mwz system on collective2.com

I am very interested in trading tools available through www.collective2.com which allow investors to publish and subscribe to trading systems, verify and compare performance of such systems. I will be commenting on these tools in a separate blog. In the mean while I would like to post on the first system that I have subscribed to through C2 - "mwz".

I will be tracking a number of systems on Collective2.com.

This is a discretionary system which means there is a human driving the boat. I don't particularly buy into publisher's explanations of his own strategy (you can find those on his web page); however, If the results he achieves are real he does seem to have a 6th sense, so I am going with it. Human brain is one of the best pattern recognition devices ever created. It is my understanding that if you take one of human senses such as hearing and wire it to the part of the brain which is responsible for sight, pretty soon you will be able to hear again. In other words brain will make sense at any pattern thrown its way. Granted, the brain may play tricks on you: it may see one pattern when in fact there are many or in fact none - like Escher painting or a cloud that can look like many things or nothing all at once. But this is the risk you are taking with a human system, no two ways about it.

There are few things that make me nervous about this system. I really hate shorting as a strategy, period. Then, a lot of weight is given to a single stock once in a while which can blow up in a big way. Granted it did not happen yet, but it could and sooner or later it will. The other thing is that you need a good size equity to trade it because it generates a huge number of trades (about 30 / day). Using Interactive Brokers account this is about $200 / mo. Plus you need to pay for Trade Bullet (a mandatory piece of software), another $50 /mo. Bottom line is if you only trade $30k (which is the minimum you need - remember government regulation does not allow day trading if you have less then $25k in your account) be prepared to spend at least 1% of your earnings per month on fees.

The reason why I decided to go with this system is consistency of return and low (almost negative) correlation with the market. This is the best way I thought of allocating some money to a day trading strategy.