Are you a financial advisor?
Nope we are not; and have no desire or intent to be one. What we do well is algorithmic trading. By using the platform you are essentially subscribing to one of our algorithmic trading models. You have complete control over your account and the money stays in your account. You can stop and exit at any point. Read our disclaimer here
Don’t you need to be registered with the SEC to provide trading advice? Don’t you need some kind of license?
Since we are American citizens, the short answer is: No, we do not need to register with any government agency, or pass any kind of test, or have a license in order to publish trading advice.
However, you must be aware of certain restrictions that we have. The most important restriction is this. We cannot provide individualized advice to clients. That is, we cannot offer different advice to different clients based on their individual financial situations.
Here’s an example.
Allowed: “Attention all subscribers to my trading system: Buy IBM because I believe it is going up!”
Not allowed: “Dear John Doe: based on our conversation earlier today, in which you told me you were nearing retirement, I think you should buy IBM, because it will appreciate in value!”
We have to restrict our activity to publishing non-personalized advice which our subscribers can choose to act upon or not. Remember that our right to publish and say what we like is protected by the First Amendment, a right that our citizens fight for, to this day. No small matter, that.
Also keep in mind that the platform you are using gives you the “choice” to follow the recommendations of our non-personalized advice. You are in control of your own account and the associated trades. This “choice” we offer you is important and also helps distinguish us from financial advisors and hedge funds.
How are you different from a hedge fund? from a newsletter? from an investment advisor?
What is algorithmic trading? What is back-testing?
Algorithmic trading is when you use algorithms to place trades in the market. No manual intervention. There are several types of algorithmic trading. The ones that get a lot of attention are the high frequency ones. Our algorithms are primarily swing and allocation trading based and not high frequency. Read this blog post here to understand more.
Back-Testing is when you test an algorithm to check how it performs in different situations using historical data. Remember that while back-testing does not guarantee future results, it does help to confirm the algorithm is able to perform in various different scenarios. The accuracy of back-testing results being extended to the future depends on several things including: Scenarios back-tested, latency, bid-ask spreads etc.
For the Risk-Parity algorithms, we have tested scenarios from 1987 onwards. Also since our algorithm models are allocation based and are not high volume/ frequency, the back-testing results do not suffer from the latency and bid-ask spread problems that other types of algorithm models face
What is your track record? Can you share it with us?
Our journey with this particular model started in 2017. It underwent significant revisions. We had to test and train the model in various economic scenarios and using various fundamental and technical variables. We put real money against it in 2019 and 2020. You can see the results in one of my accounts when you join one of our weekly webinars.
This was our road to financial freedom. Friends started getting interested; then friends of friends. That is when we decided to set up this website with part of the proceeds going to charity. See our June 2020 performance report here.
Keep in mind our disclaimer though. Legally I am obliged to tell you that the performance is based on back-testing and past performance results are no guarantee of future results. There is no financial advisor, hedge fund, mutual fund, newsletter which can provide a guarantee of future results….legally!!
42% return per year. Is that even real? How can that be? My financial advisor tells me not to expect more than 10-15%
Making money is easy. Managing risk and emotional discipline is not. Let me show you how easy it is to make 30% plus return. Read my blog post here. The valuation model provided in the blog post gives around a 10% return every year with a 25% draw-down/ risk. You can get that return by just following a regular 60% stocks and 40% bonds portfolio. Now imagine trading the same way with a 3x ETF like TQQQ or SPXL. For those who don’t know what a 3x ETF is; it is a instrument that gives thrice the upside of the base ETF; but also thrice the downside. For eg. SPY is the S&P 500 ETF. SPXL is the 3x equivalent. A 3x stocks and bonds portfolio would have give you around a 30% return; but with a 75% draw-down/ risk. Easy!! Most folks don’t think of risk when they hear large returns. This is where our model excels; we manage downside risk and hence the stellar performance of our algorithmic model.
Keep in mind though that past performance is no guarantee of future results. Unfortunately for all of us, that is true of any investment advice and vehicle that you would use
Is my money safe?
