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pyrrhotech

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Founder at Grizzly Bulls <https://grizzlybulls.com>

Algorithmic trading models and hedging systems to complement index investing

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We have the standard disclaimers in the TOS. Essentially, Grizzly Bulls is not a financial advisor, offers no financial advice, and only sells access to signals generated by proprietary models, not the underlying source code for the models. How subscribers choose to use those signals is entirely at their own discretion. There are hundreds of similar businesses out there, and really signals are no different than buy/sell ratings published by more mainstream sites like Seeking Alpha or Morningstar.

All that said, subscribers have generally been happy with Grizzly Bulls' service as evidenced by our low churn rate, especially for the higher tiers.

Oh no, you are never required to take an action with equity index futures as they are cash settled every quarter. So whether you have an open long or short position at expiration time, it will automatically disappear from your account with your balance left exactly as it should based on the settlement price.

However, this does mean that you'd need to open an equivalent position in the next quarter's contract to maintain your hedge, if one was open, at expiration time which is regular trading hours opening time on the third Friday of expiration month.

Good question - you won't be "called" or anything like that in this scenario as you are effectively market neutral. If VOO goes up, your ES/MES futures value will go down accordingly and your account's net liquidation value will remain unchanged and well above your maintenance margin figure.

The only way to really drop below your maintenance margin is if you are either leveraged long (i.e. more than 100% long) or short (i.e. less than 0% long), and the market moves significantly against you. In that scenario, your broker will automatically start liquidating some of your positions.

Yes, in fact non-bull regimes are where they earn most of their relative outperformance. During buy signals, it's impossible for the models to outperform as they are long the S&P 500. During sell signals, they are in cash with the hopes of rebuying lower (doesn't always work out as they are of course imperfect). When the market is rising with low volatility, there aren't as many opportunities for outperformance.

Yes, but that's why the preferred method of implementation is using the S&P 500 futures (ES and MES) as the hedging tool during sell signals. With this method, you hold your preferred ETFs/stocks of choice forever and continue to accumulate unrealized gains indefinitely. Then on sell signals, you sell ES and MES of equivalent value to your long holdings to effectively go market neutral.

At the end of each year, you'll only owe taxes on the net result of your hedging with futures, and futures are section 1256 contracts so they are taxed as 60% long term gains / 40% short term gains regardless of holding period. In practice, I've found that this usually works out to an effective capital gains tax of less than 15% of annual profits. If a strategy returns a gross 30%, then the after-tax return would be about 25.5%.

Also, if you implement in a retirement account which many of our members do, capital gains are irrelevant.

https://grizzlybulls.com/how-it-works is the best page I have explaining the basics, but I probably need to be more accommodating to complete beginners. Grizzly Bulls is intended to be a great complement to the buy and hold passive indexing strategy that most people use.

The easiest way to use Grizzly Bulls is to hold VOO in any brokerage account, sell it when the model generates a sell signal, and then rebuy it when the model generates the next buy signal. A slightly more advanced but more tax efficient approach would be to open a margin account with futures trading permissions and sell S&P 500 Futures (ES or MES) of equal value to your VOO during sell signals, then repurchase the contracts you sold during the next buy signal. With this method, I've found you can usually reduce your overall tax burden to less than 15% and you'll only owe taxes on the net result of your futures trading.

For inspiration, I highly recommend "The Man Who Solved the Market" about James Simons and Renaissance Technologies. Some of Ernie Chan's books are great for learning about the basics, but ultimately finding an edge is the most difficult part. Books can teach you some of the best practices for researching edges, how to avoid common pitfalls in backtesting, etc, but no book will ever lay out the details of any strategy that contains alpha of course.

Grizzly Bulls is currently a one man (and wife) venture :)

I expect the long term CAGR for the top models to be in the 20-40% annual range. That's certainly high enough to get wealthy over a couple decades, or sooner if you are already starting with 8 figures, but it's not overnight Roaring Kitty style fast money. Grizzly Bulls' growing revenue helps even out my overall income, and I could definitely see it growing to $10M+ ARR over the long term, very significant even with a 9 figure net worth.

