How Lowdraft works, in full.

Almost every strategy you will ever see online comes with a chart that goes up and to the right. The chart is usually accurate about the past. The question is whether it says anything about the future. These eight questions help you decide, and we ask them of our own results too.

1. When do trades happen compared with the signal?

A strategy that sees a signal at the close and trades at that same close is using information it could not have acted on. We tested a popular community strategy that returned roughly 490% a year when trades happened at the same close as the signal. With a one-day delay it returned about 160% a year, with a worst drawdown of about −63%. Same rules, same data, very different story. Always ask: if I could only trade the next day, what happens?

2. Are costs included?

Trading is not free. Spreads, slippage and fees take a bite every time the portfolio changes. In our tests, a daily-rebalanced Keel gave back much more to costs than a weekly one. A result with zero costs is a best case, not an expectation. Ask what cost per trade was assumed, and how the result changes if it doubles.

3. How many versions were tried?

Try enough variations and one will look brilliant by luck. Ask how many settings were tuned and how many versions were tested before this one was chosen. When we searched for the best group of core ETFs on the first half of our history, how well that ranking held up on the second half was close to nothing (a correlation of about 0.19). The winner of one half told us almost nothing about the other.

4. Was any data held back?

A fair test designs the rules on one part of the history and judges them on a part the designer never touched. If a result only exists on the data used to build it, treat it as a description of the past, not a test.

5. Does it still work if the settings move a little?

If a 100-day average works but 90 or 110 breaks it, the result is luck. A good rule works across a neighborhood of settings, which we call a plateau. A result that works at exactly one setting is a cliff. We look for plateaus and drop cliffs.

6. Does one event explain it?

Much of the gain in our own Keels against the S&P 500 comes from stepping aside in the 2020 crash. If you remove a few weeks and the advantage disappears, you are looking at one event, not a method. Ask what the result looks like with the single best period taken out.

7. Does the day it trades matter?

For a weekly Keel, the five weekdays gave results that differed by a lot. Monday and Tuesday looked best, partly by luck. A result that depends on trading on a lucky day is weaker than it looks. We treat the five-day average as the honest number.

8. What did it put you through?

Annual return is only half the picture. Ask for the worst drawdown, how long it took to recover, and a measure that captures both, such as UPI. A strategy that earns 20% a year with a −45% drawdown is a different thing from one that earns 20% with −12%.

A short checklist

Our own results

We apply these tests to our own Keels, and we publish the limits next to the numbers. Our simulated results are prepared with hindsight and partly fitted to past data, they lean on the 2020 crash, and they can trail the market in sharp rebounds. That is not a reason to ignore them. It is a reason to read them the way you now know how.

What we learned from testing more than 40 indicators · Join the waitlist

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Illustrative guide using figures from our research. Not investment advice. Hypothetical results are prepared with hindsight. Past performance, real or simulated, does not predict future results. You can lose money.

We are not against owning stocks. Many people have built wealth with them, and Stock Keels are on our roadmap. But our first goal is a smoother ride: shallower drawdowns and faster recoveries. For that goal, ETFs have a structural advantage, and our own tests agree.

Why ETFs make the ride smoother

• One bad report cannot sink a holding. A single stock can drop 20% to 40% overnight on earnings, a lawsuit or a guidance cut. An ETF holding hundreds of companies absorbs the same news as a small move.
• Diversification is built in. One ticker spreads risk across many companies, sectors or countries.
• Trend signals are cleaner. ETF prices move more smoothly, so a trend rule produces fewer false alarms. Individual stocks gap, and rules built on them get faked out more often.
• Rotation is one ticker. Moving between US stocks, other regions, bonds, gold or cash is a single trade each.
• Liquid and cheap to trade. Large ETFs usually trade with tight spreads, so real results stay closer to the test.
• A software mistake costs less. A wrong order in an ETF is a smaller problem than a wrong order in one stock.

