Joe Gelet: Automating profits

April 25, 2008 08:09 AM

Automating profits

Joe Gelet, president and head trader of Elite E Services, has developed multiple automated trading programs that have produced eye popping returns since 2005. The strategies include short – and medium-term momentum, countertrend, oscillator-based and swing trading strategies.

Gelet began day trading stocks in 1998 when he discovered he had a passion for creating computer generated strategies. By 2001, though, the day trading boom had gone bust and so he shifted to trading commodities and began working as an investment advisor for institutional clients. After 9/11, Gelet and his customers thought it would be a good idea to operate offshore so he moved to New Zealand due to its regulatory structure. There he traded for his own account, institutional customers and a New Zealand-based hedge fund. He also launched Elite E Services, an electronic boutique brokerage he co-founded with three partners that eventually would evolve into his commodity trading advisor CTA).

Though he started out trading commodities like gold, he soon began to trade currencies and developed a short dollar portfolio.

He moved back to the United States in 2005 and began trading his short-term systematic strategies with an eye to completely automating them.

His strategy returned more than 100% in 2005 and 2006. He became registered as a CTA at the end of 2006 and his program returned 67.98% in 2007. Despite this return, the program also produced two double digit drawdown months so he added more risk management that gets out of every position once the portfolio experiences a drawdown of 5% or greater.

Gelet started developing automated systems in 2005. While his programs were always completely systematic, he would manually enter all of his orders. The program consists of multiple short-term systems that can produce dozens of trade signals a day in up to eight currency pairs.

With his short-term focus and multiple systems, manually placing all the orders produced would require “a whole army of traders” Gelet says, “We are just a group automated traders. It is overwhelming, but with automated systems it basically takes care of itself. At some point a human being needs to sleep. You can’t trade 24 hours,” he adds.

But completely automating a system so the trades goes from your signal generating algorithm directly to the market takes a leap of faith and additional due diligence.

His risk management has two levels, one dealing with the overall systems and another based on the auto execution.

The first adjustment was to turn it off once he reached a 5% overall drawdown. When that occurs all traders are exited for the day. “It is like a hard stop that we have developed. The important thing is that as long as you are not overleveraged, you are not going to [have huge losses]. We calculate appropriate lot sizes,” Gelet says.

If the various systems create multiple signals overall leverage cannot grow beyond 15-1. At that point it will not accept a new signal. The risk management also looks at correlation. If all the current trades are on one side of the market — short dollar perhaps —it will not accept new short dollar positions.

Elite E Serivces is based in Las Vegas, though Gelet trades out of South Carolina. Gelet is one of many relatively new CTAs trading exclusively in the cash forex market. “It is a good market to trade, it is volatile but it has not been choppy, it has direction,” Gelet says.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.