1. Be Ready for Any Market
How to Properly Assemble
a Portfolio of Regression
Based Strategies To
Systematically Navigate All
Market Conditions
Andrew Falde

2. • SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING
offers a number of products and services, both electronical (over the internet through smbtraining.com) and in
person. SMB TRAINING also offers web-based, interactive training courses on demand.
• The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should
be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any
investment decision you make, and such decisions will be based solely on your evaluation of your financial
circumstances, investment objectives, risk tolerance, and liquidity needs.
• This material is being provided to you for educational purposes only. No information presented constitutes a
recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument
discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed
as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any
investment decisions you make. Such decisions should be based solely on your evaluation of your financial
circumstances. Such decisions should be based solely on your evaluation of your financial circumstances,
investment objectives, risk tolerance and liquidity needs.
• SMB Training and SMB Capital Management, LLC are separate but affiliated companies.
• No relevant positions
• Please note: Hypothetical computer simulated performance results are believed to be accurately presented.
However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance
record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed;
the results may have been under or over compensated for the impact, if any, of certain market factors such as
liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they
are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to
achieve profits or losses similar to those shown. All investments and trades carry risks.”
Disclosures

3. About
• Professional trader for separately managed
accounts and hedge fund.
• Focused on algorithmic systems, statistical
arbitrage, and options.
• Trading what I teach.
• Former commercial real estate broker,
transacted over $250 million in investment
and commercial property for investors,
corporations, and lenders.

4. Fundamentals of the Markets
• All markets move in cycles (aka waves)
• Different types of instruments have
tendencies to experience different frequencies
and distances traveled in each wave
• These waves can be objectively measured in
real time, without any prediction or hindsight
involved
• There are better tools than traditional market
indicators to accomplish this

5. Don’t Be Average
• With all the talk about moving averages, I
have never once heard someone provide
context about the historical benefit of
observing average price… it’s all hindsight and
limited observations.

6. Linear Regression in Practice

7. Statistical Analysis
• I’ve spent thousands of hours analyzing
statistical market data and performing
algorithmic studies on the major indexes,
dozens of ETFs, and hundreds of stocks to
match combinations of strategies and
instruments that work together to create
smooth portfolio based P&L curves
• Here are a few observations from these
studies:

8. Observations
• Across the board, instruments tend to have
2/3rds of waves overlap and 1/3rd become a
translation to new levels
• The size of the 1/3rd translation moves to new
levels determines whether a reversion
strategy or a trend oriented strategy should be
applied to the instrument.

9. Trend vs. Reversion
• Instruments that tend to trend can maintain that
characteristic for years and suddenly stop
experiencing the extended moves.
• Stocks that remain range bound for years can
suddenly become trending instruments.
• Broad based indexes offer the most consistent
opportunity to remain neutral to contrarian since
the diversification of strength, weakness, and
stagnation of the individual components limits
the number and size of extended moves.

10. Effective Measuring and Monitoring
• Linear regression studies and similar proprietary algorithms
offer the most effective filter for determining if an instrument
consistently performs best with reversion or trend oriented
strategies.
• The ideal solution is to monitor, update, and trade the best
performing strategies on the most appropriate instruments
for as long as they continue to perform.
• This provides an all-weather approach that is not dependent
on any one single type of market; is prepared to take greater
advantage of what is performing best; these performing
strategies should be expected to supersede the draw down in
the strategies and instruments that are not performing at the
same time.

11. Contrasting Performance for Smoother Results

12. Steps to Assembling a Portfolio of Strategies
1. A basic understanding of statistics
– Using statistical tools rather than
simplistic/traditional indicators (regression vs.
moving averages)
– Looking at hundreds if not thousands of historic
data points rather than the last 5 or 6 examples
– Understanding sizing, draw down, and expectancy

13. Steps to Assembling a Portfolio of Strategies
2. A core strategy
– Simple to execute
– Develop the discipline to maintain positions to
match the statistical probabilities
– An understanding of when the strategy performs
best and what the limitations are (so you can
select contrasting strategies to decrease volatility
of portfolio returns)

14. Steps to Assembling a Portfolio of Strategies
3. Selecting additional strategies
– Similar strategies with different frequencies
– Contrasting strategies that perform best when the
core strategy performs worst; all maintaining draw
down that historically does not exceed gains in the
other strategies.
– Nearly exact synergistic historical P/L curves
– Easy to execute or automate

15. Steps to Assembling a Portfolio of Strategies
4. Develop allocation parameters to further
enhance strong performance and limit draw
downs
– Example: neutral index strategies may be reduced
or abandoned if volatility exceeds 30%
– Trend oriented strategies can be reduced or
abandoned if broad market volatility is below 15%

16. Taking the First Step
1. A basic understanding
of statistics
2. A core strategy
3. Select additional
strategies
4. Develop allocation
parameters
LRC Credit
Spreads Course

17. The LRC Credit Spreads Course
• An introduction to linear regression and the 40
years of statistics behind it
• An 8 year back test with 1 year of trade by trade
examples to provide the evidence that will
increase your conviction in the positions
• Fully systematic entries, management, and exits
which require zero personal interpretation and
prevent over-management
• Low trade frequency so you can maintain your
current schedule and add strategies without
overwhelming yourself.

18. Take the Noise Out of Your Trading
They Reduce
Noise By Adding
More Sound
Waves!

19. LRC Credit Spreads Strategy
• The LRC Credit Spreads Strategy allows you to
build that first wave which has a statistical
expectation of positive results over time
• After you learn this strategy, you will be better
prepared to learn and develop additional
strategies with contrasting waves that will
reduce the noise in your P/L.

20. Be Ready for Any Market
LRC Credit Spreads
Other Statistical Strategies
(Swing, Channeling, Arbitrage)
Trend Strategies
Short/Long Term
Allocation Strategies, Etc.

21. Questions
andrew@lessthanrandom.com