What happened when we tried stocks

We built stock-based Keels to see. They did not beat the ETF Keels on the yardsticks we care about. Two examples from our testing, both hypothetical:

Hypothetical back-tests with trading costs and a one-day delay. The windows differ, so read the rows as illustrations, not a ranking. The ETF Keel was refined many times and is partly fitted to the past. The stock Keels were earlier attempts and got less tuning. Not a forecast.

It is not a fair fight, and we will not claim it is. But the pattern matches what the theory predicts: the stock-based Keels sat deeper in the water for the return they delivered.

Who might still want stocks

• People who want higher possible growth and accept deeper drawdowns for it.
• People who follow a view on specific companies and want a rule to manage entries and exits.
• People who already hold ETFs and want a small stock satellite.

When Stock Keels arrive, they will be labeled as such, with their drawdown history shown first, because their ride is bumpier by nature.

An honest trade-off

A smoother ride can mean giving up some upside. In a long, strong rally, concentrated stock holdings can run ahead of a diversified ETF Keel. Whether that trade suits you depends on how much of a fall you can sit through without selling at the bottom.

How we measure the ride · Why ETFs, in brief · Join the waitlist

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Hypothetical results from our research, prepared with hindsight. Not investment advice, an offer, or a recommendation of any security. Past performance, real or simulated, does not predict future results. You can lose money.

Most investing plans do not fail because the rules were bad. They fail at the boring step: working out what to buy and sell, calculating share counts, placing eight or ten orders, and remembering to do it again next week. Rules-based portfolios make this step mechanical, which means a computer can do it. This guide explains how that works for Lowdraft Keels today, and how to try it without risking real money.

What the rebalancer does

1. Reads your account. It connects to your brokerage account and reads your current positions and cash.
2. Works out the target. It applies the Keel's rules to the latest prices and decides which ETFs the portfolio should hold and in what amounts.
3. Compares the two. The difference between what you hold and what the Keel calls for becomes a list of orders.
4. Trades in a sensible order. Sells first, waits for them to fill, reads the settled cash, then buys. If cash falls short, the buys are scaled down.
5. Keeps costs in check. Thinly traded ETFs are bought in whole shares with limit orders that cannot stray far from the market price. Liquid ones are traded in dollar amounts. Tiny trades are skipped.

Three ways to run it

Safety rails that are on by default

• Turnover cap. If a rebalance would trade more than a set share of the account, it stops and tells you.
• Order-size limits and a typo guard. A price far from the last trade is refused.
• Stale-price and market-closed checks. It will not trade on old data or outside market hours.
• No double trading. Each order carries a unique ID for the day, so running it twice cannot send the same trade twice.
• Real money takes several deliberate steps. A paper account is the default. A live account needs the live setting switched on, the execute flag, and you typing a confirmation phrase.
• Your keys stay with you. They live on your computer, not on our servers, and we never hold your money.

Why start in a paper account

Alpaca offers a free paper-trading account that behaves like a real brokerage account but uses simulated money. That makes it the right place to find out how the pieces fit before anything real is at stake.

1. Open an Alpaca account and switch to Paper Trading. Generate paper API keys. They only work on the paper account.
2. Run the connection check. It confirms the keys work, shows which ETFs can be traded in fractional shares, and flags wide spreads or stale data.
3. Look at the target weights. Compare them with the Keel in the Lab.
4. Run the dry run. Read the order plan line by line.
5. Send it to the paper account. Watch the orders fill.
6. Schedule it. Let it run weekly on its own.
7. Watch for two to four weeks. Compare what the account holds with what the Keel says it should hold, and how its return compares with the Lab's test.

The things worth checking: whether orders fill when expected, whether any thinly traded ETF is hard to get in and out of, whether your data feed is fresh enough, and whether the weights you hold match the Keel after each run.

What paper trading cannot tell you

• Paper fills are kinder than real ones. Simulated orders tend to fill more easily and closer to the quote than real orders do, especially in thin ETFs.
• It does not show tax effects. Rebalancing in a taxable account can create taxable events.
• A few weeks is a short sample. It tests the plumbing, not the strategy. Paper results do not predict real results.

