In 1998, he came up with an idea for the Stairs system and developed it in 2001.
“It was going to be a trend following system, but what I found when I did my research is that it had a very good sweet spot for countertrend trading the S&P 500.”
He trades the E-mini S&P 500 but uses the cash S&P index to get his signals. “I use the cash index to drive my futures trade because it filters out some of the noise,” Ross explains.
The system trades about 35 times a year, the average trade lasts eight days and it is in the market about 75% of the time.
He follows his system expressly, which was tough from the outset as his first four trades were losers and the system dropped 17.63% at the end of 2005. But Ross had designed literally thousands of systems and knew he had a winner. It earned 40.03% in 2006 and 36.46% in 2007.
The Stairs program has done well during the impressive rally over the last year despite it being a countertrend system. “It looks for trend decay, what is the established trend over the last several weeks and when it will begin to decay,” Ross says.
The system reverses so it can catch a pullback from a current trend and then reverse and get long, benefitting from the longer-term trend. He credits his success to the walk forward testing process and his risk management.
If a trade is not profitable in three days he gets out but has large parameters prior to that. “I have an intraday stop which is very large, 11% of entry price based on the cash, and then I have an end of day, which is 7.5% of cash. Those are catastrophic stops that give me room to breathe,” Ross says.
Despite having a good job at Microsoft, Ross left to do consulting work. “It has allowed me to never get stale. I have always been on the cutting edge of technology,” Ross says. “You get up in the morning and have an idea for a trading system, so I get data and make a program.”
His comedy is not just a destresser, but it also helps in presenting his system. After standing up in front of a crowd and trying to make them laugh, he is not intimidated giving a presentation to a multi-billion dollar fund of fund.
“Are the milk futures really a liquid market?” he digresses. “You are going the speed of light, you turn on the headlights, and what happens? Your wife makes you pull over and ask for directions.”
He says there is no feeling like standing in front of a crowd, but based on his performance, he won’t have to rely on comedy to make a living.