Directional high-frequency multi-manager funds?
Which multi-manager funds would be interested in a directional high frequency strategy trading US CME / CBOT futures?
After doing months of research, i recently discovered a semi-high frequency strategy (avg trade duration is minutes, with the occasional runner that lasts 1-2 hours) with good statistics. I'm trading it myself now (had a good day today), but as it takes outright directional positions (mostly ES and NQ futures, sometimes ZB), i don't have the capacity to trade it with much size where i currently am. I'll still trade it on my own (i already started, with good results so far) but my personal economics would be better if i could move to a large fund and take home 15-18% of a larger PnL.
The max observed drawdown for the strategy falls under 5% in back-test, with annual returns above 25% and a sharpe ratio over 3, so far, so i think this would fit inside a multi-manager platform on those terms, but its not a hedged strat...this takes various outright long or short positions with tight stops, and switches direction multiple times per day, on avg. The algo rules are surprisingly simple (well, surprising to me). I suspect that eventually, capacity constraints would limit the growth of this strategy...probably 50mm-100mm is the max annual PnL.
The drawdowns occur during long periods of tight consolidation...just enough volatility to create trades, but not enough momentum to turn the chop fest into profits. I've figured out a way to minimize some drawdowns with position scaling (simple example, if risk to stop on a trade is 2 ES points, then take 1/3rd profit at 4, 8 and 12 ES points). Sometimes you only get to the 1st target, take 4 points on 1/3rd, and then the other 2/3rds get stopped at entry. Sometimes you get all 3 targets..sometimes you just get stopped multiple times, etc...
Are there any multi-manager funds that would be interested in a strategy like this? I know that i'll have to trade it out of sample for a time period of months (years?) because a back-test isn't worth very much. However, the statistics are very good, and i'm excited about the prospects. Assuming my out of sample live trading experience jives with the back-test, what firms should i reach out to when i'm ready?
faceslappingcompilation, shame nobody has responded. Maybe one of these topics will help:
If those topics were completely useless, don't blame me, blame my programmers...
You and me, let's start something.
have you played with opening range breakout strategies?
Haha those strategies were put in books 25 years ago.
Does still work a little.
"After doing months of research, i recently discovered a semi-high frequency strategy (avg trade duration is minutes, with the occasional runner that lasts 1-2 hours) with good statistics."
"I suspect that eventually, capacity constraints would limit the growth of this strategy...probably 50mm-100mm is the max annual PnL."
This doesn't make sense. A strategy trading one or two instruments with an average holding period of a few minutes will not have a capacity of more than a couple of million PnL.
But besides that, you can try joining the likes of Millennium, SAC, etc. You will collect 15-18% on your PnL from those platforms.
you probably won't get a job with a strategy like this, bank QIS desks are selling intraday ES momentum swaps at next to no fees, just FYI.
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my suggestion: continue trading your PA aggressively, grow your account past the 2-5mm mark with a high sharpe, then find a few prop firms willing to let you scale it up. or just trade your PA. the big multi-mgrs are a lot more sophisticated now. there are some multi-mgrs that might be interested, but they're ones that fly under the radar and are a bit more specialized. you're going to need someone at one of those shops to bat for you to get in.
and there lies the problem. if starting out with 150k to trade....it will take 8-14 years, even at 30% annual returns to reach 2-5mm
3 sharpe right?
Don't be swinging for single digit vol. If you want a seat at one of those funds, you're going to have to prove you're an outlier. Relish that challenge.
Apologies if the prior comment was harsh. Was trying to help but I came off far too aggressive. We're all in this together fighting our battles.
Editing it out.
Unfortunately, these kinds of trades are a dime a dozen and are mainly done with algos. Not sure a big manager would take this on unless you have found a compelling way to execute it (low stack algo, ULL, etc.).
For your own trading, though, it might work very well and using a prop desk could help you. I would incorporate drift and location into your trade btw... (I won't spell it out for you, and you may already know what I'm talking about...)...if you did that and could execute it efficiently (needs to be algo'd since it's a rules based system), then you might find some funds that would be willing to test it out...
Based on your description, I doubt you could actually run more than $20M in this alone strategy (for $5M of PNL/year), and that's assuming you branch out to other similar liquid products (I'm guessing based on the technicals the exact market doesn't really matter). With a 5 minute holding period, your ability to scale is totally dictated by liquidity. Be honest, are you sure your strategy survives after price impact and transaction costs? Have you modeled this?
Unfortunately with such a low potential AUM, no one will hire you to run a solo book based solely on this one strategy. MMHF like BAM and citadel want their PMs to use up at least $250M of VaR. However your strategy would be a pretty nice complement to a larger book of quant strategies. Your best bet is to
I think 1) is the best option for you. 2) is the most stable option (in that if it fails you'll still have a steady job). 3) is the most risky, and I question whether you could survive the fund economics in this regulatory and fundraising environment.
Do you think options 1 and 2 are realistic given the size the strategy is being run at? I feel like you would need some pedigree to get in the door.
You could also go to a first loss provider and put up your own money. They will give you 10x leverage and 50% payout. Of course a 10% drawdown will wipe you out. Boils down to how much you believe in your strategy. If you don't, why should anyone else?
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