strategies.

As I said, I’ve got mean reversion strategies on the long and short side, I got breakouts, I got trend following, I got volatility ETF strategy, which…

“Oh man, I actually have just been loving that strategy the last several years”

That strategy has been doing great.

The best way I’ve evolved is by adding more strategies into my trading stable, no more strategies, more sorts of strategies are a greater way of putting it.

This was me, I’d be trading 4 different mean-reversing strategies.

Quite truthfully, that is only one.

All of them trade exactly.

All of them trigger at the identical time.

All of them go up at the identical.

So it’s like, you already know what?

That is not diversification.

You are just fooling yourself if you think that is diversification.

That is not diversifying away.

So, you already know, that understanding how powerful the diversification of strategies helps if you put all of them together, how much smoother that makes your equity curve, how a lot better things get overall versus if you just trade one strategy or two strategies.

For me has been the massive overarching arch of my trading profession over the past 10 years.

It’s just trying to search out different strategies that usually are not highly correlated.

Rayner (42: 59)

So am I right to say that the Tranquility Trading,

The strategies that you simply offer are those that you simply are currently actively trading?

Those, I believe you said 4 or five?

Cesar (43:12)

Yeah, so I trade those strategies.

Plus, I trade other strategies which I do not put up on the positioning.

The explanation I do not put them up for the positioning is they have an inclination to be very low liquidity.

So I traded some very low liquidity stuff that would not even handle 10 recent subscribers sort of thing.

In order that’s why I do not put it up there.

So I actually have strategies that I actually have on tranquility trading that I trade and I actually have my strategies that are not published anywhere that I trade.

These I actually have about, I actually have about 10 strategies in my trading stable.

The best way I do that is, so every quarter what I do is I take those 10 strategies, I run them through sort of like a momentum filter and I pick the five best strategies through my momentum filter and I trade those for the following quarter.

That is sort of what I do. It’s sort of rotating amongst my stronger strategies.

Rayner (44:08)

I see.

The weightage to every strategy, do you allocate the identical sum of money?

Cesar (44:14)

20% each.

I mean, that is now that you’ve got brought it up.

Position sizing, I’ve read numerous several types of position sizing.

There’s inverse volatility, risk parity, calculated formula.

What I’ve discovered at the tip of the day is a few of them could also be barely higher.

But doing equal position sizing does just pretty much as good 90% of the time, it’s way easier and I all the time are inclined to be easy, I all the time go for the simpler.

If I add complexity, it higher gives me a whole lot of bang for the buck. If it doesn’t, it’s like it isn’t price it in my book.

That is why I keep my position sizing, and my trading strategies, even when I actually have 10 positions, it’s 10% each.

I’ve tested all the different sorts of other position sizing and I all the time come back to the quite simple. It’s just 10% each.

Nothing seems to purchase me that far more for the complexity.

Rayner (45:18)

Right, so perhaps let’s dive a little bit bit deeper into mean reversion trading,

Let’s talk a little bit bit about that since you mentioned you’ve got been trading that for like eight years. Is there a reason why Larry is, I’m guessing…

Does he still trade mean reversion today?

Cesar (45:34)

I refer to Larry perhaps yearly now, so I do not know what he’s trading nowadays.

From the last time I talked to him, I believe he’s really into zero-day options.

So, I believe he’s trading. That is what his big thing is now.

Rayner (45:54)

I don’t know what zero-day options are.

Cesar (45:55)

Zero-day options are options that you would be able to buy and expire on the identical day.

That is zero-day options on the SPY and the SPX.

It’s really popular straight away.

My trading buddy Steven Gabriel likes to trade them.

I’ve got a few clients of mine who just love trading them.

I’ve looked into it.

It’s just way an excessive amount of work.

You could have to follow the markets throughout the day.

I don’t love following the markets throughout the day.

I do know that is what Larry is doing now.

But you already know, back after I began working for Larry, mean reversion was just, that happened to be his thing.

We were just finding numerous alternative ways to slice mean reversion at the moment.

Originally after we began, after I began working for them, the mean reversion was all the time entry on the close or the open.

Then we found out doing limits.

That added an entire recent world to us and you already know using limits to do things.

Also during that point, we were discovering alternative ways of rating signals.

We were discovering alternative ways of adding recent filters beyond you already know easy RSI but other filters that added things to the thing.

It was not vital we were on a continuous improvement of mean reversion strategies.

It wasn’t sort of like we were reinventing the identical strategy over and all over again.

We kept getting each strategy higher and higher.

We were finding alternative ways of getting things higher and higher through about those eight years or so of doing that.

Rayner (47:29)

Would I be right to say that as an alternative of perhaps attempting to refine or to make that strategy even higher, it was going to be so much more price it by way of ROI to adopt one other strategy with nothing to do with mean reversion, based on different principles?

So, you get the diversification.

Cesar (47:50)

Yeah, now I might say what we were doing back then, we should always have tried harder to search out breakouts, trend following, and whatnot.

But again, you remember back then, this was all recent. There wasn’t a bunch of data on the market on mean reversion.

We were on the forefront of the sort of promoting that mean reversion strategy.

Like I said, we were…

It wasn’t like we were taking…

“Oh, let’s take this strategy that works on the S&P 500 and make it work on the NASDAQ 100”

Same rules.

No, we were like…

“Oh, we take this strategy on the S&P 500 and we add this recent rule or we do something else”

Now…

“Oh, look, our results recuperate”

We were like continuing to figure things out make things higher for the longest time.

Rayner (48:35)

I do know that you simply and Larry wrote a couple of books.

So, I’m curious to listen to, what’s the inducement behind promoting mean reversion trading?

Because if too many individuals learn of it, then that is where your edge gets eroded.

What is the mindset behind that?

Cesar (48:48)

Yeah.

You are asking me now to get into the mindset of Larry here.

That is pure speculation.

Okay. But I mean…

Larry was an educator.

He liked putting out strategies on the market to teach people.

At the moment, things didn’t…

I suppose information didn’t travel as fast.

You possibly can put the principles on the market, and that is true even now.

I could probably put the principles on the market for a whole lot of strategies.

Most individuals won’t follow the principles.

Simply because it’s hard to follow, following a technique is difficult.

You understand, first drawdown, or first minor drawdown, most individuals will bail.

I can inform you that straight away.

But the issue is…

Back then versus now could be…

Back then, systematic trading was not that well-known.

There weren’t as many systematic traders.

We could publish the principles and it was a smaller universe and even smaller for the individuals who follow the principles.

Now if we would published a rule set, there could be so many systematic traders, the universe could be a lot greater and data could be a lot wider that we might destroy the trade, the perimeters in my view, immediately nowadays.

Years before the perimeters would potentially disappear sort of thing.

Now, I bet you place out strategy, you most likely have months and the sting would disappear.

Rayner (50:18)

Now let’s sort of like go to an summary of you already know a number of the trading strategies that you’ve got in your website.

I believe what I saw was the exploding star sounds exciting or exploding.

So perhaps without giving your rules, perhaps just get a high-level overview of you already know what exploding stars is about.

Cesar (50:36)

Exploding Stars is a brief strategy and this can be a very narrow short strategy.

This strategy only goes short when the market is under the 200-day moving average.

The explanation for that’s you are inclined to have less frequent blowups when the market is under the 200.

You are less prone to get up and see a fill up 100%.

Rayner (50:59)

Because it isn’t in an uptrend.

Cesar (51:01)

Yeah.

What I might say is a really strong mean version strategy.

I mean, you take a look at the chart of a typical setup and it’s going straight up and then you definately are getting in at a really high limit intro day.

When you take a look at the charts, you’ll sort of…

Even when I do that, I might go, why am I shorting the stock?

It goes straight to the moon.

Why am I putting my face straight into the hearth?

But there’s some extent where things just must pull back.

That is just on the lookout for quick pullbacks.

It really works quite well during bear markets.

The issue is I could make the strategy work during bull markets and I haven’t got it that way there, but I do have it in my trading because in bull markets, the drawdowns are much worse and you discover those 100% losers occur then.

I just don’t need anybody, not that I can guarantee it, but I can a minimum of make it less likely that it happens, when it’s under 200, it’s so much less prone to occur.

Like I said, waking up when a stock’s up 100% and even 50% just really, really sucks, that is something that took me some time to work out for shorting my position sizing was too big.

I spotted after considered one of my 100% losers that my brain just shut down.

My brain was similar to…

“I do not know what to do. It’s like, what do I do?”

Do I still follow my rules?

Do I just get out?

What do I do?