The money stays in your account. You have complete control over it at any time.
That is not what I meant. What if the model fails and I lose all my money?
Valid question. Our Risk Parity model invests in stocks, bonds, gold or cash. Nobody can lose money if they stick to these assets.
Will the stock market go down to zero?
Will the government bond market go down to zero?
Will the gold market go down to zero?
As long as you just buy it and keep it; none of these assets can go down to zero; so why would your portfolio? Look at the chart below. The stock market represented by the green line, the bond market represented by the blue line and gold represented by the orange line have all gone up, but not in a straight line
It may take years but eventually you will end up making money as long as you stay invested in any of the assets.
You lose money when you try and time it based of emotional decisions or when you start taking unnecessary risks and start trading in options, buy using margins. What we are doing in our algorithms is essentially jumping from one asset to another; depending on which asset is doing well at that time based on a set of fundamental and technical indicators.
Visualize a horse-race; where you are allowed to “change” your bet after the race starts. You start off betting on a horse, and when that gets tired, you change your bet to another horse which is leading and you keep doing that throughout the race. As long as you have some sound logic or reasoning which dictates when and which horse to change your bet to, why should you lose money?
As long as you are not emotionally attached to your horse and stubbornly stay with your bet even if the horse stops, there is no sound basis for you to losing money.
Our models will have draw-downs; periods in which it won’t do well and periods in which it does exceedingly well. Markets by nature are trending and eventually money has to flow into either stocks, bonds or commodities. Money has nowhere else to flow to. So as long as you stick to the model and don’t try and second guess the AI model; it will eventually make money.
What are ETF’s?
See this link here for more details. But briefly think of ETF’s as mutual funds which can be bought and sold through-out the day unlike mutual funds where the trades are executed only at the end of the day. ETF’s have become really popular lately and there are ETFs which represent various indices, commodities, industries etc. The ETF’s we trade in represent Stocks (SPY, SPXL, QQQ, TQQQ), Bonds (AGG, TLT, TMF) and Gold (GLD, UGL, UGLD). These ETF’s are correlated to the market they represent; for example SPY represents the S&P 500 and therefore will go up and down with the S&P 500. SPXL represents triple-leveraged S&P 500; which means that SPXL will go up by 3% if the S&P 500 goes up by 1% and vice-versa.
How do the triple leveraged ETF’s work? How are they able to provide that leverage?
The leveraged ETF’s use options and futures to achieve the desired leverage. Because they use other instruments, there is usually a little of “price-decay” that happens with most leveraged ETF’s. The decay is negligible if the movement is consistent and predictable and increases if the underlying asset is volatile. We have back-tested and found that for most of the ETF’s the decay is in the range of 2-3% or so over a long period of time. But for the value they provide us in the mode; the decay cost is worth it. Read this blog post here to understand more about this.
I currently use an option strategy that gives me a 10% return per month. Why should I switch?
You should not. Not if you are getting a 10% return per year and a Sharpe ratio greater than 2.1. While most investment strategies do talk about their return; they do not talk about the risk. Please do yourself a favor and find out what the downside risk is. If the risk is within your threshold and you are getting a good return, you should continue with the strategy you are employing. For more information on Sharpe ratio read the article here. Read the last paragraph and be aware. It took me a couple of cycles with various advisors and newsletters before I learnt about the correct questions to ask.
Why aren’t you in stocks?
For reference, this question has come up in multiple conversations and webinars in June 2020. For reference, the stock market since the dip in March has gone up significantly. Anybody who bought into the stock market in April would have made some good returns. Our AI model “Midas” was not recommending stocks since December of 2019; so we were not in stocks throughout the December to June period.
We still made 52% (Platinum Model; the Gold Model made around 30%) as of the end of June 2020. But the question keeps coming up; if your AI model is that smart, shouldn’t it have recommended stocks? I tried to answer the question here; but it keeps coming up.
Here is another blog post that attempts at answering the same question again in a different way. Hope my response this time makes better sense.
