Diversified Short Term Program Overview

“The whole reason my algorithms work, the way they work in all environments, they’ve been working so long is because I’m a prop trader. And that’s what a CTA doesn’t have on me. “ Gary Polony describes in his quiet office on the 38th floor of the Chicago Board of Trade to explain the difference between someone who depends on trading success for a living as opposed to a fund generating high management fees on customer assets even when it doesn’t perform. As quiet pings from his collection of computer towers and screens indicate a trade has been placed, we continue our conversation.

“If I were to bring it (a new system or idea) on it has to be of value to the overall structure. If I see that it is something good then I thoroughly beat it up to test it. Make sure beyond a shadow of a doubt that it’s a valid concept, a market truth, and not just some anomaly that is coming and going. Something that is going to be repetitive long term and a permanent part of the market.”

From an early age growing up in the Chicagoland area, the futures market always had an allure to Gary. As a student at DePaul University in the 90’s he began trading on his own by looking at paper charts where he correctly saw that the Nasdaq was set to fall. Forgoing the mystique of the trading pits, he determined that trading on the screen was the way of the future and set out to build his program. Without formal training or affiliation with one of the traditional managers, he decided to find his own way. Despite it taking longer and being more difficult than he imagined, what resulted was a unique program based on the expansion and contraction of volatility with signals and coding that were all his own. 16 years later his program stands out amongst a sea of systematic programs as one of the best with 14 years finishing in the black.

The problem? He figured that returns would bring in customers or that he would have time to market once he had the system set. The reality however is that markets change and any program needs to constantly get better. Given the choice of letting performance fall while trying to find customers or working on his algorithms, Gary decided to spend his time enhancing his work.

A simple but profound observation from his experience relates to the nature of the markets. “You can trade much quicker and take out smaller amounts per trade simply because of the fact that the cost is lower for commission and execution because you can get filled quickly at your price. All people should have responded to this but many longer-term managers have not sped up along with it.” This could lend some credence to the struggles of some traditional trend managers who target holding periods from weeks to months.

A visual idea of his trading is a pyramid. At the base, lots of trading from intraday to just a couple of days. This is where the most activity occurs. As we move to longer times frames, we see a smaller trade set but more profit potential. Finally to the apex where the most profitable trades come rarely but provide great results when they do. As markets start moving aggressively the systems identify momentum-based trades. As markets calm, it looks for markets reverting back to their normal range.

Diversified Short-Term program

A 100% systematic strategy trading various short-term time frames. The strategy utilizes multiple momentum and mean reversion-based systems all incorporating price, time, volatility, and proprietary pattern recognition models.

Any liquid exchange-traded contract can be traded in the program although the intention is to have an equal number of markets per sector traded. The system thrives on volatility and this is a factor in choosing which contracts to include.

Part of what makes the Diversified Short-Term program unique is its short-term nature which equates to a holding period on average of 1-3 days per trade. Within this time frame, the system is identifying the expansion and contraction of volatility in each market. This allows for the capture of trend, counter-trend, and range-based trading that collectively provide diversification to the portfolio as well as help smooth the overall return profile.


A conservative estimate on capacity is set at 250 million based on the current volume in the markets traded. After a soft close and further assessment, the program may be opened to additional capacity.


Risk and the mitigation of it have been a core focus of the program since its inception. Risk management models are applied at the portfolio, sector, and market level to minimize concentrated risk exposure. Risk on each open trade and market in the system is calculated on a daily basis and adjusted in real-time during all open market hours.

There is an active and ongoing balancing of the portfolio that is trying to normalize risk across markets and time frames so that the portfolio remains balanced at all times. This diversification allows the portfolio to not be overwhelmingly impacted by any single market or sector.

All trades have a stop loss in place that is based on the volatility of that particular market. This volatility assessment directly affects the initial risk and position size for a trade in that market. In other words, the more volatility in a particular market the smaller the position size so that the trade has more room to work through its life cycle.

Difficult Markets

As stated above, low volatility markets are the most difficult for the system to find alpha. A good example of this was 2017 where volatility was at all-time lows across markets and the strategy finished the year +3.31%.

Changes to the system

The systems are constantly being monitored and refinements are being tested but changes to the systems take months if not years before being implemented. The core values of the systems have always remained true but as the market changes the program needs to adapt as well. One testament to the robustness of the program is that performance has not tapered off since its inception in 2003 although the market profile is profoundly different now than it was 15 years ago. A major focus for development has been the overall compression in the market as technology has been introduced and improved upon. Compression applies to the speed of execution and the reduction of time frames.

Gary Polony Background

Over the past 15 years in an office on the 38th floor of the Chicago Board of Trade, Gary Polony has been quietly building one of the best long-term track records in Managed Futures. This is his story.

As a college student attending classes at the DePaul University campus, Gary was always drawn to the markets. Seeing the traders in the city wearing their brightly colored floor jackets and the mystique of the CBOT building made an impact on Gary and he was determined to learn more. Like all beginners in the early nineties, paper charting was the place to begin. Development of this skill took time and precision which forced him to identify patterns and consistencies in the market that he would later become the basis for various systems. Even then, much before the real transition, it was obvious to Gary that trading would eventually move from the floor to the screen and so he set his sights on developing computer-based models that utilized electronic execution. The transition from the floor to the computer took longer than he expected but eventually, the way orders were placed changed, and with that, the markets changed as well.

“I started trading the screen”, Gary recalls. “I was incredibly confident and I thought ‘I’m going to be making more money than I know what to do with.’ But it took a lot longer than that and was much more difficult.” Gary’s time growing up taught him that figuring things out on his own typically yielded great results and he wanted something that was unique to the space. “I didn’t go to a prop firm to learn to trade and thank goodness. If you want the same old thing you’ll get the same old returns. Doing it this way has worked.” With a track record going back to 2003 the proof is in the results, 14 positive years to only two negative years and counting. Time will excuse most traders from the market whether they have been trained or not. Gary has been able to withstand this remarkably arduous test and this is the ultimate testament to the robustness of what he has developed over all these years.

To this day the strategy is comprised of the core rule base that was developed from staring at those hand-drawn charts and seeing the patterns and tendencies that are present in the market. The system relies on the basic concepts of volatility expansion and contraction and the opportunities that are created by each. These are applied across multiple systems, markets, and time frames 24 hours a day. In order to implement these strategies Gary taught himself to code and started to put these ideas to work as the systems he developed. In 2003 as Adalpha Asset Management, LLC Gary began to build the track record that would be the culmination of many years of trials and tribulations. As markets changed over the decades the strategy adjusted but its core principles have remained true. Over time new markets were introduced, new time frames were utilized, and subsystems changed to allow for the
input of data that was newly available. The framework of the system was already built so adapting it to the market didn’t require reinventing the wheel, only improving upon what was already there.

For years, even though it was run as a CTA, the firm was primarily a prop trading endeavor. A title that holds today as the tedious work that goes into new ideas for that business provides the basis for enhancements to the client program. It took time before it had proven itself to Gary as something that could be scalable, manage risk to an extremely high standard, and efficiently grow an investor’s capital.

In that time, capacity has been thoroughly evaluated, risk metrics have been tightened and held true, and the program has steadily provided alpha. 15 years later the proof is overwhelming.