I spotted at that time my positional sizing was too big and I had to scale back position sizing to sufficiently small.

I mentally went through that sort of exercise and said…

“Okay, if my position size is, for example $10,000 per stock, and I get up and it’s up, it’s doubled and now it’s $20,000”

Which means I got a $10,000 loss, eventually getting greater.

Can I still function?

If the reply is No…

Then it’s like, okay…

Go smaller.

I did this sort of mental exercise.

I said…

“Okay, I believe I actually have $8,000. I will be okay”

Then I do know that is the edge.

Let me just make it $7,000, now I’ve got a little bit buffer.

That is sort of what I spotted.

Once I began doing shorting, you bought to mentally prepare for these huge losses and understand if it happens, can I still function?

Can I still follow my rules?

Because that is considered one of the hard parts of any strategy is frequently if you stop following the principles It’s the worst time to stop following the principles.

Rayner, you are probably quite conversant in this.

You’ve got probably done it.

I mean, we have all done it.

I mean, I still have now done it.

We discover an amazing excuse to stop following the principles.

Sure enough, it was the fallacious time to stop following the principles.

So yes, in order that exploding stars, like I said…

“It’s a really strong mean reversal strategy”

At once, because we have been such a robust bull market, it has been sitting in money, which is high quality.

It’s just sitting there for when the following bull market happens.

Granted they do not appear to occur fairly often and so they’re very short nowadays it looks like.

But it surely’s they’re waiting on the sidelines.

Rayner (54:05)

Got it.

In order that strategy I suppose is a type of swing trade hold trades for a couple of days slightly than existing

Cesar (54:10)

Yeah, very short hold only a few days.

Yeah, just on the lookout for you already know, the stock going up and just coming down a little bit bit.

The best way I put it has given me any excuse to get out of the position.

That is the best way I take a look at yours.

You’ve got made me a little bit little bit of money. Okay, I’m getting out.

I’m getting out because often once they come back, they arrive back really strongly.

It really works quite well.

Rayner (54:32)

I can imagine how scary it’s if you let those hundred percent move multiple days in a row.

Cesar (54:37)

If I showed you a number of the charts on the setup, you’ll go…

“There is not any way I’m shorting this”

I mean, 99%.

This is the reason I really like short, shorting strategies.

Because when you show the chart to anybody and say…

“Okay, would you short this?”

Most individuals would go…

“No way, you crazy.”

This is the reason, you already know, the perimeters are still much stronger there than all of the long side.

But they’re hard to trade.

I don’t recommend it for most individuals.

Rayner (55:00)

Would you say then that there is a correlation between how strong an edge is, is a function of how uncomfortable it’s to take the trade?

Cesar (55:09)

Yes, I feel so.

I feel that’s an amazing statement.

How hard is it to either get into the trade or stay within the trade?

It is simple, for me, trend following in a way is straightforward, especially in the event that they’re going up.

Anybody can stay in a trade that is going up and up and making you money.

Yeah, that is easy.

A trade that is going against you and you’ve got to get into it or stay in it tends to be hard.

Such as you said…

That is more of a conceptual thing.

I believe mean reversion tends to be harder to trade the trend following breakout, I believe may be sort of hard to trade depending on the person.

Because you already know breakouts are sort of like wait it’s just making it hard.

I don’t need to pay that much, you already know since it was lower.

So, I can see breakouts being hard to get into.

But when you’re in a breakout, I believe they’re a little bit easier.

Normally, a mean reversion trade is happening. You are moving into it.

It often goes down one other day or two before it finds size amounts up.

I mean, as you are aware, because I do know you’ve got some mean reversion strategies in order that they may be a little bit harder to trade.

But unfortunately, not hard enough because the perimeters have shrunk through the years.

Rayner (56:28)

Perhaps just to assist the audience visualize.

What exactly does mean reversion trading?

So everyone seems to be on the identical page over here.

Cesar (56:37)

So mean reversion trade…

Imagine a stock has been going up for numerous days in a row, after which it goes down, for example…

Two or three days.

So, it’s sort of like what we would call pullback.

That is a mean reversion.

It’s sort of like bounce back.

By mean reversion, we mean it’ll return to where it was going back at that uptrend.

We’re sort of saying…

“It’s gone down”

It’s pulled away from, for example…It’s moving average and we expect it’ll return up.

On a mean reversion trade, often what we are saying is like…

“Okay, it’s gone down three days in a row. Okay, I will get in now.”

Then I will wait till it bounces back up.

Then I will get out when it bounces back up.

One quite common thing I’ve had through the years, and it has been some time since anybody’s asked me this query.

It’s like…

“Okay, you have a mean reversion trade. Why don’t I just wait for confirmation that’s going up?”

As an example it breaks the high of the day past.

The issue with doing that’s it destroys like 80-90% of your edge and a technique that appears also really good now could be like hardly makes any money.

Waiting for that confirmation destroys the sting.

You possibly can’t wait for the confirmation.

You could have to sort of like take it on faith that it’ll bounce up.

Unfortunately, sometimes they do not bounce up.

Sometimes they keep happening, down, down.

that is what makes mean reversion difficult since the second part stops.

We all the time read…

“Oh, put stops in. You might want to have stops”

I remember this story greatly after I began working with Larry.

We were doing a little mean reversion testing. He goes…

“Okay, we’d like to place stops”

I actually have to inform him… we all the time must have stops.

We want to have a stopping.

He said…

“Okay, watch his test”

I do not remember. 5% stop.

I said…

“Okay, I’ll test 5% stop”

I went and commenced testing.

I told it a 5% stop and I saw the outcomes.

I said…

“Well, let me try a 6%.”

The outcomes got higher,

7%? …

It’s like…

“Well, that is sort of weird”

The outcomes keep getting…

Let me try 10%…

“Wow, the outcomes are still higher”

Let me try 20%…

“The outcomes are higher”

Let me try a 50% stop…

“Results are still higher”

I spotted… Let me try no stop.

The no stop here, and I remember coming back to Larry.

Larry…You are not going to consider this.

No stop gives the perfect results of all.

He was like… What?

That’s considered one of the hard parts of Mean Reversion, Will not be in theory.

In practice having no stop works the perfect.

Now, I’ll come back and say for my trading strategy, I actually have two sorts of stops.

I actually have a 50% stop loss and I actually have a time stop in my trading strategies.

The time stop I believe is like eight days.

So, after eight days, it isn’t gotten to my exit.

Normally, meaning it’s bounced up or it isn’t hit my 50% loss, I’m just getting out.

The explanation for those two is that they have minimal impact on the outcomes.

I mean, they make the outcomes worse, but not greatly worse.

Most significantly, it makes it easier for me to proceed to trade the strategy.

So, if I’m a 50% loser, I just don’t need to see it in my account anymore.

Just selling it, and getting out of my account makes me feel higher, makes me trade, and continues to trade the strategy.

If I’m within the position eight days later and it hasn’t bounced up and it’s just going sideways, I just get out of the account, perhaps put something else which may work higher that can make me.

Again, these two rules make my MDD a little bit bit worse, not so much, but just a little bit, but make it much greater that I’ll proceed to trade the strategy.

That is a very powerful part.

That is considered one of the largest lessons I’ve learned through the years You could have to maintain trading the strategy.

When things are going bad, things are going poorly, it’s always the toughest time.

It is simple to maintain following a technique if you’re creating wealth.

It’s hard to follow a technique if you either have bad trades otherwise you’re losing money.

Anything you’ll be able to do to make that easier is vital in my book.

Those two rules make it easier to trade my mean or original strategy.

They’re added there only for that, though they make the outcomes a little bit bit worse.

Rayner (1:00:20) 

What you shared earlier is just beautiful.

I’m so glad to learn from you.

Because I feel you were the one who sort of exposed my eyes to having no-stop loss within the stock markets.

It’s higher overall.

But we still have risk management in place.

You then speak about a time-based stop loss.

Cesar (1:00:35)

Yeah, the chance management is finished by position sizing itself.

It’s like…OK, how big are my positions on this strategy?

Thankfully, on the long side, the worst you’ll be able to do is a 100% loss.

But you already know, I believe my worst long-side strategy is perhaps like a 75% loss.

No, it sucks.

They’re pretty infrequent.

But you already know, again, let me just say this…

This does not imply my other strategies haven’t got stops.

Yes, my breakout strategies have stopped.

My trend-following strategy has a stop.

So yeah, all of it is dependent upon the strategy whether having a stop is sensible or not.

It’s understanding.

I’ve had people come to me; I want to have a stop.

It’s like…High quality, okay.