The models are not HFT. Swing-trading the most liquid instrument in the world (ES futures) has extremely high strategy capacity, well into the billions or perhaps 10s of billions, so selling signals does not (currently) in any way negatively impact my own returns.

The alternative would be to start a hedge fund, but that's an expensive and highly regulated endeavor that appeals to a different audience.

Building algorithmic trading models. So far results continue to be good with every model outperforming the market on both absolute and risk-adjusted basis since going live.

Since launching https://grizzlybulls.com in January 2022:

Model | Return | Max drawdown

-------------------

S&P 500 (benchmark) | 21.51% | -27.56%

VIX TA Macro MP Extreme | 64.21% | -16.48%

VIX TA Macro Advanced| 59.13% | -19.12%

VIX TA Advanced | 35.20% | -22.96%

VIX Advanced | 33.39% | -23.93%

VIX Basic | 24.29% | -24.23%

TA - Mean Reversion | 22.30% | -19.92%

TA - Trend | 27.07% | -24.98%

This is an unleveraged, apples to apples comparison. These are not high frequency trading models. Most of them only change signal once every 2-4 weeks on average. During long signals, the models are simply long the S&P 500 and during short signals, they go to cash.

One of the pros of this macro swing-trading/hedging style is high tax efficiency, by holding a core ETF long position that never gets sold and then selling S&P 500 futures (ES or MES) of equal value to the ETFs against the long position. This way your account will accumulate unrealized capital gains indefinitely and you'll only pay tax on the net result of successful hedging. The cherry on top is that the S&P 500 futures are section 1256 contracts that are taxed at 60% long term / 40% short term capital gains rates regardless of the duration they are held.

The models use a variety of indicators, many of them custom built. Most important are various VIX metrics (absolute level, VIX futures curve shape/slope, divergences against S&P 500 price, etc), trend-following TA metrics (MACD, EMV, etc), mean-reversion TA metrics (Bollinger Bands, CMO, etc), macroeconomic (unemployment, housing starts, leading composite), and monetary policy (yield curve inversion, equity risk premium, dot plot, etc). They've been backtested very cautiously to avoid overfitting to the best of my ability.

I think most would agree $250k is a comfortable lifestyle, but if your neighbor is making $1M/year in the same profession just because he works at a different company, a bit of bitterness and or desire for more is hard to combat. Your neighbor can retire at 45 with $10M+, why should you be content with the low end of upper middle class and working until 60 for a more average retirement?

It's a bit ironic that knowledge work will become obsolete before blue collar work. I disagree with the author that it will become completely obsolete in the next 20 years (although certainly in the next 200), but it will change significantly and there will be a massive downward pressure on knowledge worker compensation as the barriers to entry have been decimated. On the other hand, good luck getting your AI to unclog your sink, remodel your kitchen or fix your AC any time soon.

73 is less than a decade into retirement age; hopefully she has much more than a few! Looks like 14.5 years life expectancy

I've studied many systems over the years and never found any that matched or outperformed their backtests. So far our live results have hit between 1/4 and 3/4 of backtest performance depending on the model. Needless to say the high inflation and high interest rate market climate over the last two years hasn't been seen in the rest of the backtest period, but conditions are starting to normalize now.

Nevertheless, it would be prudent to expect any algorithmic trading model to underperform its backtest going forward, but there's enough leeway in the CAGR and max drawdown figures to underperform the backtest and still produce substantial alpha, especially for the more advanced models.

Right now the models are specialized to trade equities. I may develop new models that trade commodities in the future though.

To implement the strategy in the most tax efficient manner without leverage you would want to have an account worth 5 * (S&P 500 futures price). Today that would be about $26,375. MES uses a multiple of 5 while ES uses a multiple of 10.

However, with today's $0 commissions, if you aren't overly concerned about taxes, you can try out this strategy with as little as $500 and simply buy and sell one share of the ETF VOO on signal changes. Alternatively, if you have the risk appetite, you can get started with trading MES futures with less than $10k, though caution should always be warranted when using any amount of leverage.

I've been building algorithmic trading models for the last 4+ years. After trading them successfully with my own capital for more than a year, I launched https://grizzlybulls.com as an alternative to the traditional hedge fund monetization path.

