Matt Jimenez: Welcome back to the channel, Abhay! I am super excited to have you on today because we’re going over something that is extremely valuable for potential clients but also for our pre-existing ones. This is something that I am overly excited about because I’m actually going to dedicate $10,000 specifically to bring our audience back on another journey, just like I did with the FED bot. So, I think that kind of gave it away here. I mentioned the FED bot, and here we are talking about another product today. I want to dive into what that actually looks like and what your role is when it comes to bringing a new product to market.
Abhay Anand: Yeah, for sure. We’re excited to be on, and thanks for having me back.
Matt Jimenez: Sounds good. So, a couple of things that I want to know are, how long did this take to be able to get brought to market?
Abhay Anand: Yeah, this algorithm has been nine months in the making now, so it’s been a little while, but we’re excited to finally release it.
Matt Jimenez: Well, I like that it’s been a little while because that means that clearly you guys did your due diligence in making sure that all possible things could have happened, and you guys are able to fix that for it to be public.
Abhay Anand: We had started working on the idea longer than that even, but the actual coding and optimization started nine months ago.
Matt Jimenez: Nice. Wow, a fair bit of rigorous testing on it too. So, I want to know, what’s the high-level thinking of the strategy when it goes into making a product like this?
Abhay Anand: Yeah, so with this strategy, it is a little bit different from some of our other strategies, but they’re all unique in their own way. With this one, it’s a scalping strategy within a higher timeframe trend. So, we’re looking at the higher timeframe trend and figuring out how strong the trend is and where it’s going. If you think about the higher timeframe as, let’s say, bullish, then we look at the lower timeframes for an optimal entry. If we find a mean reversion opportunity in the lower time frames where that pair is potentially oversold, we know, okay, in the lower time frames it’s oversold, but on the higher time frames, the trend is to the upside, so we can take a long trade with confidence.
Matt Jimenez: Nice. That’s high-level thinking. I mean, to put it in an analogy, if you want to swim in the ocean and the current’s going a certain way, you want to flow with the current rather than swim against the current. So, it’s all about when to jump in, flow with the current, and then jump out.
Abhay Anand: Nice, nice. Before it changes.
Matt Jimenez: And how much does that differ from the FED bot, would you say?
Abhay Anand: I would say it differs quite a bit because, with the FED, traditionally, what we’ve seen is the focus has been more on the risk management sequence. Whereas, with this, the focus has been more on just optimal entries and exits. That’s why we haven’t had to scale into ideas as much as we see on the FED, and hence why we’re able to create a low drawdown variant of this strategy. Our objective is to keep the drawdown under 10%, and for the vast majority of the time in our backtesting, except for outlier events, we have managed to achieve that.
Matt Jimenez: So, would you say that this is actually a little bit more risk-averse than the FED bot, or does it really just depend on how you set it up?
Abhay Anand: Yeah, so that’s a great question. We’ve actually done something different this time. We’ve created a base strategy and then two variants from it. This variant, which we released last week to the program, is the low drawdown variant where the primary objective is to keep the drawdown of the account low, under 10%, with a very consistent profit. Naturally, the profit won’t be as high since we’re not aiming for 25% months on this variant. Using the same base strategy, we’re creating a different set of optimizations and a different variant called high profit, where the primary objective is profit, even though it can go into more drawdown. That one is about three months away; we’re still working on it, but it’s coming out a bit later as well. The idea is that the base strategy is the same, and from that strategy, we’ve created two separate variants with two very different objectives.
Matt Jimenez: Wow, nice. So, I want to ask you, and this is going to be a bit of a personal opinion or maybe there are stats to back this up, which one would you rather run if you cannot run both? What ATA product would you pick? Would it be the FED bot or this new product, which we haven’t even mentioned the name of yet? So, maybe we could let the people know what the name is. But what would you say is your most sought-after product?
Abhay Anand: Just like anyone loves their children, I like them all equally, but I think it depends on the objective. If I were more risk-averse, I would pick Dalio Low Drawdown. If I were willing to take more risk, I would run the FED because, like I said, the FED, especially if we compare it to the low drawdown variant of Dalio, will have higher drawdown but also higher potential for bigger returns. Here, our objective has been, first and foremost, to keep the drawdown low. It’s designed for a different type of trader. Our strategies right now, prior to Dalio, have all been focused on high profit, but they tend to have instances of higher drawdown. This one, because it’s focused on low drawdown, is designed for traders traditionally with bigger accounts who don’t want to take as much risk and want consistent returns while not having to check their account as regularly for drawdown. We’ve put extra risk measures in to protect against outlier events.