Understand, when you’ve got a meme or a technique and you should have a stop, understand what you are giving up.

So long as you understand your results are worse and the way much worse they’re, that is high quality.

Because when you need that to proceed to work to trade the strategy or for whatever position sizing method you are using, then that is sensible.

Rayner (1:01:35)

So earlier I heard you say breakout and trend-following strategies.

Are they like two different strategies?

Because they sound so similar, like trend following and breakout all…

Cesar (1:01:42)

Yeah, they’re similar.

But I suppose I might call them my breakout momentum.

They’re similar, but in my books, they don’t seem to be quite the identical.

Rayer (1:01:55)

Could you expand on that?

Cesar (1:01:56)

Breakout to me is… It’s making a recent high, a recent yearly high, and a recent all-time high.

You understand, I’ve got one strategy that was doing an all-time high.

I actually have one other strategy that is doing, I believe, yearly high.

So those to me… That is a breakout.

When it’s doing that, a momentum strategy or a trend-following strategy, to me, it’s just above the moving average.

It doesn’t must be making some all-time high or a yearly high or anything like that.

The charts look different to me.

Once I take a look at the charts, they give the impression of being different.

Also, the best way you place the exits between a breakout strategy and a trend following tends to be a little bit bit different.

To me, they’re very similar, but to me, they’re two several types of strategies.

Rayner (1:02:41)

Perhaps on exits, do they each use trailing stop loss or one could have a trailing stop loss and perhaps one is a set goal or something?

Cesar (1:02:49)

Right, yes, exactly.

Here’s the bad part. Because I’m a scientific trader and since after I’m fully systematic,

I often forget the precise rules of my strategies.

You possibly can put a gun to my head and say…

“Hey, give me the principles of that strategy”

And I’d say…

“Well, you are going to must pull that trigger because I do not remember the principles”

I can inform you the final concept, but the precise rules, I don’t know.

It is not because they’re complex strategies.

It’s simply because I’ve got them up and I’ve got them running.

It has been years since I’ve had to take a look at the principles.

I used to be like, so hopefully I’m getting this right.

But my breakout strategy has each a profit goal and a stop loss.

They’re fixed.

It’s got a profit goal, a stop loss, and a time stop.

Because often, I find for those, the momentum often continues and tends to be strong.

Now, the profit goal is pretty high at, I believe, 50% or 75%, somewhere up there.

So, it’s a reasonably high-profit goal.

And the stop loss is around 10% or 15%.

It’s a reasonably big selection.

But there may be a sort of a time stop to say…

“Look it’s got to get to considered one of these inside six months or so if not then you already know rotate something else”

That is a moving sort of thing because I can not expect a breakout to occur and the momentum to proceed and stand up to my profit goal.

That’s the breakout the trend follows.

I even have a profit goal on that. I are inclined to prefer to have profit targets

But again, also somewhere around 50-75%, somewhere around there.

That one’s got a sort of trailing stock behind it.

That is sort of the difference on those there.

Rayner (1:04:45)

I’d prefer to hear your opinion because when having stops and targets which can be of a certain fixed percentage and you made the choice to make use of this for the foreseeable future, that percentage…

I mean, there are such a lot of ranges of numbers that you would be able to select.

How do you sort of go about deciding,

I made a decision to go together with a 50% goal and perhaps a 20% stop loss.

You don’t need to over-optimize the perfect numbers.

How do you go about selecting?

Cesar (1:05:08)

Right, so we’ll start with the stop loss.

The stop loss often tends to be within the 10 to twenty% range, simply because on a breakout or a trend following stock, you often don’t need them to tug back immediately.

That tends to be pretty fixed within the 10 to twenty% range.

I all the time have a profit goal on these longer-term ones.

Let me explain first why I actually have these profit targets.

The explanation I actually have this profit goal is cases like Tesla, Apple, and Nvidia.

The issue is, when you do a backtest when you haven’t got a profit goal and you simply sort of say…

“I will have a trailing stop where I’ve got another rule, these positions, when you get into Apple or Tesla or Nvidia at the proper time they’ll grow to be a really large a part of your portfolio”

Such that the rationale why your strategy did so well is since you got into just that one stock and picked it at the proper time.

I don’t love that.

I don’t love a backtest that is dependent upon one stock or is dependent upon after I began.

Because if I began this, for example…

“The strategy a yr earlier, I didn’t get into Nvidia for whatever reason, because I did not have open positions”

Now my strategy didn’t do well.

What happens is that if I actually have like a 75% or 100% profit goal.

Let’s say…

I get into Apple; it gets to my 100% stop-loss profit goal.

What would occur often is I exit it, after which often it finally ends up being a recent reentry quickly thereafter.

In a way, I’ve resized it back right down to a smaller size, in order that it isn’t taking on such an enormous amount, and now it could possibly continue to grow.

In order that’s just sort of why I all the time have a profit goal, is I’m attempting to avoid a position becoming so big.

How big do you wish it?

Between 15 and 100% is sort of like my normal amount.

I say normally, it’s normally around 75-100% where I say… Okay, that is gotten sufficiently big.

Yeah, since you got to recollect, at 100%, for example you are doing a portfolio, you have $100,000, you are doing $10,000 per position for 10 positions, and also you start and also you get $10,000 in Apple and $10,000 and something else.

Apple doubles, okay?

So, it’s now $20,000.

It’s now turn into twice as big as every other recent position that you simply’re putting on.

That to me, I don’t love that much concentration in a single stock.

That is sort of why I’m doing that.

Does that every one make sense, Rayner?

Rayner (01:07:42)

Yep, all of it is sensible.

Also, perhaps just take a step back and return to mean reversion trading, I have been wanting to ask, what markets, based in your, I believe your research…

Which markets are good for mean reversion trading, after which which markets usually are not good for mean reversion trading?

 

Cesar (01:07:59)

By markets, I’m undecided what you mean by markets.

Do you mean like Forex and Futures, or do you mean, what do you mean by markets?

Rayner ((1:08:09)

From what I’ve gathered up to now, mean reversion trading works best within the US stock markets, right?

Since it’s more efficient back there.

When you apply it on markets, like I do not know, more trending markets, I mean the China A50 and stuff like that, it probably won’t work.

Cesar (1:08:23)

Actually, from the work I did with Larry and the little work I’ve done with what I did.

I can get it I feel mean reversion iron is stronger and higher outside the US.

So Australian markets, Canadian markets.

Now a part of the issue, I have been doing a little testing on the Canadian markets, and mean reversion is working well there.

The issue with the Canadian market is there are only not enough stocks to get you sufficient trades to make it worthwhile.

Does that make sense?

The market itself isn’t sufficiently big or the universe isn’t sufficiently big to provide me enough trades to make a portfolio worthwhile.

Now the person trades that you would be able to get are really good.

You are just not getting enough of them.

Rayner (1:09:12)

What about Australia?

Cesar (01:09:13)

I actually have not tested Australia, but my bet is from what I’ve heard from other people, there’s an Australian market is pretty good from the mean reversion.

I feel the foreign markets are probably really good still for the mean reversion.

A part of it also, there’s two reasons, there are fewer people trading them and their liquidity tends to be less and that is true within the US market.

The lower liquidity stocks are inclined to have higher, larger edges in them because the massive players cannot trade those stocks because they move them.

You understand even in the event that they did, they must take such a small position size that it isn’t going to make much difference.

It is not going to assist them that much.

So yeah, I believe especially on your international viewers that take a look at their markets.

A part of the issue for me is getting data that I might trust and be comfortable testing with.

At once, the one data that I trust that we will use is for the Canadian, US, and the Australian market.

I suppose I want to see how hard it might be to trade the Australian market.

Probably the issue with the Australian market can be hours.

The Canadian market is sweet since it’s on the US hours sort of thing.

The Australian market just would make it, I’m lazy at the tip of the day.

 It’s like…

“Oh, don’t make me get up at some weird time or don’t make me have to take a look at the markets at a while I don’t need to”

Rayner (1:10:42)

What about mean reversion trading,

As an example…

On the Forex or futures market?

Cesar (1:10:47)

I’ve tried it on the Forex markets which have yet to see it work.

I’ve seen it work on the futures markets prior to now.

I truthfully haven’t done much testing by myself on the futures markets because I just don’t trade futures.

I’ve done some testing for clients in the long run. It looks like it does.

It might probably’t work on there. It’s a little bit bit different

Within the futures market, you’ve got so much more complexity due to position sizing and the leverage and stuff like that, which can even aid you out so much.

Rayner (1:10:47)

Now let’s move on and speak about one other strategy, I believe, on tranquility.

