LCM Retrocausality®
SUMMARY
One conclusion becomes inevitable when examining how and why markets work – markets reflect human fear and greed. LCM Retrocausality® was created to take advantage of such a “fear and greed” mentality with a planned trading strategy that knows no emotions.
LCM believes that future market price movements can be more accurately anticipated through technical or quantitative analysis rather than fundamental or economic analysis. Since non-directional trading strategies are employed, major long-term price movements are not needed for the program to be successful.
All trading is performed in a planned, fully automated, and unemotional fashion. By quantifying the circumstances under which key investment decisions are made, this methodology offers investors a rational approach to markets, unaffected by judgmental bias. LCM’s objective is to strategically participate in both rising and falling price movements that result from various economic supply and demand imbalances.
All forms of investments offer some degree of risk, with the risk factor usually being relative to profit. LCM Retrocausality® aims to achieve a better rate of return in comparison to other investments that have a similar level of risk.
DESIGN
The concept of systematic trading is as old as the financial markets themselves. Since day one, investors have had a plan or system for entering and exiting every single investment position.
Even today, the most successful trading firms consistently execute a systematic strategy. Up until the advent of computers, traders’ plans were developed without the advantage of backtesting against previous market conditions. The ability of computers to store market data for many years has allowed system developers to generate back-tested results for new or existing trading systems.
See the diagram below:
However, the most important contribution of trading systems is the ability to eliminate emotions from the trading process. By defining risk and automating a predefined plan, these systems are capable of cutting losses and allowing profits to run, whereas a human trader may have done otherwise.
LCM believes that LCM Retrocausality® is one of the most sophisticated and comprehensive futures trading products ever developed. LCM Retrocausality® has been in development for many years, utilizing an immense amount of technological and human resources. The system currently trades five e-micro and e-mini indexes: S&P 500, Nasdaq 100, Dow Jones Industrial Average, Russell 2000 and Gold. The LCM Retrocausality® trading system is based purely on technical analysis, relying exclusively on past data and chart patterns for its signals. It was built upon the belief that managed futures funds fueled by a powerful technical trading system can consistently outperform the "Buy and Hold" investment strategy.
The technical analysis utilized by LCM Retrocausality® is performed through the use of various proprietary, as well as public market indicators and strategies. The system is designed to be highly adaptive to accommodate frequently changing market conditions. Furthermore, it takes advantage of a very important factor; timing - by entering and exiting the market at precise times. Since every aspect of the system is automated, the optimal number of contracts being traded is calculated with every trade, thus allowing for maximum profit potential. Automated stop-loss orders provide a form of risk management and serve to limit the potential loss for every trade. However, extreme market conditions may prohibit the timely execution of such stop orders.
The core of the system is based on short intraday market swings. There are usually multiple trades per day. LCM Retrocausality® is a fully automated trading program operating on state-of-the-art computer systems. Human emotions never play a role in any trading procedures. The trading program may be revised from time to time by LCM as a result of ongoing research and development. The trading system used by LCM in the future may differ from the one presently used, due to the changes that may result from this research. Clients will not be informed of these changes as they may occur.
ADVANTAGES
- Consistency of Results
In examining the majority of systems, both past and present, it can be observed that most have good “streaks” surrounded by otherwise mediocre performance. Such inconsistency is the primary reason that most of these systems never reach a great level of success. Knowledgeable investors are aware that the consistency level of a trading program is just as important, or even more important than the system’s ROI. An excellent technical design and the lack of optimization contribute to LCM’s ability to achieve both profitable and consistent results. - Minimal Drawdowns
If risk is not always precisely calculated, a trading program can easily suffer from high drawdowns. While there is always a risk involved in futures trading, LCM attempts to limit the maximum risk per trade to 2% of equity, with the goal of small drawdowns and a smooth equity curve. LCM Retrocausality® will always use a sufficient buffer with margin requirements to protect against large drawdowns, while at the same time trading very often to pursue a substantial rate of return. - High Trading Frequency
In any trading system, infrequent activity usually translates into inconsistent results. While many futures trading programs experience long periods of inactivity, the inherent design of LCM Retrocausality® allows it to maintain an average trading frequency of several trades every day. - No System Optimization
Although optimization can improve efficiency in many areas of business, it can be quite harmful in designing a trading system. This is because an optimized system is usually targeted towards a very specific market and is often based exclusively on previous behavior. In the long run, this can significantly hurt the system’s ability to grow or even function, causing the system to fail. For these reasons, LCM Retrocausality® has not been optimized, which is reflected in its ability to work well across many markets. The system possesses this ability because of its roots in the market-independent theories of support and resistance. - Universality
Universality, or the ability to trade across many markets, is the backbone of a truly successful trading program. Because the design of LCM Retrocausality® is market-independent, it can trade most futures markets with an approximately equal degree of success, allowing for excellent diversification. LCM reserves the right to change the number of traded futures instruments at its discretion. - Market Direction Insensitivity
Since market conditions change constantly, from bear to choppy, choppy to bull, and so forth, it is crucial that LCM Retrocausality® stays on course and always produces dependable results. Thus, the system is not designed to be direction-based or trend-dependent. Regardless of the direction of the market, the system is designed to consistently capture small moves based on reliable technical principles. - Tight Trading Environment
To achieve consistent returns and reduce risk to a minimum, LCM Retrocausality® was designed with the following qualities in mind:> Frequent trading – The system trades multiple times per day, keeping the equity curve smooth and the length of drawdowns to a minimum
> Tight stop losses – Under normal market conditions, stop loss orders should allow the system to keep drawdown size to a minimum - Inter-Index Diversification
Since system trading can be profitable in the long run, but not necessarily daily, it makes sense to diversify between two or more financial instruments to keep the equity curve smooth and the drawdowns to a minimum. LCM Retrocausality® strives to achieve these goals by trading four index futures at a time.