Matt Jimenez: Speaking of outlier events, you probably will not have the specific exact answer to this, or maybe you do. When it comes to outliers, typically in backtesting they would arise. I’m assuming you never know what could happen in the future, but how long does that phase of backtesting typically run to where you’re like, okay, this is proven X or whatever X is for you?
Abhay Anand: Yeah, so we so far have focused on the last three years in this strategy. We’ve actually gone back five years, and for future ones, we are getting more reliable data for going back 10 years as well. But in this backtesting with Dalio Low Drawdown variant, we did not exceed more than 10% drawdown in the last three years. In the five-year test, in 2019, there was an outlier event where the account experienced much more drawdown, but that’s where we’ve got equity protection in the account. We generally set it at 15 to 20% as our guideline for clients. What that means is if you have an unrealized loss of 15 or 20% on the account from its equity high, it would realize the loss and close the positions to protect the account. Even though the backtesting showed that in 2019 there was an instance where the drawdown exceeded 20%, with this protection mechanism enabled by default, clients wouldn’t have experienced that drawdown. The idea is that if you do take a 15% hit on the account once in five years, and it’s still doing, hypothetically speaking, 5 to 8% a month, it’s not a big issue at all.
Matt Jimenez: I like how you said equity protection. I’m assuming it’s pretty much the same thing as a stop loss, or am I incorrect there?
Abhay Anand: Yeah, it’s essentially just a broad stop loss, a stop loss on the whole account rather than any individual trade or pair.
Matt Jimenez: Oh, very interesting. You said a lot of things there. In fact, there’s been a lot of confusion around drawdowns. I’ve had quite a bit of clients reach out, or I should say potential clients, people that are interested and don’t quite understand drawdowns. I love how you were able to articulate that understanding of drawdowns, how it’s unrealized to realized, and the realization only happens when you close the positions. Another question I’m curious about is we have the FED bot, the Gold Digger, we have Yellen, and we have Dalio now. What else are we adding to the basket of products that we’re going to have, and why are we continuously looking to add more?
Abhay Anand: That’s a great question. Actually, before I even jump into that, one more point on the drawdown is the way we design these algorithms. We have a risk management sequence, and the risk management sequence scales into ideas. With that, if the equity protection is not enabled on the account, the account still recovers. In 2019, like I was saying, if a client didn’t have equity protection, they would have experienced a 40-50% drawdown on the account unrealized, but the realized loss was zero. The account recovered because the risk management sequence scaled into the idea. If they want to protect against having that much risk on the account, they can. That equity protection just makes sure that you don’t even have more than 15% unrealized if they set it at 15%, which clients have the discretion to do.
Matt Jimenez: Okay, so let’s put the question of products on the shelf for just a moment here. I want to unpack this for just one more minute. Let’s say a traditional stop loss, there’s a wick, a massive spike, and it hits wherever you have the stop loss set. In the way that we have it set up, is that typically the same thing here? Because you said it doesn’t close out an individual trade, but let’s say there’s a pair that does have a wick and it does a spike of 10-15%. In that situation, what would typically happen?
Abhay Anand: Yeah, good question. In that scenario, when we say a 15% hit, we’re saying the 15% hit is on the account. So, when it’s that big of a loss on the account, we’re not necessarily looking at the trade or the pair at that point. So, it’s different from a stop loss where you’re looking at that specific pair and closing out that specific pair if it hits that stop loss.
Matt Jimenez: And is there a reason why it’s not done that way as opposed to just focusing on the trade itself?
Abhay Anand: Yeah, because if you do it on a specific trade or pair, you could still have that big loss. So, if you have it at the account level, you know for sure you can’t exceed 15% on the account as a whole.
Matt Jimenez: Gotcha.
Abhay Anand: So, for the products, like you were saying, this one here we’ve been very excited about because of the low drawdown nature, and it’s a different variant. We’re still going to be focusing on high profit as well. The FED has been very successful in that, but we’ve seen a lot of demand for a low drawdown option, so this is the first of its kind in our basket of products. We’re still working on the high profit variant, which we hope will be out later this year, and we will continue to optimize all of our products. For now, our focus is on making sure the low drawdown variant is a big success and works really well for all of our clients.
Matt Jimenez: That’s incredible. So, to all of our viewers out there, we hope you guys found that this was a super valuable interview here today. Abhay, I really appreciate your time, and thank you for going over Dalio. Until the next one!
Please visit This New Trading Algorithm May Just Change Trading Forever to watch the full interview on YouTube!