You could have one other one called the volatility trend traders if I got it appropriately.

Yeah, this one you spoke about earlier, right?

Perhaps a high-level overview of what that’s about.

Cesar (01:11:33)

Yes.

So, that is considered one of my favorite strategies since it’s so different.

So to begin with, it’s trading VIXI and SVIXI.

So VIXI is the long VIX ETF.

And SVIXI is the short VIX half size, so half size or half volatility.

Trading just those two. It’s taking a look at when it thinks volatility shall be staying low.

When it thinks, volatility goes to remain low, it goes into S-VXC or collapses down.

So, S-VXC makes money when volatility is flat or volatility is happening.

Then, so consider it, the straightforward strategy to give it some thought is after we’re a pleasant quiet bull market like we are actually, is it great, is it low volatility?

Or after we’ve come off a really huge spike, the markets have gone down an entire bunch of days in a row.

It’s bad news, the market’s been down for a month, whatever.

Normally, the VIX goes up, after which eventually the VIX will start, volatility starts to come back back right down to normal, and that is also one other good time to get into S-VIXI.

So, more often than not the strategy is not something like that.

The nice part about that is you’ll be able to be in S-VIXI and the markets may be flat, and you may be creating wealth because S-VIXI also sort of erodes over time.

This is sweet on that feature.

VIXI now could be every that when we expect the markets are beginning to get volatile or the markets are beginning to get volatile we get into VIXI.

Markets are getting volatile and you already know markets are frequently collapsing so the VIXI goes up and if we time it right markets collapse we’re in VIXI in order that implies that makes money during you already know market collapses hopefully.

So yeah, principally I’m trying to guage which volatility regime we’re in.

More often than not, what I view as quiet volatility or down volatility.

Every now and then, I’ll get mixed signals since it takes a few things under consideration and I will be sitting in money when it’s sort of like…

“I can not make up my mind which one to be in”

So, I’ll just resolve to be in nothing.

It’s done.

Last yr, it did 51-50%.

Rayner (1:13:10)

Wow.

Cesar (1:13:11)

It didn’t do all of it at the tip. It was pretty consistent.

The yr before, I do not even know what it did the yr before, but I believe it was, I mean, it’s had some great years since I have been trading it the last couple of years.

Yeah, however it’s a much higher risk, definitely not something I like to recommend for beginners and even immediate people.

You could have to know that Volatility ETFs have had their issues prior to now.

For those of you who’ve been around long enough, chances are you’ll remember XIV.

It imploded, in 2018.

When it went down 80 or 90% in a day.

It almost went to zero, almost instantaneously.

A part of the rationale now why XIV was a 1X short.

A part of the rationale why XVIXI existed on the time, but didn’t exit of business or didn’t get closed down, they converted it to a half X to avoid that sort of situation.

But you’ll be able to still have huge moves in that.

If the markets suddenly shoot up, in the event that they say a extremely bad event happened within the stock market and the stock market suddenly collapsed and also you were in S-VIXI, you possibly can easily lose 50% of your position overnight.

In order that can occur.

Now VIXI, which is the long volatility, I do not know what the largest one-day movement is on VIXI, but I can not imagine it’s greater than 10 or 20%.

Still a really great amount, however it’s not the sort of thing, markets, for VIXI to collapse down, volatility has to drop rapidly.

Volatility very rarely drops from really high to low overnight.

That is just very rarely happens.

It is the reverse. Volatility goes from very low to very high overnight.

That is what kills you.

So yeah, I just like the strategy because it’s extremely different.

It is not mean reversion, it isn’t trend following, it’s volatile, it’s extremely different.

But it surely’s also for advanced people, that is considered one of those you’ll be able to get burned on due to the best way the market goes and since of the best way this stuff are structured.

Rayner (1:16:01)

I’m just considering out loud over here where you speak about VIXI and S-VIXI.

I’ve not traded those before but one is long volatility.

I’m considering the perfect time to be long volatility is when the market is basically quiet, because markets, through long periods of consolidation, implies that it’s sort of like storing potential energy for a giant move to occur.

I’m considering probably quiet times are probably considered one of the higher times to purchase that one.

I believe the opposite one, which is profit when volatility sort of tapers off, probably goes to be when there’s huge volatility available in the market and there is fear.

That is where you already know that things are going to get quiet in the approaching days because it could possibly’t be too fearful for a sustained period before, the selling pressure just sort of eases off.

I’m just considering out loud here as you were talking about these two products.

Cesar (1:16:37)

Yeah, yeah, so yeah, what happens is…

I’m on the lookout for things which have gotten very fearful and things are looking like they’re turning around, that is why I’ll get into S-VIXI.

Or times where I just say…

“Hey look, it’s pretty quiet straight away, that is time to be in S-VIXI”

S-VIXI will do well even during quiet times, doesn’t must have the market going from high volatility to low volatility, but just a fair sort of regular volatility works well.

Such as you said…

“Volatility picking up time to get into VIXI”

 Is it perfect? No.

But no strategy is.

But it surely’s done well within the last two years.

I’m frightened it’ll have a foul yr because it has been on little run.

So often, it’s like…

“Okay, it’s due for a foul yr”

Rayner (1:17:24)

Mentally prepared.

Perhaps we will speak about one other one.

We’ve one called the market surfer.

Seems quite simple to know because there are only two markets, Bonds and DSMP.

Cesar (1:17:41)

That is an interesting one.

That is bought, well, this one originally began after I first put it out.

I first put it out on the positioning as a SPY and TLT that’s the stock market or TLT.

The concept was, to attempt to catch all of the moves then things sort of get bad within the markets, and go to TLT.

What happened was…

It was very interesting here.

The priority I had even after I put it on the market after I sort of published it to Trek Reliity Trading, something I discussed, it’s like…

Look, we have been coping with, on the time after I put it on the market, we have been dealing in a bull market in bonds since 1982.

We have not had a bear market in bonds.

I said…

“Look, I do not know what is going on to occur in a bear market of bonds”

Certainly one of the members of the positioning emailed me and said…

“Hey, look, I believe we…”

He gave me an idea of claiming…

Perhaps there is a way you’ll be able to do that to sort of take a look at bonds which can be doing badly and as an alternative of going to bonds, going to money.

Because originally, the unique system was in either SPY or TLT, one or the opposite.

It was perfectly well-timed for when the bond market.

I really like this variation that he gave.

The outcomes were a little bit bit worse, but conception, I liked it since it took care of the thought of, I do not know when a bond bear market is coming.

But I do know when it’s coming eventually.

I didn’t know the way soon it was going to be, but so this was nice and conception.

I liked this concept.

When the bond bear market happened, we moved into money.

Because you already know TOT was getting crushed, and SPY was getting crushed because in 2022 each of them were losing money.

In 2022 the strategy didn’t make much loss.

I do not remember my loss perhaps 5% or so, however it was good, considered one of the teachings learned from that was you already know understanding the constraints of your backtest and you already know this limits the unique backtest limitation was.

We didn’t account for the eventual bear market within the box and having this member of my site sort of say…

Hey, look, really pushing it and saying, coming up with some ideas on cope with that was good and made a a lot better strategy.

I still have the opposite versions on there for people who find themselves far more aggressive and think…

Because especially now that we have now the bond prices have come, rates of interest are much higher, we’re not going going to have a bear bond market shortly.

So perhaps some individuals are going to the opposite ones a little bit bit more aggressive.

Does that make a little bit sense to you?

Rayner (1:20:17)

Yep, it does.

I’m also curious since you’re either in money, bonds, or S&P and considering the typical annual return is in double digits.

So how does that come about, for the reason that buy and hold on the S&P?

Cesar (1:20:31)

Well, you’ve got to recollect, that comes about in two ways.

A technique is you earn cash when the market goes down when you’re in TLT.

The opposite way is, when you’re creating wealth on TLT, you are not losing on the spikes.

It’s sort of such as you get a little bit little bit of each.

In order that’s the way you sort of manage to do higher than the market itself.

A part of the trick sometimes is, they are saying market timing is difficult and it is basically hard, but you’ll be able to get it halfway right, and you’ll be able to improve your results on either drawdowns or returns.

For me, it’s always drawdowns I’m attempting to avoid.

Rayner (1:21:10)

Okay, awesome.

Yeah, this can be a fun one.

I mean, you’ve got been training for like over 20-plus years.

What are some strategies that you’ve got used prior to now that now not work?

Cesar (1:21:22)

Oh…

In order that’s so much and numerous strategies.

There have been multiple mean reverting strategies which have come and gone.

