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TJ/Liz,
If Mark has in fact used Aberration to make the money he has, then
frankly I believe him. He has been a member and intermittent contributor to
this list for several years and over that time I've seen nothing in his
posts to suggest he would make anything like this up.
If Aberration is a system with only 2 parameters which are the same
across all markets (I think the advertising suggests only 1 parameter?) then
on the contrary it could be a "great" system (let me clarify that later).
The problem is, of course, that it's so simple and non-curve-fitted people
in general don't understand why it works. Why would such a simple system
work anyway?
First, let's ignore the claims that system can be traded successfully
with a 10k account. If you're lucky, yes it can but that's not the way any
serious trader would use it. Think more 50k, 100k, 200k plus (like Mark
seems to have) across as many futures contracts as possible.
Aberration works because it is a long term trend following system (which
seeks to enter the market in the direction of recent strength) but almost
any rule would do. You could try random-entry it might not work quite so
well (but still work) but if you're worried about curve fitting with only 2
parameters then it's the only way to go.
It is a fact that if you trade 30+ markets looking for long-term trends
then you'll find a few eventually. How many "fundamental-driven" huge moves
occur in any particular commodity over a 10 year period? Lets say, just 1 to
be on the conservative side. That still means that ANY long term trend
following system is going to have around 3 huge winners every year if it
trades 30 markets. But take for example Philip York's trading vehicle (PY
was a member of this list once) Promethean Futures: he trades a universe of
60 markets!
So Aberration will have no problem getting its winners, it's 10-20
R-multiple (10-20 times average risked per trade) trades. Any number of
risk limiting strategies can be used to make sure the system cuts its losses
or that only the lowest risk trades are taken. It is NOT rocket science.
The only problems trading Aberration are the following:
- unless you do portfolio based testing, it's going to look like it
doesn't work: test Aberration's rules on any market of your choice and in
all likelihood it'll look terrible. I tried testing these rules on Soybeans
and if I remember rightly the peak profit occurred around 1974 and in that
market on its own it's never recovered that equity high. BUT THAT DOESN'T
MATTER - if you understand that then your getting to the root of
understanding the philosophy of long-term trend following.
- the number and correlations of your simultaneous positions become THE
most important thing you have to worry about which isn't anywhere in the ELA
code. I'm sure Mark does some kind of Group Risk limiting so as to limit his
exposure to any particular group of commodities.
- how many contracts to trade isn't in the ELA - again I expect Mark is
using some kind of volatility-adjusted position sizing (of the kind Tharp
rants about)
- drawdowns: ANY long term system will have significant drawdowns and
the 2 points above are designed to limit them but even after that I'm sure
Mark fully expects and can live with chunky drawdown because AS AN
INDIVIDUAL TRADER THE ABILITY TO WITHSTAND HIGHER DRAWDOWN IS PART OF HIS
EDGE OVER LARGE INSTITUTIONS AND FUNDS. This has nothing to do with the
traders of those funds who I'm sure are every bit as professional at their
jobs as you are at yours. BUT their ability to take losses and ride
drawdowns is SEVERLY HAMPERED by the fact that their customers call the
shots and will withdraw money exactly when the shouldn't and vice versa.
So, in conclusion, is Aberration a great system or a curve-fit system?
Well, it's certainly not a curve fit system in general but I would agree
that it is curve-fit system in terms of the way it is advertised - how many
of the combinations of X from 30+ markets are profitable when X becomes less
than 10 or even 5? But that's got nothing to do with Aberration the system.
On the other hand, Aberration is not a great system either principally
because it's not actually a system at all. It's more of a framework of basic
entry exit rules around which a serious, competent, committed trader (like
Mark) can build the real work of his or her risk management and position
sizing rules.
Regards,
Robert
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