HF SYSTEMS IN ACTION
The systems were conceived in the late-1990s and were built, stress-tested and paper traded in the early-2000s.
They were initially traded on spot FX and futures markets for a UK family office from 2007-2009 under a proprietary trading mandate and from early 2010 to mid-2012, they acted as a trading signals generator for a market timing service which was run exclusively for the clients of a Swiss bank.
From mid-2012, the systems have been traded on a proprietary basis, for institutional/high net worth clients under a Swiss asset management license, and for regulated asset management firms and since January 2020, the systems have been employed in the HF Systems Model Trading Portfolio which provides clients with real-time access to the output of HF Systems via TradeStation and Metatrader platforms.
METHODOLOGY
HF Systems aim to capitalise on market momentum by adhering to the principle of buying high, selling higher (long positions) and selling low, buying back lower (short positions). This goes contrary to the human tendency of viewing lower prices as "cheap" and higher prices as "expensive" (i.e. buying low, selling higher) but as the vast majority of traders tend to lose money over time, it makes sense to employ counter-intuitive strategies which can be proven to show a positive expectation over time.
Each of the systems employs one of two often conflicting methodologies; breakout and false breakout (Break and Retrace) in conjunction with proprietary trend and momentum filters. The breakout systems enter a position as price breaks above (below) a pre-determined resistance (support) level, aiming to benefit from follow-through buying (selling) while the false breakout systems enter a position after the identification of a potential market “trap” where an attempt to move to a new value area was thwarted. Both trading set-ups often result in a vertical, stop-loss driven move as wrong-footed traders exit losing positions "at any price", creating a momentum-driven trading opportunity.
Both system types are traded over the intraday and multiday timeframes, with unit sizes dynamically adjusting to account for changes in market volatility (as determined by Average True Range) so that as volatility increases, unit sizes decline and vice versa, keeping dollar risk constant.
INTRADAY SYSTEMS
The intraday systems are day trade systems which aim to identify an emerging trend for the day with a view to entering a position in its direction and holding until the close.
Sub-categories of intraday systems include 'BCN', 'ID' and 'TRIPWIRE' which have different underlying trend, momentum and volatility characteristics. The ID and TRIPWIRE systems may enter one or two trades a day per market, while BCN and may enter only one trade a day per market. Here are a few examples of intraday system trades:
COPPER BCN SYSTEM
GOLD DAY TRADER SYSTEM
MULTIDAY SYSTEMS
The multiday systems employ various entry rules, some based on breakout and some on false breakout methodologies, but only one trade entry is allowed per day per system. As the multiday systems may hold a position for up to five trading days, a proprietary trend filter is used to ensure that most of the trades are entered in the direction of the trend as defined by the trend filter.
While the multiday systems employ various inputs from the daily price charts, each trade is actually managed on the intraday charts (data1 and data2) which ensures that all system trades are executed in real time and are not based on end of day data which can give a false impression of the risk/reward profile of the system.
EUR/JPY MD SYSTEM
EUR/USD MD SYSTEM
SYSTEM SELECTION
During the system evaluation process, each new candidate undergoes a risk assessment where various metrics are analysed on both a stand alone and relative basis. After satisfying the stand alone test the system is compared to a range of verified systems by isolating a single risk metric such as monthly Value at Risk.
Once the risk assessment has been completed satisfactorily, the system is added to the Portfolio. A conversion factor is applied to the maximum drawdown amount of each of the systems (Armageddon level) so that the unit sizes traded in the Portfolio reflect an amount of risk which is below the Portfolio's mandated risk level.
While each system works well on a stand alone basis, the best results can be obtained by trading a selection of systems as a portfolio.
HF Systems can be viewed in real time via the HF Systems Model Trading Portfolio, a subscription-based service offered to professional market participants who require access to additional, proven sources of alpha.