Lots of that was what I might call Larry Conner strategies that were published and eventually people who just disappeared.

Simply because I used to be trading them as we published, I feel too many individuals got around to seeing the principles and trading those.

That is a technique, it’s disappeared.

I’ve had a technique, God… when was this?

The early 2010s, which was depending on some FED Data. And that one, went away mostly since the FED stopped publishing the information I needed.

That is one other strategy that has sort of gone away.

Now’s an information issue sort of thing.

A recent strategy I’ve finally formally killed, though I have never traded it for 2 years, is I had a technique that was trading S&P 500 stocks, sort of a breakout strategy, and it just stopped working for the last two years.

I finally decided It was not because I hadn’t been working for the last two years.

I sort of killed it out of my trading stable and this is the reason you have not asked the query that everyone all the time eventually asked us.

How do you already know when to stop trading a technique?

This type of segues to this in a way of in order I discussed earlier I actually have about 10 strategies that each quarter I sort of evaluate and trade the five best ones.

 What that naturally does if a technique is doing poorly, it isn’t going to make the five best.

That is my way of determining when a technique dies.

This strategy that I only recently killed had not made it into my five best for 2 years.

The outcomes sucked over the past, they were sort of flattish over the past two years.

Since it hadn’t been aided in the highest five, told me it just was not doing well.

Just looking over the past results, taking a look at the marketing conditions that they need to have done well, I made a decision I used to be going to kill it.

But I used to be in a position to kill it without getting hurt by having it in my trading stable.

Does that make sense?

Rayner (1:23:37)

Yeah…

Cesar (1:23:40)

So so much, because often people say…

When do you already know when to stop trading strategy?

The issue is you do not know until a yr or two or three years after it stopped working that it’s gone bad.

No one desires to trade a technique for 3 years that is going bad.

By having in my trading stable and rotating through the perfect strategies, I didn’t naturally, didn’t trade this strategy for 2 years.

I used to be in a position to see two years.

I can see through two years of backtest returns going, it didn’t do well.

I understand why it didn’t do well. It did market, the markets were doing well.

It must have done well, however it didn’t.

So, the perimeters disappeared, but I didn’t get hurt by having to trade it for those two years since it didn’t make the highest five.

Rayner (1:24:24)

That is a really recent concept that I’ve just learned from you.

You understand, principally having a stable of strategies after which just picking the highest few ones and never even getting affected by those which have stopped working because you already know ones which can be working all the time at the highest rating.

Cesar (1:24:37)

The best way I got here up with this or the best way I sort of got here up with this and perfected it’s I had this idea of…

Oh, okay, perhaps rotating strategies.

I said…

Well, can it help me get out of bad strategy?

So, I created a technique that purposely lost money.

I mean, this strategy goes broke.

So, it was very easy to make, it is simple to make strategies that lose money.

I made a technique that purposely lost money almost every yr, lost money, lost money, lost money.

Then I put it into my stable.

I back-tested it with my stable.

I used to be like…

Okay, does putting this strategy that I do know loses money yr after yr after yr?

Yeah, there have been months every now and then when it might pop up and earn cash.

So, I used to be like…

Okay, here’s a technique that just conceptually just sucks.

I put it, I tested it, and pretty consistently, it just never would show up.

A few times it did show up since it had three months where it got lucky and made some money and showed up in the highest five.

But then, yeah, I traded for 3 months, it might lose money, then I’d rotate out.

In order that sort of showed me that I can purposely put it in a technique that sucks.

But after I put it into my whole stable, it only minimally impacted the overall return.

Yes, did it bring them down a little bit bit? Yes, it did because I put something I do know is bad. But it surely didn’t destroy the whole lot. It did exactly what I wanted it to do.

In order that’s how I verified that this idea that I had worked.

Rayner (1:26:03)

Yeah, it’s the primary time I heard this idea.

Wow, I believe we’ve got some work to do with you after the decision.

So are we in a position to then, for example…

I actually have, for instance, 10 strategies, am I in a position to,

for example…

If I take the highest three every yr or every quarter and I backtest between the highest three to the highest five, can I see the difference within the performance?

Cesar (1:26:20)

Yeah. It’s doable?

Yeah, I mean, you will notice the difference in performance.

You could have to come back up together with your rating method.

I mean, my rating method is pretty easy.

I mean, it isn’t a fancy rating method.

I believe I’m just taking a look at two timeframes and saying…

Okay, take a look at these two timeframes and compare all of them, and just rank by that.

That is sort of a quite simple rating approach to my strategies.

After which, yeah, I mean, anybody doing this.

I might say… You understand, when you can stand up.

I actually have considered one of my strategies which is a brain death strategy.

It’s only a two-in-a-day moving average on the SPY.

Because I figured if my strategies cannot beat that, then that must be in there.

I believe also one is just money. Those aren’t official.

Well, the money is not an official strategy, however it’s unofficial like eleventh added in there, just as a sort of extra buffer.

It’s like…

OK, things are really bad. I just need to know if that puts it in there.

But anybody else, when you’re doing this, when you’ve gotten to the purpose where you have numerous strategies that is way of attempting to give attention to a smaller set.

For me, it’s a extremely great way of coping with understanding when a technique is dying.

This also helps you to get away barely with strategies which can be similar-ish.

But yeah, I’ve found this has been good for me. Is it higher?

Would you be higher off on the backtested results trading my entire 10?

Yes, I’ll say yes.

If I just trade all of it together and back-test the outcomes to provide me higher results.

But I’m willing to provide up a little bit little bit of return to now sort of like say, I now needn’t worry about when does the strategy die?

Because that to me, that is all the time considered one of the toughest inquiries to answer.

You possibly can’t answer that until a pair, you already know unless it’s something obvious.

I mean, very rarely is it that. I mean, like when my data disappeared…

Okay, yeah, that strategy is dead. Yeah, that is pretty obvious.

Or something critical in your strategy happens, you already know, it isn’t obvious for a few years that your strategy is dead.

Very rarely is it very sort of like…

“Oh yeah, my strategy because normally it isn’t that they lose a whole lot of money”

It’s they only stop creating wealth, I’ve discovered.

Rayner (1:28:46)

So this sort of like brings me to this query.

As an example you rebalance every quarter, if I hear you appropriately, pick those with the strongest momentum.

There shall be times where for example…

A technique goes right into a drawdown.

And I believe there is a saying that the perfect time to trade a system where it’s in a drawdown is because if it really works, it’ll meet up with the following up move.

I will assume that you’ll not have the ability to enter those strategies which is in a deep drawdown.

You simply enter it when it’s sort of recovering from the drawdown to prove itself before you get back to those strategies again.

Cesar (1:29:16)

Yes.

Because I’m taking a look at like, I do not remember the precise things, but I believe I’m taking a look at three- and nine-month momentum.

How has it done over the past three and nine sort of thing?

The thing is, if a technique is a drawdown, the issue is we do not, and that is all the time the query, is the drawdown normal?

Is it going to come back back or is that this a drawdown?

It is because the strategy is dying and broken.

You possibly can’t know that, yes, sometimes the perfect time to get into a technique is when it’s in a drawdown.

That is where you sort of find yourself giving a little bit little bit of a return.

Once I said, it’s sometimes higher to trade your entire 10 than trading the five.

But again, that is all the time trade-offs.

At my age now, I’m now not on the lookout for huge returns.

I’m on the lookout for smaller returns and fewer drawdowns.

I do not need the massive years anymore. I just need consistent years and small drawdowns.

Rayner (1:30:16)

Preservation mode, I’m guessing.

Cesar (1:30:17)

Yeah, I’m within the preservation. I’m not trying to super grow my portfolio now.

I’m trying to preserve it and slowly grow it.

Rayner (1:30:29)

Also, I’m considering if you do that rebalancing, it won’t make sense to be using a loopback period of like one yr or two years, because that is where things may be.

I do not know, just like the strategy that has done well for the past yr.

I do not know, I actually have this sort of theory in my head that it’s about to mean revert soon in the long run.

I do not know.

Perhaps is that a reason why that is why your rebalancing is on a shorter duration, like three months, or nine months?

Cesar (1:30:49)

I mean, the issue is,

I mean, I don’t need it too long, because if I actually have too long, then it’ll, take a tough time to kick out a technique that is dying.

That is the thing.

The one thing you’ve got to watch out with is something like this, and there may be a little bit little bit of discretion strategies which can be market-dependent.

For instance, I told you, we were talking earlier concerning the exploding stars.

I actually have a version that trades each above and below the 200-day moving average for the market.