Since launching in January 2022, we've significantly outperformed the market with lower volatility and reduced max drawdown:

Model - Return - Max drawdown

S&P 500 (benchmark): +9.91% -27.56%

Platinum: +45.34% -16.48%

Gold: +39.53% -19.12%

Silver: +17.24% -22.96%

Bronze: +14.12% -23.93%

Vix Basic: +9.81% -24.23%

TA - Mean Reversion: +17.77% -19.92%

TA - Trend: +17.29% -24.98%

This is an unleveraged, apples to apples comparison. These are not high frequency trading models. Most of them only make a trade every 2-4 weeks on average. During long signals, the models are simply long the S&P 500 and during short signals, they go to cash. This can be implemented very tax efficiently by holding a core ETF long position that never gets sold and then selling S&P 500 futures (ES or MES) of equal value to the ETFs against the long position. This way your account will accumulate unrealized capital gains indefinitely and you'll only pay tax on the net result of successful hedging. The cherry on top is that the S&P 500 futures are section 1256 contracts that are taxed at 60% long term / 40% short term capital gains rates regardless of the duration they are held.

The models use a variety of indicators, many of them custom built. Most important are various VIX metrics (absolute level, VIX futures curve shape/slope, divergences against S&P 500 price, etc), trend-following TA metrics (MACD, EMV, etc), mean-reversion TA metrics (Bollinger Bands, CMO, etc), macroeconomic (unemployment, housing starts, leading composite), and monetary policy (yield curve inversion, equity risk premium, dot plot, etc). They've been backtested very cautiously to avoid overfitting.

78 seems so young to die. I suppose my family is lucky to have good longevity genes and disciplined enough to live fairly healthy lifestyles. I have 3/4 grandparents still alive and relatively healthy in the mid 90s and several great and great-great grandparents lived past 100 even at times when that was even less likely than it is today.

I do expect there's going to be some revolutionary enhancements to human longevity over the next century. Not as optimistic as Kurzweil, but perhaps the oldest old will shift from ~120 to ~150 and the median from ~78 to ~100

Money bubble 2 years ago

Exactly, but if you compare to the market, even though 5.7% absolute returns is a poor 15 month performance, much of the model's relative outperformance came from those 15 months where at the same point, the SPX was still highly negative

Money bubble 2 years ago

ah, sorry for the confusion. That's because the last 20 trades are excluded from the table/chart if you don't have the appropriate access level to view, in this case a Gold membership. That means when you are looking at the chart / table with starting year 2022 you are only seeing the trades up to 3/24/2023 instead of the present.

Money bubble 2 years ago

It's obvious that bubbles exist in retrospect, but determining whether current growth and valuations are sustainable in the present is incredibly difficult. As another poster mentioned, we are essentially talking about market timing here.

Most investors have been conditioned by many popular talking heads to immediately dismiss the idea of successful market timing - and for the most part, the talking heads are correct. For the average investor, successful market timing is nearly impossible.

However, we have many counter-examples of successful market timers over the long term. James Simons' Medallion fund has returned 50%+ CAGR over a multi-decade period and stomping the market, creating many centimillionaires and billionaires in the process.

I set out thinking, what's so different about Simons and his crew at RenTec? Why is it so difficult for their success to be replicated? Not one to easily back down from a challenge, I began working on my own algorithms to successfully hedge against market downturns and provide superior absolute and risk-adjusted returns compared to the S&P 500. While I haven't yet seen Simons-level success in live trading, since launching Grizzly Bulls (https://grizzlybulls.com) in January 2022, 6 of our 7 models have outperformed the market on an unleveraged basis:

SPX (benchmark): +7%

VIX-TA-Macro-MP Extreme: +39.98%

VIX-TA-Macro Advanced: +34.38%

VIX-TA Advanced: +12.92%

VIX Advanced: +9.91%

Vix Basic: +5.76%

TA - Mean Reversion: +15.46%

TA - Trend: +12.97%

Of course two years of outperformance also doesn't yet stand the test of time of Simons' remarkable run, but I'm confident that we've discovered alpha here.

