I reversed my position and thankfully recovered my losses. In the face of the overall recent market strength, and with the news of GILD buying a smaller biotech for its HCV drug last month, I quickly switched sides as it broke out to the upside. The S&P is back over its 200dma, so I will lay back on discretionary shorting.
Hammering away, slow and methodical
- Thread starter Rol
- Start date
I reversed my position and thankfully recovered my losses. In the face of the overall recent market strength, and with the news of GILD buying a smaller biotech for its HCV drug last month, I quickly switched sides as it broke out to the upside. The S&P is back over its 200dma, so I will lay back on discretionary shorting.
Long time trading veteran here... I see 2 major strategies to mining the market...
1. "Trade every wiggle"... hoping your runners offset your whips.
2. "Cherry pick"... playing for the perceived "big opportunities" with lots of time spent on the sidelines. One of the biggest risks with this strategy is underperforming due to missing too many good plays. (Note: In a mutual fund timing service I ran years ago, in one of my 100+% return years I was "in the market" only 23% of the market days... that was back before there were inverse funds and ETFs.) Cherry picking is doable overall, but you unlikely to be right more than 50% of the time.
One strategy is as valid as the other.
Good luck...
Rol, any chance you gonna get back to your old strategy?
It seemed very interesting and I loved the fact that you meticulously kept records and provided weekly stats - would be great to see that again.
As for dip buying, I would recommend to include canadian stocks as well - it works extremely nice and can diversify your risk substantially. Also consider hedging any long position you take on.
It seemed very interesting and I loved the fact that you meticulously kept records and provided weekly stats - would be great to see that again.
As for dip buying, I would recommend to include canadian stocks as well - it works extremely nice and can diversify your risk substantially. Also consider hedging any long position you take on.
Hi NikEy,
I did return to my previous strategy as I soon noticed that buying end of day stocks and slow moving ETFs was giving me too many scratch trades. The volatility just wasnât there, I missed the intraday dips, and automating EOD trades was a bit tricky. I found I had to place my orders at the bid to avoid having too many fill at once before they could be cancelled.
I will continue providing stats, as it helps keep me from overtrading and fights boredom by giving me something to do other than placing trades (having a full-time job helps!)
I donât know if TS lets you trade Canadian stocks or if it could be automated. IB probably does, but my account is small enough that I get adequate number of signals now. I think hedging is only needed when my long exposure is large. My system stops taking new long positions when the averages cross below their 200 DMA. I said in my first journal I would look to go short when the S&P crossed below its 200 DMA, but I just could not bring myself to pull the trigger in the heat of battle. In the future, when markets appear to be selling off on surprisingly bad news that may not be fully discounted, I intend to put on shorts at least equal to my long exposure.
I am keeping my account just above 25K and sending profits to the mortgage company. I just withdrew 9K. I will do this until the end of March when I expect to pay off the mortgage. So my piker account should be relatively unremarkable for a few months. After March, I will start contributions to get my balance back up. I am using this reduced activity to regroup. I just finished Trading in the Zone. Mark mentions that many have really not accepted the risk of their trades, and that is something I need to work on when I think of sizing up too much.
I stopped looking at divergence so much as I found it was only echoing what my system currently identifies in setups. Also, it encouraged me to place undue faith in any one single trade of working in my favor. My FXP trade is a prime example. I broke my rule of not taking long trades below their 200 DMA, and adding more than once per day. I am going to add a rule of only adding around the previous day low, to help keep me out of trouble.
I am providing a YTD update and talking about some changes I made. Today I stopped buying stocks and changed to a system that only trades the Spooz, the Qâs, and the Diamonds, as well as their inverse ETFs primarily when the inverse ETFs are below their 200 DMA. I donât think returning to my old system would be making progress as a trader. While I like stocks, I find myself getting too emotional with earnings news, lawsuit filings, infatuation with a company, etc, that causes me to lose discipline with following my plan.
By focusing on the three major ETFs, I can define my variables much better, such as maximum DD. I am using last August as my âWorst case scenario.â With my new system parameters, an account using maximum 1.8X buying power would have experienced a 24% DD then, and about the same in â08, without hedging. When I say DD, I mean from the net worth just prior to a major market correction like last August, and not a stationary starting account balance or high water mark.
