Performance Disclosures

It is very important to us that you fully understand how we compute the performance statistics for our trading systems. The following definitions and disclosures will give you all of the details behind our calculations. Please remember, past performance is not a guarantee of future results. If you have any questions please use the contact page to reach us.


How we backtest

We use 2 backtesting and simulation engines to research and develop our trading systems: NinjaTrader and TuringTrader.

For market data, we use Norgate for total return split-adjusted stock market data with historical market constituents.


Benchmark and portfolio statistics

We use a 60/40 stocks/bonds portfolio to benchmark against our trading systems. We simulate the 60/40 monthly returns using total return SPY and total return IEF ETFs. For long-term benchmark statistics (over 12 months) we use the VBINX mutual fund by Vanguard to determine Sharpe, drawdowns, etc.

Sharpe Ratios: are based on strategy monthly returns and a risk-free rate of T-Bills via FRED.


Portfolio constructs and universe definitions

Merlin Margin Portfolio: An aggressive portfolio that is constructed taking all available strategy signals and borrows up to 50% on margin for a total exposure of 150%. Each individual signal is position-sized approximately 50% larger than the Merlin IRA Portfolio. At times, the portfolio will include leveraged ETF positions. Please refer to our Leveraged ETF Risk Disclosure below.

Merlin IRA Portfolio: A moderate portfolio that is constructed taking all available strategy signals until 100% of the cash is invested. Each individual signal is position-sized approximately 50% smaller than the Merlin Margin Portfolio. At times, the portfolio will include leveraged ETF positions. Please refer to our Leveraged ETF Risk Disclosure below.

Galahad Margin Portfolio: An aggressive portfolio that is constructed taking all available strategy signals and borrows up to 30% on margin for a total exposure of 130%. This portfolio will hold a maximum of 24% in leveraged ETF TQQQ and 24% in leveraged ETF TMF at times. This means gross exposure could reach a maximum of 226% invested across a range of equities, fixed income, and commodities. Please refer to our Leveraged ETF Risk Disclosure below.

Backtests & Simulated Returns Merlin & Lamorak: All tests use survivorship bias-free, total return, split-adjusted Nasdaq 100 and S&P100 stocks for the trading universe. Tests include slippage and normal market impact of entering/exiting positions. Tests do not include trading commissions, interest earned on idle cash balance, rotation into treasury or bond funds during periods where the strategy is not invested, or any borrow costs which is only applicable to the margin portfolio when the strategy is taking advantage of leverage.

Backtests & Simulated Returns Galahad: Backtests use the GBTC ETF (formerly a trust) for Bitcoin exposure which at times traded at significant premiums or discounts to NAV that could have enhanced or hurt simulated returns (relative to spot Bitcoin prices). GBTC was replaced with ETFs FBTC and IBIT in February 2022 after being granted SEC approval in January 2024. Tests include a 0.075% friction on every trade placed to account for the costs of slippage, impact of entering/exiting positions, and trading commissions. Tests do not include interest earned on idle cash balance, rotation into treasury or bond funds during periods where the strategy is not invested, or any borrow costs which is only applicable to the margin portfolio when the strategy is taking advantage of leverage.

Merlin Backtests & Simulated Return Dates: January 2006 through October 2019
Lamorak Backtests & Simulated Return Dates: January 2006 through September 2020
Galahad Backtests & Simulated Return Dates: January 2018 through January 2024

Live Trading Returns Merlin: Live trading for Merlin started in November 2019 using the Merlin Margin Portfolio and all performance metrics ongoing are generated using third-party PortfolioAnalyst reports on a live Interactive Brokers Pro account. Live trading is conducted on The Trade Risk's dynamically generated Leadership Watchlist. Live trading results include: 0.05¢ per share in commissions, slippage and normal market impact of entering/exiting positions, margin borrow costs when applicable (IBKR Pro rates), Idle interest earned on cash balances, and opt-in to IBKRs stock yield program.

Live Trading Returns Lamorak: Live trading for Lamorak started in October 2020 and for the remainder of that year all performance metrics including realized fills from an Interactive Brokers Pro live account, no commissions, no broker interest, and no stock yield program. Starting in January 2021 live trading results include 0.05¢ per share in commissions, slippage and normal market impact of entering/exiting positions, margin borrow costs when applicable (IBKR Pro rates), Idle interest earned on cash balances, and opt-in to IBKRs stock yield program. Reports are generated from third-party PortfolioAnalyst.

Live Trading Returns Galahad: Live trading for Galahad started in February 2024 using the Galahad Margin Portfolio and all performance metrics ongoing are generated using third-party PortfolioAnalyst reports on a live Interactive Brokers Pro account. Live trading results include: 0.05¢ per share in commissions, slippage and normal market impact of entering/exiting positions, margin borrow costs when applicable (IBKR Pro rates), Idle interest earned on cash balances, and opt-in to IBKRs stock yield program.

Limited Trade History: Whenever we use the term Limited Trade History we are referring to the combination of Backtests & Simulated Returns followed by Live Trading Returns through the month of December 2023.

Complete Trade History: Whenever we use the term Complete Trade History we are referring to the combination of Backtests & Simulated Returns, followed by Live Trading Returns through the last completed calendar month.

Trade Risk Index: The Trade Risk Index represents the aggregate performance of all publicly run trading systems on the Trade Risk. The goal is to equally allocate to all systems. For more details about the methodology and rebalancing rules, please read this blog post.


Disclosures

Equity Curve Disclosure: The equity curve is plotted using our Complete Trade History and is based on closing end-of-month margin portfolio equity values and displayed in log format.

Portfolio Statistics Disclosure: All statistics are based on our Limited Trade History and computed on a daily time-frame closing trade basis.

Monthly Performance Disclosure: Monthly returns are based on our Complete Trade History using closing end-of-month margin portfolio equity values.

Trade Statistics Disclosure: All statistics generated are based on our Limited Trade History and computed on the Merlin Margin Portfolio.

Strategy Enhancements Disclosure: We periodically make enhancements to our trading systems, and when we do, we do not change our existing performance return history in order to maintain the integrity of the backtests and live trading results. Visit the trading system changelog page to see when updates to the trading systems were implemented.

Leveraged ETF Risk Disclosure: Leveraged and inverse ETFs typically are designed to achieve their stated performance objectives on a daily basis. Some investors might invest in these ETFs with the expectation that the ETFs may meet their stated daily performance objectives over the long term as well. Investors should be aware that performance of these ETFs over a period longer than one day can differ significantly from their stated daily performance objectives and may potentially expose investors to significant and sudden losses.

Leveraged and inverse funds are complicated instruments that should only be used by sophisticated investors who fully understand the terms, investment strategy and risks associated with the funds. In particular, customers should be aware of certain specific risks involved in trading in leveraged and inverse funds. These risks include, but are not limited to: Use of Leverage and Derivative Instruments: Many leveraged and inverse funds use leverage and derivative instruments to achieve their stated investment objectives. As such, these funds can be extremely volatile and carry a high risk of substantial losses. Such funds are considered speculative investments and should only be used by investors who fully understand the risks and are willing and able to absorb potentially significant losses.


CFTC Rule 4.41
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. 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 ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.