Thanks, really appreciate the feedback! I thought of the name Grizzly Bulls as kind of catchy since the goal is periodically hedging market downturns and so somewhat oscillating from (grizzly) bearish to bullish in macro outlook, but agree that it definitely does not feel directly connected to algotrading. I'll give it some more thought.

Frankly, I'm still very much trying to figure out viable and efficient marketing strategies myself. A large portion of my current users have come from somewhat viral posts/comments on HN, reddit and other investing forums. I also have social media accounts with automated model performance updates and free signals, but I don't have a ton of followers.

I've tried blogging and that's hit some decent results, particularly some of my technical blogs directly related to building algorithmic trading systems, but blogging is very time consuming, so I'm unsure the $/hour really pays off in such a niche space. I even wrote a book on the topic, https://www.amazon.com/dp/B0C9SB2LDG, but also that was a lot of work that I'm not sure was worth it.

So, best of luck! Marketing a very niche product/service is way harder than I originally anticipated. I'm now brainstorming how to pivot marketing towards a more mainstream audience. Really the market for investing with alpha and generating higher long term returns than the market should appeal to just about anyone with a disposable income, but building a level of trust and understanding is key.

In some ways it's easier than ever before, and in others it's much harder than it was 10 or 15 years ago, depending on your industry. For software, the barriers to entry have been decimated. Modern frameworks, libraries, PAAS, and now generative AI etc massively boost dev productivity. It's viable to build an MVP as a solo dev in weeks or months that used to take years.

However, it's easier for everyone else too, and the market is now so flooded with B2B SAAS apps that it's extremely difficult to find an untargeted niche, or even one with incompetent competition, and it's even worse in the B2C space. All the low hanging fruit has been picked.

I started my own company Grizzly Bulls (https://grizzlybulls.com), an algotrading platform, two years ago and the experience has highlighted the difficulty of the non tech aspects of running the business -> marketing, sales, support, etc. It's highly niche and my indicators and models and therefor value prop are entirely unique and unclonable, but the hardest part is reaching new audience. As a freemium SAAS, we have very strong free to paid conversion and even lower premium churn so customers must be content with the product and results, but I've found it very difficult to grow the top of the funnel exposure.

Never Retire 2 years ago

"Pleasure cruises, golf and tracing the family tree are not that fulfilling" ok boomer, but what about video games? I've long had a suspicion that the relative popularity of the FIRE movement among Millenials and Zoomers is largely due to the fact that they've found a hobby in interactive digital entertainment that's leaps and bounds more addictive, satisfying and fulfilling (at least in a shallow sense) than the hobbies of their elders.

I enjoy working and don't plan on ever fully retiring, but certainly plan to leave the 9-5 lifestyle and working for others eventually to be a full time entrepreneur / indie hacker at some point. My first project towards that end is Grizzly Bulls (https://grizzlybulls.com/), an algorithmic trading platform which is certainly going well enough to support myself full time, but I really enjoy my current FTE work too much to consider it for now.

One thing to note is that if you are looking at the premium model charts, the last 20 trades will be hidden if you don't have the appropriate access tier so you could be missing the last 6+ months depending on which model you are looking at. 2023 has actually been a strong year for most models. The first half of 2022 was quite poor as several of the models had a structurally hard time adjusting to the new bear market, high inflation and rapidly increasing interest rates.

On each model's summary table you can check the YTD performance, and note that most of the positive performance came from this year, with last year flat to slightly negative (which was still good compared to the market's abysmal performance last year). i.e. the model you linked above is up 28% this year.

Also, of importance to note is that every model has a varying live start date but also includes the backtest period in the chart. It's always wise to assume that models will underperform their backtests in live trading. However, our goal is to build models robust enough that they can underperform the backtest while still substantially outperforming the S&P 500 on both absolute and risk-adjusted basis.

Lastly, I'm not sure exactly what you mean by "automatic trade copying", but we do have a few Platinum members who've opted to use our managed account, whereby your IB account will be set up with the same trade execution software I use in production to automatically follow the VIX TA Macro MP Extreme model signal changes, implemented by a combination of ES and MES futures trades.