But that one which I’ve got published on my site is simply for when the markets are in a bear market, okay?

So in fact, straight away, it’s just sitting in money.

In order that one, if I had that in my trading stable, I might must do something barely different.

Are we in a bear market?

That one I’d just throw straight in.

If we got right into a bear market, I might just throw it straight in.

If we got 1 / 4 rotation, it’s like we’re in a bear market.

It’s like…

Okay, that one routinely gets it.

Then I’m considering of the following top 4.

Since it’s just the best way it’s.

You could have to watch out with that.

Like…

Oh, this is simply a bull market strategy.

Oh, there’s only a bear market strategy.

Then you’ve got to watch out with this sort of strategy rotation.

Because it might keep you out of strategy when it should, not when it shouldn’t, but when you must, then you need to be moving into something.

Rayner (1:32:13)

Because that strategy is supposed to shine during bear markets and perhaps the rating has not made it show up yet.

Cesar (1:32:19)

Right. Yeah, just imagine it’s March thirty first, and we have just entered a bear market, and this strategy has been sitting in money.

In fact, it isn’t done thoroughly.

But we’re in a bear market and this is the reason I do know it’ll go.

I’d routinely throw it to the highest.

Say, no, it is a bear market. I’m throwing you in.

So that might be sort of like a semi-discretionary override over that.

But when you’ve got, it’s something to take into consideration when you’ve got strategies like that.

Rayner (1:32:51)

Okay. And what’s your tackle trading individual markets versus a portfolio?

I believe what you do, you trade a portfolio of stocks, right?

But there are also some traders like Kevin Davy, and Andre Unger, who trade individual futures markets with specific systems on these different markets.

What’s your tackle it?

Because each of you might be like, yeah.

Cesar (1:33:09)

Yeah. I believe I don’t love it.

I mean, yeah. To begin with, you’ll be able to earn cash in an entire bunch of alternative ways.

I’m not saying anybody other ways the person market is fallacious.

I’m just saying from my viewpoint, I don’t love it.

The issue I actually have is from a testing viewpoint, you’ve got to watch out about curve fitting.

Curve fitting becomes so much easier.

You understand, when you’re just testing on the SPY, you simply have one symbol.

It’s very easy to unintentionally overfit to that.

Now, that is my biggest sort of concern about that.

It’s much easier.

You understand, I’ll inform you this…

I’m all the time trying to search out a technique to trade the ETFs.

The issue I actually have is I have never found anything that.

Gets me excited.

I discovered strategies which can be okay, but not enough to excite me to trade.

The nice part about ETFs, like trading the SPY or trading the spiders, the sector ETFs, is they’ll handle a whole lot of money.

You possibly can place open orders, and you’ll be able to place market orders, but for many of us, we’re not going to maneuver the market.

There are tiny spreads.

Yes, I could see if I used to be trading a bigger account, I could be attempting to focus more on those markets because like I said…

They will handle that sum of money.

But like I said…

I’ve not been able I actually have not been in a position to find anything there that makes me excited but doesn’t make me think I’ve perhaps overfit the strategy.

I’m all the time looking though that is considered one of my areas or I all the time return to it like I got to search out something just trading for me, it’s always the sector ETFs.

I need to search out something on the sector ETFs that makes me excited, but I can never get anything.

And anytime I do, I feel like I’ve overfit the information.

So, I find yourself throwing it away and like…

Okay, I’ll come back in one other month or two and check out again.

Rayner (1:35:12)

How do you already know you’ve got overfitted the information?

Cesar (1:35:16)

A part of it’s the gut feeling.

A part of it’s what I might call parameter sensitivity.

So, making small changes in parameters

How much do the outcomes change?

In order that to me is that, after which also out of sample.

I mean, if I can not, I often try to go away data for out-of-sample testing to see how that works.

So those three things, my gut, out-of-sample testing, and parameter sensitivity testing will help me give me an idea of whether it overfit or not.

Rayner (1:35:47)

All right.

The following one I actually have is that if a trading strategy, for example works on the Russell 1000, the big caps.

But it surely doesn’t work on, for example, the Russell 2000.

What’s your, would you trade such strategies too?

Cesar (1:36:01)

Yeah, so it is dependent upon your definition if it doesn’t work.

The reply is, if it just, the sting isn’t as big, you already know, it doesn’t work in addition to strong, then yes, that to me, it doesn’t trouble me.

I do not expect strategies that work well on one index to work well on another index.

Though I generally do expect them to still work.

Sometimes I’ll look to know why.

Sometimes it might be…

“Oh, it really works, the sting is identical amount, but there’s just”

Like when you went from, for example…

S&P 500 to Dow Jones, the Dow Jones 30, there’s just only 30 stocks.

The sting will be the same.

You might be making the identical amount per trade, but you are just getting so many fewer trades that you would be able to’t, that the general portfolio is not making that much money.

Sometimes it might be you go from NASDAQ 100 stocks to S&P 100 stocks.

Well, the NASDAQ 100 stocks are only so far more volatile that, yes, the S&P 100 stocks aren’t going to make as much money simply because the volatility is not there.

It is a matter of understanding why.

But now, if I did something on the NASDAQ 100 and it made money and I tested on the S&P 100 and it lost money, I’m concerned.

Now, that is a foul time.

It is a matter of understanding what universe you tested onto the brand new universe, understanding the differences in them, and saying…

Okay, why is that this difference there and is it to be expected?

Often it could possibly come right down to liquidity or volatility of the stocks or the variety of the scale of the universe.

Those are inclined to be the common things of why you will notice the differences.

But like I said…

“When you see, makes money in a single, loses money in the opposite, bad sign, run away”

Rayner (1:37:42)

What if like earlier you are comparing stocks of comparable market cap, but what if like, for example the S&P 100 after which with Russell 2000?

I mean, after which Russell 2000 loses money.

The explanation might be since the edge works in large-cap stock, but not in small-cap stock.

Cesar (1:37:58)

Yeah. That becomes interesting guys.

The hard part about that’s it’s very easy for us to justify makeup stories afterward on why something is.

If I were to see something like that, I might probably then say…

Okay, try putting a really, you already know, if it’s like…

Okay, it’s losing money on the Russell 2000.

Let me try probably the most liquid stocks within the Russell 2000. Yes, so still, do I see higher results?

Perhaps I’m losing less money.

So perhaps it’s a liquidity thing sort of thing.

Perhaps it’s just whatever you discovered is healthier on the bigger-cap stocks.

You understand, I might look, okay, is it a liquidity issue?

That is how I might sort of segment it and see that made the difference.

Rayner (1:38:40)

I see.

The following query was to ask you what are a number of the things to sit up for seeing if a technique is broken, but you shared with me that idea earlier.

I believe we will see.

Cesar (1:38:50)

Ah, I knew that strategy was going to be coming up. That is the preferred query I ever get. I heard

Rayner (1:38:57)

I believe, once on Higher Systems Trader Podcasts, you said that there is like a 3–4-hour conversation simply to speak about that topic.

Cesar (1:39:02)

I actually have a a lot better answer nowadays. I used to only say I don’t have any good answer.

Not less than I actually have a solution that makes me glad.

Let me just put it to you that way.

I’m glad with the best way I’m now coping with it.

Probably not the reply most individuals need to hear because most individuals haven’t got 10 strategies to be trading.

They’re only trading one or two after which that is.

Yeah, I mean when you’re only trading one or two strategies and also you ask me, okay, how do I do know when my strategy’s broken?

The thing is, some people say…

Well, perhaps it’s broken if it’s gone into a much bigger drawdown.

The issue is, that the largest drawdown is all the time the following one coming.

The most important drawdown is all the time in the long run.

Statistically, that is just how it really works, is there all the time shall be a much bigger drawdown in the long run than your back-tested results.

When you’re going to say…

I got a much bigger drawdown there if my system’s broken, well, no, not necessarily so.

You possibly can’t use that.

I mean, what I might tell people generally when you were like…

You’ve one system; you should know if is it broken.

That is sort of what I did before.

I might love, okay, to know what market conditions it should earn cash.

Is it good when markets are going up and volatile or perhaps up and quietly or something?

What sort of market does your strategy do well?

Have we had that sort of market recently?

Did it not do well then?

If it didn’t do well, then that is a foul sign.

You only say your strategy does well in markets which can be highly volatile and going up.

We just went through three months of high volatility moving up and your strategy lost money?

Bad sign.

Now, the issue is usually the market that our strategy does well might not be what’s happening straight away.

Then it becomes, okay, is the market conditions causing the issue or is it the strategy itself causing the issue?

