Trading Methodology

Abraham Trading Company’s trading methodology is a systematic, multi-system approach implementing filtering techniques that avoid trades with adverse risk/reward characteristics. While the goal is to capture profits, the system only enters the market during periods when the risk/reward of a trade is heavily in the trade’s favor. If unacceptable risk characteristics exist, the system will even avoid trades that have a positive profit expectation. The end result is a trading method that has historically provided ATC’s investors exceptional returns that have a low correlation to stock and bond investments.

Research

Abraham Trading Company attributes its good long-term performance to superior research methods. Over the years the markets have become choppier, and many traders’ returns have suffered. In ATC’s continuing research efforts, a technique was discovered that helps to identify these choppy markets and keep the system out during these periods. Also, in January 2006, ATC added a shorter term system trading the 20 most liquid markets we trade, we also added 7 global stock index markets to the portfolio, and made other changes that will continue to help performance in non-trending markets, while simultaneously not penalizing returns during trending periods.

All the models tested are robust with very few degrees of freedom/parameters. A myriad of proprietary statistical techniques are looked at that include analyzing multiple time period subsets, market-by-market as well as sector analysis and correlation, risk/reward analyses, parameter degradation studies, slippage analysis, and drawdown analysis.

Experience helps in developing a successful trading system. The most common and most dangerous error made in system development is curve fitting. One thing we have learned over the last 20 years of trading is that curve fitting cannot be understood by theory alone. There are many statistical traps that can only be learned by trading systems real-time. Statistics require many assumptions. It is extremely difficult to know which of these assumptions are valid in the real world until they are actually put into practice in the real world. This takes time. Abraham Trading Company has learned many lessons attainable only by comparing over 20 years of real-time trading to historical simulations.

Many methods commonly accepted by economists, statisticians, and even the CTA community-at-large have major flaws when executed in the real world. This is because the assumptions are valid only in theory. Abraham Trading Company’s success comes from original thinking and a refusal to blindly accept statistical models, economic theories, and even “common wisdom” prevailing in the investment industry. ATC uses no assumptions in research that have not been proven through extensive testing and real-time experience. Abraham Trading Company’s team believes we have simply come up with better techniques.

Diversified Portfolio

Abraham Trading Company strives to trade the most diversified futures portfolio possible for our investors. Our portfolio contains 60 markets covering the currency, interest rate, global stock index, grain, softs (food and fiber), meat, metal, and energy sectors. Our high exposure to the physical commodity futures (57% of weighted markets traded) add value to both individual and institutional portfolios.

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