The individual equity curves of my new strategy look good on each ETF, and by following the three major indices, I hope to smooth it out even more. I know they tend to move together, but on occasion, they diverge. It will help me psychologically to have exposure in each one when watching the markets, so I wonât feel like I am missing out when one outperforms. My maximum position size on each will be around five times what I would be comfortable with on an individual stock. Looking over the past decade, I see even with a 25K account, 1 or 2K swings would be the norm, but I am ok with that. If I am down 5% or more, I have my system begin to hedge by a small amount each day until there is a reaction. This should help me to get more use to hedging. I will continue to trade the long ETFs, even when they are below their 200 DMA, but at reduced size, with the remaining BP reserved for the short ETFs. The equity curves donât look too bad even when taking positions under the 200 DMA on the Spooz, the Qâs, and the Diamonds. Small Cap ETFs, however, consistently display uncomfortably large drawdowns and non linear equity curves with my new system, or my old system for that matter, so I have chosen not to include them.
On a side note, just about every time I read about trend following systems, the authors talk about waiting for a pullback in the longer-term trend to enter. I donât see how that is trend following when you are buying against the short term trend. I always thought of trend following as simply following the herd, and buying higher highs.
I have incorporated my net worth into the position sizing calculations. When equity increases my position size will increase, and when it decreases, so will the position size. I think I will like trading the major ETFs, because I donât see any liquidity issues like with individual stocks. I anticipate saving on commissions too, because I wonât be trading hyperactively, and slippage should be reduced. There will still be plenty of trading signals each month, and I plan to hold positions for a longer period of time, around 6-7 days on average. The system actually will be using BP more aggressively that my previous system, but the 1X ETFs wonât be as volatile as stocks, so I will hold through difficult times and follow the plan. For me, consistency over time and peace of mind is more important than risking a blowup by shooting for some astronomical returns. I plan to contribute and reinvest winnings, so I need a system that is somewhat conservative with known draw down expectations.
I decided to kick off my system today with a couple of short trades to test the code out. Normally in a strong uptrend I would not want to be short, but we are at longer term resistance right now, so I anticipate some sideways trading for the near future. I am also curious how the system might perform both long and short concurrently, even if the shorts donât happen to work out well. The vast majority of the time when I hear of traders blowing up, it is when they were short in a runaway uptrend. I just read in The New Market Wizards how Bill Lipschutz took $12,000 to $250,000 in 4 year and then "blew the entire account because of one drastic mistake of wildly overleveraging his position" (He was "very bearish and heavily long puts.") I want to learn from other's mistakes by never taking huge risks. Markets, after breaking out for a time, tend to find a new trading range, until the next breakout.
So here's to my new strategyâ¦
By focusing on the three major ETFs, I can define my variables much better, such as maximum DD. I am using last August as my âWorst case scenario.â With my new system parameters, an account using maximum 1.8X buying power would have experienced a 24% DD then, and about the same in â08, without hedging. When I say DD, I mean from the net worth just prior to a major market correction like last August, and not a stationary starting account balance or high water mark.
The individual equity curves of my new strategy look good on each ETF, and by following the three major indices, I hope to smooth it out even more. I know they tend to move together, but on occasion, they diverge. It will help me psychologically to have exposure in each one when watching the markets, so I wonât feel like I am missing out when one outperforms. My maximum position size on each will be around five times what I would be comfortable with on an individual stock. Looking over the past decade, I see even with a 25K account, 1 or 2K swings would be the norm, but I am ok with that. If I am down 5% or more, I have my system begin to hedge by a small amount each day until there is a reaction. This should help me to get more use to hedging. I will continue to trade the long ETFs, even when they are below their 200 DMA, but at reduced size, with the remaining BP reserved for the short ETFs. The equity curves donât look too bad even when taking positions under the 200 DMA on the Spooz, the Qâs, and the Diamonds. Small Cap ETFs, however, consistently display uncomfortably large drawdowns and non linear equity curves with my new system, or my old system for that matter, so I have chosen not to include them.
