Why Trade Both Delphi and AXIOM Index?
An investor would rightly ask, why trade two swing systems--AXIOM Index and Delphi Universal--on the indices?
- First, and most importantly, the correlation between the two systems is about 35%, which is a lower number that means the two can be combined advantageously. Because their equity curves are fairly different, they tend to cushion each other's drawdowns, allowing for more efficient capitalization and improved returns. For example, the average maximum drawdown (AMDD) of 1000 Monte Carlo runs of the closed trades of AXIOM eMD is $10,500 (Monte Carlo randomly re-sort the trades, creating alternate equity curves). For Delphi eMD it is $7,160. However, when you combine them, the AMDD is $10,100: By adding Delphi to AXIOM you lower the expected drawdown, reducing risk.
- The low correlation is a result of the entry and exit logic being very different. AXIOM Index uses a variable channel that is composed of different length trends, and if two of three agree, a trade is possible. Delphi also uses a channel, but it is based upon very different logic and is generally faster than AXIOM's. Both can enter on a trend breakout or a retracement from the main trend.
- Delphi also uses shorter-period bars, making it faster in and out of trades; whipsaws are controlled with a proprietary filter that dampens the likelihood of trades close to prior trades. AXIOM, because it uses longer-period bars, generally enters and exits later, and has a somewhat lesser tendency to whipsaw. Delphi therefore trades somewhat more frequently, about 7 trades per month vs. 4-5 for AXIOM.
- While AXIOM uses dollar-valued exits, Delphi uses ATR-bases exits. This means that in today's markets, Delphi's profit objective is about half that of AXIOM, and it is achieved about 20% of the time, vs. AXIOM's 5%.
- AXIOM uses a volatility filter that keeps it out of the market when recent volatility has been higher; Delphi has no such filter, and therefore runs more wide open, capturing more moves, but also sometimes being in the market at the wrong time.
- A final difference is that AXIOM uses an early trailing stop, such that when, for example, an eMD trade is up 6+ points, the protective stop is moved from risking $650 to protective $200; this results in psychological comfort and a high percentage of wins (about 55%), but also sometimes causes an early exit from what would have been a good trade. Delphi's trailing stops is ATR-based, and it generally engages later than AXIOM's first level trail, and protects less. It therefore has a lower winning percentage (about 40%), but it can also stay in good trades that AXIOM has exited from.
I trade both systems, and I like the mix of approaches. Typically, when one system misses a trend, the other will catch it. Together, they make a powerful combination.
