1. ABOUT THE ALPHAENGINE STRATEGY
The trading program called “AlphaEngine” is a computer driven, algorithmic trading strategy which enters long or short trades in 22 different futures symbols utilizing pattern recognition algorithms.
The AlphaEngine strategy primarily uses a trading system called “DifferenceEngine”. An alternative trading system called “SuperSystem” may be substituted occasionally at the discretion of the advisor. "SuperSystem" and "DifferenceEngine" were software programs licensed to traders as part of a software application published by theAlgoLab.com Inc. between 2016 and 2019. The trading strategies offered by theAlgoLab.com Inc. were developed using 14 years of intraday historical data, and then tested on as many as 100 funded trading accounts over a 3 year period as a software application.
Once the algorithm identifies a possible trade, the system submits stop limit orders to enter new positions. These entry orders are placed at various prices to increase the likelihood of being filled on new positions, but these limit orders do not guarantee being filled on a new position. Once in a trade the system will exit a position using a trailing stop market order designed to allow profits to run, and to exit losing trades quickly. Generally, the percentage of profitable trades is less than 50%, but the average profitable trade is twice the size of the average loss. The frequency of trading is high, as the average trade holding period of AlphaEngine is from a couple of hours to slightly more than a day.
AlphaEngine uses a unique method of adjusting trading volume based on the total available capital called “Synthetic Fractional Contracts”. The objective is to increase trading volume as profits are added to the total capital available for trading by periodically trading an additional contract which simulates the effect of trading a fractional contract. This additional contract traded is random and will result in different profit and loss comparisons between accounts over the short term, but statistically, should equal-out over a longer period of time.
AlphaEngine program will trade 1 contract per $100,000 of capital, plus 1/4 of a contract for each additional $25,000 of capital, rounded down (synthetic fractional contract). For example, if your account value was $123,000 then your trading level will be set to $100,000, and AlphaEngine will trade 1 contract. If your account value was $130,000 then your trading level will be set to $125,000 and AlphaEngine will trade 1.25 contracts.
For accounts that are using notional funding by funding their trading accounts with less than the minimum $100,000 (example, funding a $100,000 account with $75,000), this ratio of notional funding will be preserved each month when AlphaEngine calculates your new trading level. For example, if your account value is $330,000 and you are using 75% cash funding, then your trading level will be calculated as follows:
Notional account value = $330,000 / .75 = $440,000.
Trading level rounded to nearest $25,000 = $425,000
Your account will trade 4.25 contracts
Nominal trading levels are automatically reset at the end of each month for the next month. Each month, clients can override this automatically set level by specifying a lower or higher trading level if desired.
The list of futures markets traded are:
Crude Brent, Crude Oil, Cotton, Euro, British Pound, Gold, Copper, Heating Oil, Japanese Yen, Coffee, Natural Gas, Nikkei index, NASDAQ index, Platinum, Gasoline, Sugar, Silver, DOW index, Corn, Soy meal, Soybeans, Wheat
2. FEES & MINIMUM CAPITAL
Minimum Recommended Capital = $100,000 USD (program will trade 1 contract per symbol per trade per each $100,000 of capital in account.)
Minimum Funding = $75,000 USD (25% notional funding minimum)
Minimum Notional Funding = 25%
2% management fees
20% performance incentive with high water mark
3. NOTIONAL FUNDING
"Notional Funding Percentage" is the percentage of your investment that you actually fund your account with. For example, a $100,000 account using 25% notional funding means that you fund your account with $75,000 ($100,000 - 25%) of actual capital, but your account is treated as if it was worth $100,000 for purposes of calculating trading volumes.
Funding your account with less capital than the standard requirement serves to increase the volatility of your returns by increasing your returns, while also increasing your drawdowns. Funding your account with more capital than the standard requirement (as in the case of an IRA account for example) serves to reduce the volatility of your returns by reducing your return while also reducing your drawdowns.
The ESTIMATED average annual returns and drawdowns in the table above are estimates based on the last 3 years of actual trading and are net of all commissions and fees. Actual annual returns may be lower. Actual maximum annual drawdowns may be higher.
4. IRA ACCOUNTS
Due to IRS rules for IRA and other retirement savings accounts, these accounts are set to notional funding level of 200% and the minimum actual funding required is $200,000