On a side note, just about every time I read about trend following systems, the authors talk about waiting for a pullback in the longer-term trend to enter. I donât see how that is trend following when you are buying against the short term trend. I always thought of trend following as simply following the herd, and buying higher highs.
I have incorporated my net worth into the position sizing calculations. When equity increases my position size will increase, and when it decreases, so will the position size. I think I will like trading the major ETFs, because I donât see any liquidity issues like with individual stocks. I anticipate saving on commissions too, because I wonât be trading hyperactively, and slippage should be reduced. There will still be plenty of trading signals each month, and I plan to hold positions for a longer period of time, around 6-7 days on average. The system actually will be using BP more aggressively that my previous system, but the 1X ETFs wonât be as volatile as stocks, so I will hold through difficult times and follow the plan. For me, consistency over time and peace of mind is more important than risking a blowup by shooting for some astronomical returns. I plan to contribute and reinvest winnings, so I need a system that is somewhat conservative with known draw down expectations.
I decided to kick off my system today with a couple of short trades to test the code out. Normally in a strong uptrend I would not want to be short, but we are at longer term resistance right now, so I anticipate some sideways trading for the near future. I am also curious how the system might perform both long and short concurrently, even if the shorts donât happen to work out well. The vast majority of the time when I hear of traders blowing up, it is when they were short in a runaway uptrend. I just read in The New Market Wizards how Bill Lipschutz took $12,000 to $250,000 in 4 year and then "blew the entire account because of one drastic mistake of wildly overleveraging his position" (He was "very bearish and heavily long puts.") I want to learn from other's mistakes by never taking huge risks. Markets, after breaking out for a time, tend to find a new trading range, until the next breakout.
So here's to my new strategyâ¦
Code:
[color=green][b]
Total Net Profit $3,668.97
(Per Share) $0.63
Gross Profit $4,378.33
Gross Loss ($709.36)
Profit Factor 6.17
Total Number of Trades 100
Percent Profitable 68.00%
Winning Trades 68
Losing Trades 32
Avg. Trade Net Profit $36.69
Avg. Winning Trade $64.39
Avg. Losing Trade ($22.17)
Ratio Avg. Win:Avg. Loss 2.9
Expectancy 1.65
Largest Winning Trade $1,233.31
Largest Losing Trade ($92.05)
Max. Consecutive Winning Trades 10
Max. Consecutive Losing Trades 3
Total Shares/Contracts Held 5784
Total Commission $188.57
Return on Initial Capital 12.23%
Annual Rate of Return 127.70%
Buy & Hold Return 0.21%
Return Retracement Ratio 4.57
Trading Period 1 Mth, 2 Dys
Max. Equity Run-up(Daily) $3,687.47
Date of Max. Equity Run-up 2/1/2012 15:00
Max. Drawdown(Daily)
Value ($604.63)
Date 1/27/2012 15:00
as % of Initial Capital 2.02%
Max. Trade Drawdown ($198.00)
YTD Performance 15.97%
S&P YTD Performance 4.81%
YTD Correlation to S&P -0.37
[/b][/color]Here are YTD stats, but since I am beginning a new strategy for February, I will likely begin collecting stats starting today, as the gold and silver trades that overlapped from last year will distort it too much. The trades from about 20-50 were when I was buying end of day only, and getting many scratch trades, even though the market was moving higher, so I abandoned it.
How often do your strategies change? How much confidence do you have in a system before starting it live? What kind of backtesting do you do?
Personally, I think moving into the index trading space (SPY, QQQ, DIA) is a questionable decision. Those indices are highly efficient - the odds of finding a viable trading strategy there is lower than in individual stocks.
However, good luck! Interesting journal.
Agree.
It seems like you're making a rash decision based on hindsight results. Committing real capital to a strategy that hasn't been vetted in a simulated real-time environment rarely turns out good.
BTW, the EDGE in trading is that you can THOROUGHLY test an opportunity BEFORE COMMITTING REAL MONEY and BEAT THE MARKET BEFORE PLACING YOUR FIRST TRADE.
Think hard and long about what I just stated.