Where this stands today

• Alpaca only. It is the only brokerage we support so far. Others may follow.
• Early tooling on your own computer. The rebalancer runs on your PC, so the PC has to be on and online at the scheduled time. The packaged Lowdraft app is planned.
• Built-in Keels first. The rebalancer currently runs a set of built-in Keels. Running any Keel you build in the Lab is on the roadmap.
• US accounts. Retirement accounts have their own rules, such as cash-account settlement, which can delay buys until the next rebalance.

If you want to see how it feels, a paper account is a low-cost way to find out, and you can switch it off at any time.

Join the waitlist to hear when the packaged version is ready.

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Lowdraft is software, not an investment adviser, broker or bank. It does not manage money or hold your funds or keys. Paper trading uses simulated money and does not predict real results. Alpaca is a trademark of its owner and is named only to describe compatibility; no partnership is implied. Not investment advice. Investing involves risk, including loss of principal.

If you pay an advisor around 1% a year, you are entitled to know what you are getting. Part of that is service: planning, taxes, someone to talk to when markets are rough. Part of it is investment results. The second part can be measured, and most people have never measured it. This guide shows how, and how to keep it fair to the advisor. It is also fair to us: a rules-based Keel is not automatically better, and the point is to find out.

First, line up the basics

• Same dates. Compare over the same period. A portfolio that started in 2009 and one that started in 2019 are not comparable.
• Net of all fees. Use returns after the advisory fee, fund expense ratios and trading costs. Ask for the "net of fees" figure.
• Your actual account. Use your own statements, with deposits and withdrawals taken out, not a model portfolio from a brochure.
• A fair benchmark. If your portfolio holds 60% stocks and 40% bonds, comparing it with the S&P 500 alone is unfair to it. Compare with something that has similar risk.

The five numbers

Numbers 2 and 3 matter most for how a portfolio feels. A 10-point difference in worst drawdown can decide whether you stay invested through a bad year.

What a 1% fee costs over time

Arithmetic illustration with an assumed 7% yearly return before fees. Not a forecast.

Putting a Keel next to your account

1. Pick the dates your account has existed.
2. Run a Keel in the Lab over the same dates, with trading costs switched on.
3. Read the same numbers: annual return, worst drawdown, UPI, and the benchmark.
4. Remember what the test is. The Keel result is hypothetical and made with hindsight. Your account is real. Treat the Keel as a yardstick, not a promise.

What this comparison cannot tell you

• Advice is more than returns. Retirement planning, tax planning, estate work and talking you out of a panic sale have real value that no return number captures.
• Hindsight flatters rules. A back-test can look better than live trading will. That is why we show limits next to every result.
• Risk differs. A portfolio built to lose less in a crash may earn less in a long rally. Compare like with like.
• Taxes matter. Frequent rebalancing is simplest inside a retirement account. In a taxable account the tax cost belongs in the comparison.

What to do with the answer

If your advisor's net results, drawdowns and costs hold up well against a fair benchmark, that is good to know, and you can stay with confidence. If they do not, you now have specific questions to ask. Either way you are deciding with numbers instead of hunches. If you want a hands-on way to learn how a rules-based approach behaves, you can practice with simulated money first.

How to try it in an Alpaca paper account · Join the waitlist

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Lowdraft is software, not an investment adviser, and this guide is not investment, tax or legal advice. It does not suggest that any adviser's results are better or worse than a Keel's, and it does not recommend ending an advisory relationship. Hypothetical results are prepared with hindsight and do not predict future results. You can lose money.

Two portfolios can both grow 12% a year and feel nothing alike. One drifts up with small dips. The other drops 25%, takes two years to recover, and then catches up. If you only look at annual return, they look the same. UPI is built to tell them apart.

What UPI is

UPI stands for Ulcer Performance Index. It divides a portfolio's return by its Ulcer Index, a measure of how deep and how long its drawdowns were. A drawdown is how far the portfolio sits below its previous high on a given day.

• Ulcer Index: take the drawdown (in percent) on every day, square each one, average them, and take the square root. Squaring means deep drops count far more than shallow ones, and a long stay under water counts every day it lasts.
• UPI: return divided by the Ulcer Index. Some versions subtract a risk-free rate from the return first. Higher is better.

