Each program in the ROBOT portfolio employs our proprietary fixed risk modeling at the individual trade level. This means that regardless of the specific entry and exit scheme or constantly changing market conditions effecting each model, risk is finite and expressed as a fixed percentage of actual account equity regardless of leverage at all times we are in the market.
Since the maximum number of possible entries and exits is known in many of our programs on a monthly or even daily basis, the maximum theoretical exposure to account equity over a given time horizon is also known.
Access to the proprietary risk modeling provides a basis to identify potential maximum draw down levels relative to targeted returns and therefore custom tailor each client’s risk profile. The targeted return concept is perhaps the most unique part of our risk management program because it is not directly related to mitigating losses at all, but rather ironically related to limiting what we win.
The premise of the fixed targeting model is to target a fraction of the typical historical monthly return capability of a program with a goal of achieving little monthly return volatility. Assuming the applicable programs in our portfolio have returns beyond the typical investor expectation, we believe that we can still meet or beat most absolute return expectations and drastically limit draw downs in the process. Of course, the risk management benefit is arguably even more powerful than peak to valley concerns due to the complete elimination of all market risk once the target is reached. The strategies are managed exactly as with the absolute return variants with the sole exception of the return target. Upon reaching the target all trading ceases for the month in that program and the notional equity is allocated to a risk-free asset class such as cash or equivalents. The return targeting concept can be applied to a single strategy, multiple strategies working independent targets according to percentage allocations, or multiple strategies working toward a common monthly, quarterly or even annual targeting
The one certainty in all markets is that they must move to survive, constantly auctioning to find consensus of value between buyers and sellers. This motion is either vertical or horizontal in any timeframe at any one time. No one program can be truly efficient at capturing returns and mitigating risk simultaneously in both directionally trending markets and in non-directional or rangebound markets.
Moreover, these two general directional states can never be identified as absolute until expressed within a specified periodicity. A market can be moving vertically in one time frame and horizontally in another.
The ROBOT portfolio effectively surrenders to these certainties with each of the core programs having been constructed to perform best in either trending or non-trending conditions and across a carefully chosen range of time frames from as much as many months to less than a minute at a time.
With this, each successive shorter periodicity strategy is trading “inside” the longer periodicity strategy above it. The intention of utilizing an approach with multiple time frame coverage and multiple simultaneous long and short trading programs is to provide insulation from any surprise exposure to negative price shocks. Each program is potentially hedging others at all times, creating a sort of core position that is either net long, net short, or market neutral.