That is where it gets a little bit bit hard.

But I try to take a look at it and look, you would like I hate to say this, you would like six months and years’ price of strategy performance before I may even consider considering it’s broken.

You understand, unless it just falls off the cliff and, you already know, similar to, suddenly just starts losing money left and right.

Okay. Yeah.

That is the rare obvious side.

You might want to give it six months to a yr of timeframe because that offers you long enough to see hopefully enough trades, undergo hopefully a market condition that you simply expected to earn cash in, and sort of evaluate it in, I do not know.

I haven’t got what I might consider answer.

I’ve never had answer that I have been glad with when you just got here to me with one strategy and said…

Hey, I believe my strategy is broken. Are you able to tell me if it’s broken?

Yeah, unless I checked out your backtesting and said, oh yeah, you overfit your data, that is why it’s broken.

That is the straightforward answer.

But assuming you have not done anything bad, you would like six months to a yr, and then you definately sort of take a look at it and say, how’s it performing in comparison with what I expect it to perform?

Rayner (1:41:53)

All right.

So perhaps now let’s speak about rating aspects.

I believe earlier within the conversation, we talked about rating aspects.

Could also be for the audience to allow them to know what rating aspects for.

Because sometimes there are too many stocks to purchase.

We want certain rating aspects to decide on which stocks to purchase.

I believe the favored one, I believe, is the speed of change.

I can not buy the strongest performance stocks, blah, blah, blah.

What sort of strategies work well for certain rating aspects?

Because there are numerous ways to do it.

Cesar (1:42:16)

I’ve discovered anything volatility-based.

So historical volatility, ATR, you wish the upper volatile stocks for mean reversion.

That I’ve discovered.

For trend following, it is the reverse.

You wish the low-volatility stocks. Or you wish, when you’re going to also, it’s also possible to rank by the speed of change.

How has the stock performed over the past three months, six months, nine months?

Sometimes you’ll be able to just do considered one of those.

Sometimes people mix all three.

I’ve seen numerous alternative ways of mixing multiple timeframes.

In order that tends to be very talked-about and really useful for trend following.

Also, for breakout.

Breakouts are inclined to do well for me for prime volatility stocks, rating high volatility stocks, and likewise rate of change.

Those are inclined to be my go-to rating methods.

So, after I’ve got too many signals, I’ve got 20 signals, but I can only take three.

It’s mean reversion, I’m on the lookout for high volatility, whether it’s historical volatility ATR, or every other way of measuring volatility that you simply like, that is the strategy to go.

Back again, with trend following, and low volatility, I find low volatility works well.

It tends to have good returns and reduces the drawdowns so much too.

Then yeah, those are my favorite rating methods and the explanation why I sort of like those.

Rayner (1:43:54)

For breakup, would you be on the lookout for high volatility or low volatility?

I are inclined to just like the high volatility on that one.

But something, you already know, actually I just wrote about this, my private trading group.

Is that this exact thing testing each, within the sense of sometimes testing what you think that won’t work it’s like…

“Okay oh! you already know high volatility seems to work well let me just test low volatility because considered one of two things goes to occur or considered one of three things can occur”

Okay, for example…

You bought a technique you are testing high volatility rating then it’s working it looks great and also you say…

“Oh yeah volatility rating works great”

You understand I’m rating by highest I’ve got an amazing result

Now you say…

“Let me just test low volatility”

Certainly one of three things can occur.

You rank by low volatility and the outcomes go down so much.

Okay, well that did exactly what you expected, right?

Because if I’m rating by highest and if I am going to lowest, I should respect my results so much.

Great, that works great.

The second thing that may occur is nothing changes.

This has happened to me.

It’s like, wait a second, nothing modified.

That is telling you your rating method isn’t doing anything.

So meaning you must search for a greater rating method.

There are only two ways.

In order that’s sometimes doing the other or trying something opposite and seeing what happens may be very instructive.

It’s instructive especially on the rating side because it could possibly inform you whether you’ve got picked rating variable. In any case, if, you already know, like I said…

Certainly one of two things, either you get exactly what you expect and the outcomes worsen or nothing changes.

That tells you, your rating variable isn’t superb and you must go find something, you must find something else to rank by.

Rayner (1:45:38)

Oh, right. Earlier you mentioned it.

For breakout, you are on the lookout for low volatility after which the trend following is for prime volatility.

Cesar (1:45:43)

Other way around.

Trend following low volatility, breakout high volatility.

Rayner (1:45:45)

Right, okay.

I used to be considering that these two are very similar strategies but their rating method is the inverse, right?

Here’s one other one. What are some things that traders think is true but are false?

For instance, the risk-to-reward ratio is 1 to 2, but by now with data, you already know that is not true.

Cesar (1:46:07)

So, I suppose, one is you mostly must have stops.

Rayner (1:46:13)

Oh yeah, that is one.

Cesar (1:46:16)

That one is I believe Larry and I wrote a book.

Did we write a book on this?

I believe Larry and I either wrote a book or something concerning the…

“Seven things’ people think are true that are not true”

We wrote something about this. I do not see a book on the market.

So, alright, one could be stops.

One other one is over believing that complicated position sizing is the answer.

I see so many individuals include me, clients come to me to check things which have very complicated positions, or not very complicated, have the usual complicated position sizing. Kelly formula, fixed rate, etc.

I mean just these alternative ways of doing position sizing and never understanding that just the straightforward equal position sizing works so well.

I mean that is one other considered one of those things. One other one, not my favorite, is considering that being a scientific trader or a quant trader means there aren’t any emotions in trading.

That each one emotions are handled.

You haven’t got to cope with them anymore.

That is just the largest lie there may be.

What else?

Trading isn’t concerning the money.

When you’re trading for money, you are trading for the fallacious reason and you are going to eventually lose, you are not going to make it in the long run.

I believe you’ve got to view trading as a puzzle, as work.

The cash is, yes, do I need to earn cash?

Will we all need to earn cash? Yes.

But that is your principal focus.

You are set to fail.

I mean, is that a… I do not know, this can be a tough query you gave me here, Rayner…

That is all that comes off the highest of my head.

Rayner (1:48:13)

Okay. Sounds good.

Yes, okay, that is one other one.

I’m just sort of like a yes-no answer because I used to be just considering out loud.

Have you ever ever considered, you already know, because that is something on crypto that I noticed that, you already know, the crypto market remains to be quite nascent, quite recent?

That sometimes, right, I believe what I’ve noticed is that when the general crypto market, like I said…

“Bitcoin goes down one, two percent, right, and also you manage to search out certain coins or tokens that did not go down, perhaps up three or 4 percent for the day, right”

Those are frequently the stronger coins that can likely outperform the market, a minimum of within the short term.

So, I’m considering, have you ever done anything similar for the stock market where the general market is down, but then there are specific stocks that just didn’t go down but perhaps just up for the day after which perhaps happened?

Cesar (1:48:54)

No, I actually have not. You understand what?

Put that on my list of research right here.

Rayner (1:49:00)

Okay.

It is a relative strength concept but you already know I used to be just taking it from the crypto markets and sort of like yeah bring it over to the stock market.

Cesar (1:49:07)

I like that concept.

I put it on my infinitely sized research list.

Rayner (1:49:13)

Okay, hopefully, it’s at the highest of the priority.

Alright, let’s move on to the closing section.

As mentioned, near two hours, you are almost two hours now.

So yeah, anything that you simply modified your mind on recently doesn’t must be trading.

Cesar (1:49:26)

Yeah. Ha ha ha, doesn’t must be trading.

Yeah. Now let me think,

I got to take into consideration what I’ve modified on my mind recently on trading.

What’s been recent on trading?

I got to think how far back I actually have to go. I’m taking a look at something here.

I’m sure there’s, I’m all the time changing.

I’m all the time learning recent stuff trading, but I will attempt to think.

What have I modified my mind on?

I believe changing your mind is sweet and there are numerous other things I could inform you that I’ve modified my mind on.

But not trading-wise, nothing pop kind, I do know.

Oh, this can be a tough one.

Rayner (1:50:02)

Okay, trading-wise there.

What?

Will be trading,

It might probably be related to trading or non-related to trading.

Cesar (1:50:07)

Well, I’m trying to consider a trading one.

That I’ve modified my mind on.

I keep reinforcing.

Lots of what we have discussed, I’ve just learned through the years.

I will say I’ve modified my mind, but there’s just been so many things I’ve learned.

Unfortunately, I can not consider anything and I believe that is bad.

Hopefully, I actually have modified my mind on something trading-wise.

Nobody’s spotted.