An illustration

Made-up numbers to show the idea. Not results from any Keel.

Same return, very different score. That gap is the reason UPI is our first ranking number.

Why not just use return, Sharpe or maximum drawdown?

• Return ignores the ride.
• Sharpe treats upward swings as risk. A portfolio with big up days is penalized for them.
• Maximum drawdown rests on one single event. Two portfolios with the same worst fall can differ a lot in how long they stayed down.
• UPI counts every day under water, and weights deep days more heavily.

We still show those numbers. After UPI we look at Sortino, maximum drawdown and annual return, always next to the S&P 500 over the same dates. A Keel on a rising trend ranks above one that is fading.

How to read a UPI

• It is only comparable over the same window. A UPI from a calm stretch will look far better than one from a year that includes a crash. Compare Keels, and your account, over identical dates.
• The scale depends on the measurement. In our tests, UPI values for our best Keels ran well above those of the S&P 500 over the same dates, which scored roughly 2. Do not compare our numbers with a figure quoted elsewhere unless you know the window, the costs and the formula.
• Short windows flatter it. One quiet year can produce a large UPI. We check one-year, three-year and full-history UPI together, and test on data held back from the design.

Where UPI can mislead

• It is backward-looking. A high UPI describes the past. It does not promise the future.
• It rewards low volatility strategies. A portfolio hidden in cash would score well on UPI while earning little, which is why we read it together with return.
• It can be tuned. Anyone who tries enough rule variations will find one with a great UPI by chance. We wrote about that in our indicator case study.

The takeaway

When you compare portfolios, ask not only "how much did it earn?" but "what did it put me through to earn it?" UPI is one way to put a number on the second question.

Five numbers to compare your advisor's results · The full glossary

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Educational explainer with illustrative numbers. Not investment advice. Hypothetical results are prepared with hindsight. Past performance, real or simulated, does not predict future results. You can lose money.

Every Keel has to answer a plain question: how often should it look at the market and trade? Check too rarely and a crash arrives before the rules can react. Check too often and you pay for noise. We tested four schedules on our main Keels, counted trading costs, and checked the answer on every weekday. This is what we found, including the parts that do not flatter weekly.

How we tested

• Period: August 2019 to October 2026, using the longest history all the holdings share.
• Execution: a signal on one day trades the next day, so the test never trades on information it could not have had.
• Cost: 5 basis points (0.05%) of the amount traded, as a base case. We also tried 2 and 10.
• Yardsticks: UPI first (return per unit of how deep and how long the drawdowns were), then maximum drawdown and annual return (CAGR).
• Weekly is averaged over all five weekdays. A Keel that trades on Mondays and one that trades on Wednesdays can differ by a lot, so a Monday-only result flatters the schedule.

The result for our lead Core + Boost Keel

Hypothetical back-test, 5 bp per trade. Not a forecast.

Why not daily

Before any costs, daily and weekly were about even. Daily was a touch better at the lowest cost we tried and a touch worse at the highest. Daily did not give us a shallower drawdown either (−11.3% against −11.5%). What it did give us was about five times as many rebalances, and a result that gets worse as costs rise.

Our Keels trade large ETFs, which usually have tight spreads, but real fills include slippage and delay. The more you trade, the more of the tested result you hand back. A weekly schedule has about the same protection as daily at a fraction of the trading, so it leaves more room for reality to be unkind.

Why not monthly

• It reacts too late. Our crash switch looks at a 10-day fall. Checking once a month means it can be days or weeks old when the Keel finally acts.
• The result depends on the calendar. The same Keel rebalancing at month-end scored UPI 4.4, and at month-start 6.3. A schedule whose outcome depends on which day of the month you pick is partly luck.
• It gives up the gain from trend changes. Annual return dropped about a point and a half and the drawdown deepened, for a modest saving in trading.