In summary though, we will definitely be in stocks, but only when it is “safe” to do so.
What is your pricing model?
Three components to our pricing because of the way we are structured.
One time Setup Fee of $400.
Monthly platform fee of $32.50 for 1 strategy and $66.25 for three strategies when you take the annual discount.
For our Koalla Tech (KT) strategies:
Monthly subscription fee of $200 per month for the Koalla Tech (KT) strategies bundle, which will allow you to mix and match between all the KT strategies.
For the third party (3P) strategies:
For these strategies, the subscription is a monthly subscription which can range from $50 to $300 depending on the developer fee. This fee will be distributed between the developer, KT and the platform provider.
We used to have an annual subscription plan which we have since discontinued, but for our “legacy” plan clients, they will be able to continue using the annual subscription plan or switch to the “monthly” plan
How do I get started?
I am getting error messages from koalla.tech that the orders are not going through. What do I do? – T10
Make sure you have the required trading permissions for trading the products that we do in the strategy.
You need the following permissions depending on the strategies you are following:
Complex or Leveraged Traded Products – You need these for all strategies
US Stocks (Penny Stocks) – You need this for KT Risk Parity Swing for the bitcoin ETF GBTC
Futures – US Futures – You will need this if you are also following the KT Day Trading Strategy
If you followed the instructions on getting started here , you should have given yourself permissions to trade complex leveraged ETF products and US Penny stocks (for GBTC and ETHE) and potentially futures (for Day Trading). Check this screen under Interactive Brokers > Settings > Account Settings > Trading permissions to confirm.
Here is a short video that explains this.
I keep getting error messages that the order for selling IBKR shares is not going through. – T20
The IBKR shares were allotted to you based on the link you used to setup your IB account. There is a restriction to sell these shares for a year. Since our strategy did not generate the position, it keeps trying to sell the shares. Ignore the error messages. Not much that we can do about it.
My positions still don’t match the positions in the model account. What do i do? – T30
The first step is always to check whether you have the right trading permissions as shows in the first question above. Check for “error” messages that you are getting on our platform.
Sometimes when there are too many “errors” and you ignore them, the platform will automatically create a “auto-sync filter” to avoid further error messages.
Click on this link https://koallatech.autotradenow.com/autotrade-control-panel
Click on “Advanced Sync Manager” and then click the text to remove the sync filters for the symbols that have a problem with syncing.
If you don’t see “Advanced Sync Manager” then you are good; there are no sync filters that you need to adjust or remove.
If the positions still don’t match it could be because when you setup Auto-Trade, you opted not to “Join Trades in Progress”. See screen below from the “Getting Started” instructions.
Only way to fix that problem now is to turn-off auto-trade and then turn it on again with the correct settings. Click on the “gear” button next to the strategy to configure your auto-trade settings. And then click on “Stop Autotrade”
Now repeat Step 7 from the “Getting Started” instructions. This time, please select “Join Trades in Progress” and setup auto-trade again.
I get an error of “Order rejected due to Insufficient Margin” – T40
When you setup your IB account, please make sure you have applied for “margin”. Don’t worry, we won’t use the margin unless you consciously decide to do so. Given that we may execute multiple orders on the same day, we do need this margin to account for the fact that sometimes the “buy” order may go through before the “sell” order
See screen below. You should have either T-Margin or Portfolio Margin. Make sure you do not select Portfolio Margin unless your account size is greater than $120K. You should have T-Margin in your account.
If you already have margin in your account, but you are still getting an error, that could be because you have an IRA account and you are using more “margin” than allowed by law. Check the screen below to make sure you have applied the correct auto-scaling percentage.
How do I change the allocation across strategies? – T90
If you have allocated money to multiple strategies and want to change the allocation to the strategies; here are the steps you need to follow:
- For each strategy find out what your “money to allocate” is and the “Model account size” is. If you don’t know what we are talking about, look at Step 6 in the “Getting Started” section. We weren’t kidding there, when we said that was the most important step.
- Make sure you do that for each strategy that you are planning to allocate money to. At the end of this step you should have the auto-scaling percentage for each strategy.