Let’s have one other one.

Other personal stuff that I’ve modified my mind on, but I’d slightly not go into it’s just, it’s personal stuff.

But yeah, there’s other personal health-related stuff that I’ve made changes on.

Big mind changes on.

Rayner (01:50:57)

And I recall, right, last time we spoke, you were into, was it Jiu-Jitsu?

Are you continue to doing it?

Cesar (01:51:02)

Yes, we do Jiu-Jitsu.

I do know I’m still doing that.

Been doing that for 13 years or so. Yeah.

Rayner (1:51:08)

I must have asked this in the beginning, but what made you start on this sport?

Cesar (01:51:14)

So, I began actually, I began trading general martial arts in 1997.

The college I began at was doing Jeet Kune Do and Mu Tai and a little bit little bit of Brazilian Jiu Jitsu on the time.

He was sort of teaching multiple things after which the college through the years began doing more Jiu-Jitsu after which in 2010 or so went to all Brazilian Jiu-Jitsu.

So I have been at the identical school since 1997 but we have been just doing Jiu-Jitsu for the last 13 years.

For those of you already know a whole lot of people know Brazilian Jiu-Jitsu since the UFC and Gracie’s doing all that.

So yes, yeah there I’m all the time changing my mind and learning recent things.

Rayner (1:52:05)

How does your tendonitis come into play if you’re doing Jiu-Jitsu?

Does it affect you?

Cesar (1:52:13)

Yes, I’ve had a flare-up that is happening straight away due to that.

The best way it affects it, actually it’s thing, a foul thing.

It forces me to vary what I do.

For those of you who’re conversant in Jiu-Jitsu, I like doing chokes.

I like using color chokes.

That requires very strong grips.

Between I just overdid some exercising and sort of inflamed that.

In order that pushed my game in a special direction.

So now I’ve just been doing more leg locks and now I will return to chokes, a special sort of chokes that do not require colours.

I can return into choking.

My two principal attacks are either choking anyone out or breaking their feet.

In order that’s how I, that is my thing.

But yeah.

Jiu-Jitsu is great because it is usually learning.

You are all the time being pushed, you are all the time learning.

It’s physically demanding.

And I’m a small guy, in order that makes it even more difficult.

Rayner (1:53:12)

I’m glad I’m your friend, right?

Cesar (1:53:13)

I haven’t got anyone coming to interrupt my legs.

Rayner (1:53:23)

So, speaking of which, if you sit, if you work at your desk for long hours, and that is where the tendonitis flares up, is it because I’m guessing the elbow is resting on the table?

That is why it’s…

Cesar (01:53:28)

I do not know what, I mean, I do not know if it was the resting just the long hour, I mean, since it doesn’t occur as much nowadays.

I mean, it appeared to be quite common back then.

I do not know if we have just learned higher to take some rest or what.

So yeah, I do not know.

But now, you already know, for now, it’s always when it flares up for me, it’s always, you already know, I’m exercising either too hard or doing jujitsu or gripping too hard at jujitsu, often it’s a mix of two things.

Normally, I do two things too hard at the identical time.

That is what happened this time. I used to be working on my pull-ups.

My pull-ups were too hard and I used to be working on my chokes an excessive amount of and doing each things an excessive amount of sort of made my elbows mad at me.

Rayner (01:54:06)

Alright, and what are the projects that you simply are working on straight away?

Cesar (01:54:11)

I’m all the time researching recent trading strategies.

Certainly one of my strategies straight away that I’m taking a look at is an S&P 500 breakout strategy that I’m looking into.

In order that’s all the time sort of the…

I’m all the time doing research.

I’m all the time trying to search out recent strategies.

I feel strategies will eventually, I feel the strategies I’m trading will eventually, their edges will die.

I feel they are going to die, whether it’s tomorrow, a yr from now, or five years from now, they are going to die.

As you asked earlier, what strategies am I not trading?

There are so much more that I could not keep in mind that I’ve stopped trading for various reasons because they only stopped working.

And so, subsequently, I’m all the time on the lookout for something recent. I’m, you simply gave me one other idea to try, because that is the S&P 500. I’m all the time on the lookout for, I’m all the time trying, like I said, the index or the sector ETFs, I’m all the time on the lookout for the sector ETF strategy.

So yeah, to me, that is, hey, I just love doing research. I really like doing research, and I really like coding, and that to me is where trading me is boring.

It must be boring at the tip of the day.

It is the research that I enjoy, coding up the strategies, testing the strategies, breaking the strategies, and attempting to work out what I did fallacious.

That is what I enjoy, that is what I do.

Like I said, putting within the orders, after we get done with this call, I will must put in my orders for the following day.

Yeah, that is boring. Five minutes later, I will be done.

Rayner (1:55:38)

Once you say strategies stop working, would you seek advice from it perhaps conceptually, like earlier we talked about mean reversion, stop working, wouldn’t it be conceptually or perhaps more towards the technical, exact parameters occur to stop working?

Cesar (1:55:52)

More of the, it’s two things, more of the precise parameters stop working, but I don’t return and like re-optimize and find recent parameters to make it work.

I figured that the final area was probably broken or either broken or the perimeters disappeared.

Also, edges have been getting smaller and smaller and smaller through the years.

In order that’s also one other thing. It is not necessarily broken, but I believe there shall be a time sometime in the long run, or a minimum of for me, where it isn’t price my time to trade, simply because I’m not, for that point, it takes me to trade and the commissions and all that.

Yeah, I can just put it available in the market and, you already know, do a straightforward 200-day moving average following, trend following, or whatever, or something strategy.

It might be so much easier than what I’m doing now, simply because the perimeters are getting smaller.

I believe we’re, you already know, a whole lot of my edge now, or a whole lot of the sting I’m on the lookout for is reducing drawdowns.

I’m not on the lookout for the massive gains, but I’m looking to scale back the drawdowns.

In order that’s where a whole lot of my focus is.

My trading is like, okay, how can I reduce drawdowns?

Rayner (1:56:55)

What are your thoughts on, as you see that the sting gets smaller and smaller and smaller, then perhaps you reach the purpose where it is so small no person trades it and it gets larger and bigger?

Yeah, it may be, yes. I do not think so.

There all the time shall be people wanting to trade.

There are all the time crazy bull markets will all the time pop up.

And that can all the time get numerous people all in favour of the markets and wanting to trade again.

I’m seeing an uptick after last yr’s very strong market and an uptick within the variety of people who find themselves all in favour of the markets.

Rayner (01:57:30)

Is there anything that you simply wish so as to add that I didn’t cover in today’s show?

I do not know.

We covered so much in two hours.

I used to be wondering what we were going to speak about in two hours.

You surprised me. On the entire, what we decided to begin with.

But no, I believe it was great.

I used to be honored to be here talking to you and your listeners.

Hopefully, I conveyed something that can teach people even one little nugget.

Rayner (1:57:57)

I learned a ton just by speaking with you for the last two hours.

Where can the audience find you and connect with you, right?

Cesar (1:58:05)

Yes, so I’ve got two web sites.

I’ve got

https://alvaresquanttrading.com

That is where I write a blog there.

Every month or two I’ll do some type of research thing that I’ll write there.

When you’re moving into trading, especially medium version trading, or simply want to know trading, that is an amazing place to begin.

I have been writing on the blog for 10 years now.

There’s tons and tons of content there.

Also, when you’re an Amibroker person, I’ve got information there on Amibroker that you would be able to get there.

Then there’s my

http://tranquilitytrading.com

Where I give signals and likewise my private trading groups.

We have forums and other people can talk and ask questions.

That is place for you already know, you are attempting to learn some attempting to figure things out.

So those are the 2 places.

Each places have contact me, I answer all emails.

When you say contact me, I’ll answer inside 24 hours.

I really like talking to other traders.

You bought questions, some general questions, anything like that.

I really like talking about trading.

If Rayner and I had gone for 2 hours, we probably could have gone for an additional two.

It’s getting late for me here.

Rayner (1:59:09)

I’ll put all of your links and stuff that you simply mentioned in the outline below the show.

For many who have an interest, the link shall be somewhere below there.

You guys can access it.

Before you go, Cesar, I just need to say an enormous thanks once more on your time, and your generosity.

I’ve learned a ton from this time speaking with you.

I appreciate it and thanks for being the guy who’s all the time taking my ideas and testing them.

Writing up the code for me on Army Broker.

I get a neater life.

Thanks a lot once more, Cesar.

Cesar (1:59:36)

All right, thanks, Rayner

Rayner (1:59:42)

Awesome, thanks.