Why not quarterly

Quarterly was clearly the worst. With only four decisions a year, the Keel could not step aside in time for the February to March 2020 crash, and its worst drawdown was about −28.5%, against about −11.5% for weekly. Returns fell to about 12% a year. A rule written to avoid deep drawdowns needs to run often enough to act on them.

Where weekly is not the answer

• Slower, income-style Keels. For our Income Keel, monthly matched weekly at low cost and beat it at higher cost (UPI 3.5 against 2.7 at 10 bp). These Keels hold calmer funds and change their minds less often, so extra checking adds trades, not insight.
• High-cost holdings. In our tests weekly kept its return edge over monthly until costs reached roughly 15 bp per trade. Thinly traded ETFs can cost more than that.
• Taxable accounts. More rebalances can mean more taxable events. Retirement accounts avoid that issue, which is one reason we favor ETFs and IRAs for this kind of rule.

The weekday problem, and what we do about it

Within weekly, the day you trade matters more than the gap between daily and weekly. For the Core + Boost Keel, the five weekdays produced UPI between 7.6 and 10.0 at the same cost. Monday and Tuesday looked best and Wednesday worst, which is partly luck. We therefore treat the five-day average as the honest expectation, and plan to split a real portfolio across weekdays so no single day's luck decides the outcome.

What we take from it

1. Weekly is a good default for trend-and-crash Keels: frequent enough to act in time, infrequent enough to keep costs low.
2. Daily is not worth it unless trading is nearly free, and even then it did not reduce drawdowns.
3. Monthly can suit slower, income-style Keels. Test it for yours.
4. Avoid quarterly for any rule meant to limit drawdowns.
5. Always test your costs. The right schedule depends on what a trade costs you.

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Hypothetical results from our research, prepared with hindsight and partly fitted to past data. Costs, slippage, delays and taxes in real trading reduce results. Not investment advice. Past performance, real or simulated, does not predict future results. You can lose money.

When people first see a rules-based portfolio, they ask the same thing we did: if the rules use a few indicators and work, would more indicators work better? We spent months finding out. We added indicators to our best Keels, swapped them in for the ones we had, and ran each change through the same tests. This note lays out the yardsticks, what we tried, and why the answer was mostly no.

Who this is for

Lowdraft is a software tool, not an adviser, and it does not manage money. The people who get the most from it tend to look like this:

• Investors with roughly $50,000 or more who want a clear, written plan for their ETF portfolio.
• People who pay an adviser 1% or more a year and want to know what they are paying for. Run the same yardsticks on both and compare. Maybe your adviser comes out ahead. Maybe you learn what to ask.
• People who want a smoother ride than stocks give. ETF Keels aim for shallower drawdowns than the market. Stocks can grow faster, and they also gap down on one earnings report. This is an alternative style, not an argument against owning stocks.
• People who prefer rules to gut feel and want to see how a plan would have behaved before risking money.

It is not for people who want guaranteed results, who cannot tolerate any loss, or who need personal advice. No Keel removes market risk.

Why fees are worth comparing

A 1% yearly fee sounds small. Over 20 years it is not. Take $50,000 that earns 7% a year before fees:

Arithmetic illustration with an assumed 7% yearly return before fees. Not a forecast, and not a claim that any provider's results are better or worse.

A fee is worth paying if it buys a good result or good advice. The point is to be able to check. That needs yardsticks, so we start there.

Our yardsticks

We rank every Keel against the S&P 500 (SPY) on the same dates, in this order:

1. UPI (Ulcer Performance Index). Return divided by the Ulcer Index, which measures how deep and how long the portfolio sat below its previous high. It rewards a smooth ride and fast recoveries. This comes first.
2. Sortino. Return per unit of downside volatility. It matters, but it does not see how long a slump lasts, so it ranks below UPI.
3. Maximum drawdown. The worst fall from a peak. It tells you the worst stretch you would have sat through.
4. CAGR. The steady yearly growth rate. We watch it, but a high CAGR with deep drawdowns is not what we are after.
5. Several windows, not one. Full history, the last three years, the last year, and calendar years against SPY. A Keel that wins only in one window is suspicious.
6. Rising trends rank higher. A Keel getting better over time scores above one that is fading.

