This months interview is with Dominik Jaretzke of Mull Capital, based near Cologne, Germany. They have been developing systems with a successful product line for 4 years.
SRB: Hello Dominik, you have been a professional systems developer and quant trader for some time. I know you have an investment banking background. What led you to start trading and developing systems? Also, tell us more about yourself .
Dominik Jaretzke: I am 35 years old, married and live in a small city close to Cologne in Germany. I received a Master’s degree in International Business with a strong focus on finance and statistics from the University of Maastricht. I also spent a semester abroad at Berkeley (University of California, USA) during that time. After my studies, I spent almost a decade in various investment banking positions in Frankfurt, Germany, until I finally quit in summer last year. Since then, I am a full-time trader and system vendor and very happy with it!
I got started with automatic trading by leasing systems from other vendors. The reason being that in my demanding daytime job I had limited time to spend on watching and picking stocks or initiate futures positions.
Success was relatively mixed. That is when I decided to start looking into the development of trading systems myself, which was maybe a natural thing to do based on my university background and interest in investing and trading. After reading a lot of books and articles on the topic, I started developing my own systems about 4 years ago and work on new systems ever since.
SRB: What is your trading style? You developed the mean reversion strategies, such as Gator KW using daily bars but also recently released systems and portfolios utilizing shorter timeframes that appear to be more momentum/ trend strategies. Are you a fan of the diversification in markets /timeframes / styles? Tell us more about your new systems, please.
Dominik Jaretzke: I am a big believer of diversification and therefore offer a combination of the new systems (which are very lowly correlated) in portfolios at a reduced price again. In my opinion, a well-diversified portfolio is the closest you can get to finding the “holy grail”.
The first systems that I released to the public were mean reversion strategies on bigger timeframes as it is in general easier to develop those kinds of systems. The major reason is that you do not have to deal with things like slippage as the average profit per trade is much bigger, which comes at the cost of using much bigger stops. The Gator systems still perform reasonably well, which demonstrates the robustness of my system development approach.
However, I also realized that it was important to trade other kind of systems and lower time frames in order to diversify my mix of systems, reduce drawdowns and smoothen the equity curve. Additionally, many clients asked me for shorter term trading systems last year as many are not too comfortable with the bigger stops on the daily systems or simply have only limited capital available that does not allow them to trade any of the Gator systems.
That is why I started to develop many different intraday systems, some of which were released under the new brand name “Oak Tree” in the beginning of 2019. The best performing system so far is Oak Tree FC, a short-term swing trading system for the feeder cattle market. As most developers focus on popular markets like ES or CL, I believe that Oak Tree FC provides a great opportunity to diversify my clients’ portfolio of strategies as this market usually performs rather independent from the mentioned markets.
SRB: Can you describe main points / philosophy that are your quant strategies based on? What are your key objectives when designing a system?
Dominik Jaretzke: When I started to develop the new generation of systems, I produced a lot of variations of systems and let them run through rigorous robustness and stress testing. Most of the systems are simply over optimized and do not work in live trading. Thus, it is of utmost importance to have a very strict and consistent selection process to make sure that you select the right systems.
Therefore, my main objective is to develop systems that work in live trading in the same manner as they do in the backtests. It is easy to develop something that looks great in a backtest. However, I often see systems from other developers fall apart shortly after their release and that is something I try to avoid by having a proprietary development and robustness checking procedure. During these procedures I look at performance metrics such as NP/DD, SQN, profit factor, Sharpe ratio, profit distribution and of course drawdowns (amongst others). All of our systems are composed of and evaluated on walk-forward periods and parameters, which provide a much more realistic view on a system’s performance.
The new systems I released so far (three intraday systems for crude oil, Russell 2000 and soybeans) as well as Oak Tree FC proved robust over a long time and different market conditions and perform in live trading as expected.
SRB: Which of your trading systems would you expect to perform best in the current market environment?
Dominik Jaretzke: It depends a bit on the market itself. Oak Tree FC is at new highs and just finished March 2019 with a net profit of over $4,000 USD. As volatility in the feeder cattle market was low in the last months and only recently increased, I hope that current volatility will stay with us for a while as Oak Tree FC performs very well during this market condition. Historically, the strongest months of the year are still ahead of us this year, so people interested in the system should consider getting in soon.
The intraday systems are more or less flat thus far, although we had some nice winning trades recently. In general, I provide detailed annual equity curves, monthly profit distributions, etc. for every system and portfolio on my homepage www.mullcapital.net, which I recommend every (potential) customer to study. This is important as it shows how different the path to profit each year can be and why it is so important to consistently trade systems. Sometimes one or two months in a given year can make a big difference and usually strong months follow weaker periods.
SRB: For other developers or brokers reading this interview, what books or study courses do you recommend for someone to learn how to program trading systems?
Dominik Jaretzke: I can fully recommend Kevin Davey’s book on developing automated trading systems and his “Strategy Workshop”. The book was one of the first I read when I started to dig into this field. I met Kevin once in Cleveland and he is very authentic and definitely one of the best automatic system traders I know. Van Tharp’s books on position sizing and money management are classy and should be studied by everyone who want to develop automated systems or step up in trading.
Regarding a study course I can recommend Andrew Swanscott’s and Tomas Nesnidal’s courses offered on Better Trader Academy. That is where I picked up some ideas for creating my new generation of systems.
Generally, I would recommend every reader to always try to modify existing approaches or to develop their own styles based on existing approaches and to be creative. Do not let yourself get disappointed by backdrops and keep on adapting and adopting your strategies.
This interview is for informational purposes only and is not intended to be a solicitation of any kind. Trade only with risk capital. The risk of trading can be substantial and each investor and/or trader must consider whether trading systems are a suitable investment.