Category: strategy of the week

Limited is the strategy of the week for collective2.com. This strategy is likely not one I would personally be willing to copy with my own money. Per the screenshot below, the leverage curve shows huge spikes in leverage use, reaching as high as 22.10.

When strategies have huge spikes in leverage I typically don’t think they make good long-term strategies. This is because by taking such large amounts of risk it can easily cause a 100% or near 100% drop in the account value. By using 22.10 times leverage a sudden move of just 3% (Not uncommon in the investing world) could cause a drop of 66% in the account value. You could reduce some of that risk by using stop losses, but there is no free lunch. Say you set a stop of 5% of the account value. Using this much leverage means you will hit that 5% stop more often causing a series of 1,000 cuts rathe than one giant gash. Either way, more leverage means more risk. I am not opposed to leverage use, but to frequently use such high levels is a warning flag to me.

I expect that this strategy will likely experience a very large drop causing most to abandon it or to reduce the leverage use and use the early gains as good marketing. At this time the strategy is currently a part of the C2 start system which essentially means it hasn’t exceeded certain drawdown amounts. I find it hard to believe this could last with this level of leverage.

All that said I will be watching to see how the user fairs in making Limited succeed. Who knows? Anything could happen, but the odds are not good in my opinion.

Limited’s OnGoing Performance Chart

The chart below will provide live updates of the strategy going forward.

Other Strategies by Creator

After writing this post I then realized that one of the creators previous strategies followed a very similar pattern with leverage use and we can already see how well it worked out. I hate that they used the word “Patience” like some of my strategy names.

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

Just a few minutes ago I got an email about Collective2.com and its strategy of the week, Better Do Now which is run by user MichaelRenton. The strategy is currently followed by roughly 111 people (some paying subscribers, some not). There is also a total of $561,000 of real money following the strategy.

Key Stats

• Short history: This strategy has only been around for about 5 months. This is very short. It is relatively common for various investment methods to work really well over 5 month periods while still being overly risky approaches for the long-term.
• High Return/Drawdown Ratio: It is great to have a high ratio of return vs max drawdown. However, I think as investors we must be realistic as to what is possible. A ratio of 13 is far above any C2 strategy that has lasted for 3 years or longer. This tells me this likely won’t last. It could. I just don’t think it is likely.
• Peaking Leverage Curve: As the chart shows, the leverage use has a very wide range of use. This isn’t necessarily bad, but when you see the leverage curve spike up like shown in the image below it is often a result of the strategy leveraging down when investments move against them – martingale. This can of course work many times, but if done frequently enough it will eventually backfire. We can see the max leverage use was 18 times! That means it would take only a 5.5% move in the underlying investments to have a 100% drawdown.
• Strategy Description: The strategy has zero description from the creator. I understand that you don’t want to give away your secret sauce. However, I would like to see some sort of description that tries to tell why the creator thinks their strategy is likely to succeed when I have seen so many similar ones fail.
• C2 Star Certified: This strategy is C2 star certified, meaning it has stayed within certain historical risk and drawdown metrics. Personally, I don’t find C2 Star to be helpful in identifying what won’t have a big drawdown in the future.
• No Trades-Own-System: The leader may be trading their own money in the same way, but C2 can’t verify that for me. That is a negative for me.

My Thoughts

I think this strategy is far too aggressive for me. It is impossible to say exactly what will happen, but these are my projections.

• I think there is about a 70% chance this strategy suffers a very sudden and massive drawdown and is then abandoned.
• I think there is about a 25% chance this strategy slows down to the point that people don’t follow it.
• I think there is about a 1% chance that is stays with a similar growth patter for 3 years or more.
• I think there is about a 2% chance that it doesn’t maintain such high growth but keeps good growth that is better than an index fund starting now and going for the next 5 years.
• There is probably about a 2% chance of some scenario outside these.

I plan to set a reminder to check in on this strategy later and see how it does. In short, I wish the person well, but I honestly believe this strategy shows all the earmarks of something that will explode. I wish the person and their subscribers well, but I don’t see anything here to make me want to move money from my investment methods to theirs.

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

This week the strategy of the week was TopChasing which if I am going to be honest is highly suspicious to me. The total return at the time of the email was 474.8%. However, the vast majority of that growth occurred with trades that were purely hypothetical.

For more resent trades on this strategy you can see that they were copied in real brokerage accounts because you can find these little orange symbols as shown below.

Live Brokerage Account Trades

Not Live Brokerage Account Trades

If you go further back in the trade record of this strategy TopChasing you can see that the trades that occurred in the months that had the massive growth were not based on live trades. Furthermore the trades that took place to get these massive returns tended to focus on one or two stocks and involved doubling down into very concentrated positions. That may make sense as a part of your overall strategy. However, I would certainly not subscribe to this strategy and expect these returns to continue. Notice how the most profitable trade as shown below was not based on live trading and involved a great deal of doubling down which can often lead to catastrophe.

Recent Performance is Marketing

When someone promotes performance over such a short period be very cautious.

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.