A change had to clear a bar to count: a clear gain in UPI over the full history, a gain in both the first 70% of the data (where we designed it) and the last 30% (which we held back), no deeper drawdown, and little loss of return. We also made it survive realistic costs, a one-day trading delay, and the weekday check described in our rebalancing note.

What we tried

Across roughly 90 overlays on nine top Keels in the first round, and more than 165 on seven in the second, plus every idea since, here is the short version:

Why more indicators did not help

1. Most indicators are the same information. Trend, momentum, MACD, ADX and moving averages all describe "price has been going up." Adding the fifth version adds little.
2. Early signals come with false alarms. We could make the Keel exit faster. We could not do it without exiting at the wrong time too often. The cost showed up as return and UPI.
3. A few days decide a lot. Much of the benefit over SPY comes from stepping aside in the 2020 crash. Anything that touches those few weeks swings results, and it is hard to tell whether the change is a gain or luck.
4. Every extra dial is another chance to fit noise. We saw this directly: when we searched for the best group of core holdings on the first half of the data, the ranking barely held up on the second half (correlation about 0.19).
5. The weighting was already near a plateau. Weighting by calm (inverse volatility) did most of the work. The other schemes moved return and drawdown together, not UPI.

What did help

A short list, each small:

• Weighting the two main sleeves by their calm rather than a fixed 60/40: UPI 8.6 to 9.2 on our lead Keel, a gain that held across window lengths and all five weekdays.
• A better defensive mix: cash-like funds always, plus the best two of three alternatives chosen by recent UPI. About +0.1 to +0.3 UPI.
• Swapping one stock-index fund for gold in the core: UPI 7.2 to 8.0 in the core Keel we tested.
• Requiring a stronger market (4% over 20 days, not 3%) before turning the boost sleeve on: UPI up in all 13 Keels we tested, typically by 0.3 to 1.4.
• Weekly rebalancing, as covered in our rebalancing note.

None of these is a magic indicator. They are changes to how the pieces are combined, and each one survived a held-back test.

What this means for you

• Be suspicious of an indicator pitch. If someone shows a chart where a new signal turned an ordinary strategy into a smooth, high-return one, ask for the held-back results, the costs, and the test period.
• Simple rules you can explain tend to last. A trend filter, a calm-weighting rule and a crash switch do most of the work.
• Expect an honest "no." A good testing tool will often tell you a change does not help. That is information, and it saves you from a worse portfolio.
• Compare on the same yardsticks. If you have an adviser, ask for drawdown, UPI or Sortino, and the benchmark over the same dates, and put the numbers side by side with any rules-based alternative.

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Hypothetical results from our research, prepared with hindsight and partly fitted to past data. Tests assume a one-day delay and trading costs; real trading adds slippage and taxes. Nothing here is investment advice, an offer, or a statement that any adviser's results are better or worse than a Keel's. Past performance, real or simulated, does not predict future results. You can lose money.

If a portfolio loses 10%, it needs a gain of about 11% to get back to even. If it loses 34%, it needs about 51%. The deeper the hole, the steeper the climb, and the climb takes time.

The formula is simple: gain needed = loss ÷ (1 − loss). A 50% loss needs a 100% gain, which means doubling just to get back to where you started.

Why this matters more than the headline return

A drawdown is not just a number on a chart. It is the stretch of time when you see your balance below where it was, and wonder if you should stay. Plans that cut the depth of the fall shorten that stretch, and make it easier to stay with the plan.

That is why we rank Keels on the Ulcer Index and UPI, which account for how deep and how long the drops last, and not only on return. It is also why the name of this product is what it is: draft is how deep a hull sits in the water.

The honest trade-off

Cutting drawdowns can cost return in strong, steady rallies, because defensive moves can leave you out of the market when it rises. You give up some upside to shrink the worst case. Whether that trade suits you is your decision.

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Arithmetic illustration with hypothetical figures from a back-test. Not investment advice. Past performance, real or simulated, does not predict future results. You can lose money.