- Next step is to modify the auto-scaling for each strategy accordingly. Here is a video link explaining how to calculate the auto-scaling %.
- Here is a simple spreadsheet to help you calculate the auto-scaling percentage as per the guidelines provided in the video.
- Once you have the auto-scaling percentage, click on the settings icon next to the strategy to change the auto-scaling percentage
- Then click on the “Change Auto-trader Settings” to get the screen where you can modify the scaling percentage. Change the percentage and click on the “Turn on Auto-trade” button to save the changed settings.
- Do that for each of the strategies that you have subscribed to.
- At the end of it make sure that you have allocated correctly by reviewing the dashboard screen
How do I adjust the auto-scaling percentage. What should it be? – T50
The auto-scaling percentage dictates the extent to which you are following the model account (koalla.tech model account). For eg. if the model account buys 1000 shares of TQQQ, you will buy 200 shares; if your auto-scaling percentage is 20%
As the model account grows, so will yours. In normal circumstances, you do not need to change the auto-scaling percentage.
However if you “add” or “remove” money from your account, the auto-scaling percentage is no longer valid now and you may get “margin insufficient” errors. In these scenarios, you would have to login to the koalla.tech client portal and adjust the auto-scaling percentage.
You have to adjust the scaling percentage and make sure that the “Total Allocated” is equal to or less than “Total Account Equity”; unless you are consciously employing margin.
Here is a video link explaining how the auto-scaling % is calculated and set.
In order to calculate the auto-scaling percentage number, you need two numbers. The numerator is the “Total Account Equity” in step 3 in the screen above. This is the total amount of money you wish to trade in your account and is typically the same as your account equity. In this case it is $53,927.
The denominator is the total equity amount of the strategy that you are following. For the strategy that you are following, hover your mouse over the performance graph for the most recent date and you will find the amount. In this case the amount is $264,987.
The auto-scaling percentage is then $53,927/ $264,987 which is 20.35%. Because you cannot put in decimal places in the auto-scaling percentage, you have two options. Put in 20 if you have an IRA account and you will have a small cash balance in the account. Put in 21 and you will be borrowing a small amount in margin but your entire balance is productive. The choice is yours. The margin rates at IB are pretty low. See this link: https://www.interactivebrokers.com/en/index.php?f=44427
Once you have the auto-scaling percentage, click on the settings icon next to the strategy to change the auto-scaling percentage
Then click on the “Change Auto-trader Settings” to get the screen where you can modify the scaling percentage. Change the percentage and click on the “Turn on Auto-trade” button to save the changed settings.
I still have other error messages coming through. – T60
Send us the screen-shots of your dashboard screens (samples below) and set up some time with us using the “Speak to Us” link on the website.
I still have money left as “cash” in my IB account. What should I do? – T70
Given that the auto-scaling percentages around in “whole” numbers, the reason for the cash left in your account is because the strategy is not trading the complete amount.
For eg. If the model account is at 270K and you started with 50K, the ideal auto-scale is 18.57% (50K/ 270K). Since the auto-scaling is in whole numbers, you would therefore have set it up to 18%.
The remaining 0.57% would still be in your account as cash.
You now have two options.
Option 1: Increase the 18.57% to 19%; which would mean that you are now trading more money than you have in the account and therefore using margin. The margin cost in IB is very low so normally this would not be a problem.
However IRA accounts are not allowed to trade a higher capital than what they are funded with, so this option would not work for IRA accounts
Option 2: Stay at 18% and trade the remaining 0.57% in a low volatility bond fund so that you make some money from it. I would recommend using either MINT or GSY as the ETF to put the balance money in.
Either option would work. I would recommend Option 1 for regular accounts and Option 2 for IRA accounts.
I have two IB accounts and I would like to link both of them to the Platinum Strategy – T80
Unfortunately the koalla.tech platform allows for one user to link a strategy only once to a IB account. You have two options. 1. Create another user-id and use that user-id to trade your second account. 2. Select a different strategy for your second IB account.
