Hammering away, slow and methodical

Hi Rol,

Just wanted to give you a brief note on risk management because I notice you're 100% exposed and 100% long with what looks to be heavy energy & utility.

You've done your homework, but, I remember you did have some solid DD's last year. DD's are part of the biz, we all have them, but I'm seeing an allocation here that can get you into some trouble eventually. It may not happen tomorrow, tomorrow may be a good day (or not) for this portfolio, but, the next time you load up too much in one sector with 100% long it may not be so nice.

Have you thought about adding a short component and limiting long exposure to 60%? Say, never being more than 2 to 1 long to short? You could probably do some beta hedging with SPY fairly easily...

What about limiting sector exposure? No more than 10% or so to any one sector/fundamentally group?

Just some suggestions to possibly avoid major DD's.

Mike
 
Quote from Mike805:

Hi Rol,

Just wanted to give you a brief note on risk management because I notice you're 100% exposed and 100% long with what looks to be heavy energy & utility.

You've done your homework, but, I remember you did have some solid DD's last year. DD's are part of the biz, we all have them, but I'm seeing an allocation here that can get you into some trouble eventually. It may not happen tomorrow, tomorrow may be a good day (or not) for this portfolio, but, the next time you load up too much in one sector with 100% long it may not be so nice.

Have you thought about adding a short component and limiting long exposure to 60%? Say, never being more than 2 to 1 long to short? You could probably do some beta hedging with SPY fairly easily...

What about limiting sector exposure? No more than 10% or so to any one sector/fundamentally group?

Just some suggestions to possibly avoid major DD's.

Mike
More...

I absolutely agree, No matter the trend, i always have some exposure on the other side (right now eleven open trades, three of which are short). It really limits your DD, and sometimes you have the extra perk of seeing all your trades going your way!

All the best,

vcir
 
Hi and thanks for the input Victor and Mike. I know I mustn't concentrate in one sector like I have. I feel like Dr, Jekyll and Mr. Hyde sometimes. I suppose I rationalize with my small account I can get away with it, but I am trying to build skills for an eventual larger account, so I need to keep practicing patience and diversification.

I do have a component of my strategy that goes short via SDS a little each day as long as my unrealized loss is greater than 2% of NW, but I am upping it to 1%. My rational is that as long as my longs are increasingly underwater, then the overall market must be bearish. I like the 60% long exposure as a nice "working exposure". I won't feel that I am too much on the sidelines or overexposed in the markets at that level.

Jack Schwager mentions in "The New Market Wizards" how even if your shorts net zero gains, they still provide the benefit of reducing overall drawdowns of your account. That was a "light bulb" moment for me.
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Exposure 138%
Real-time Account Net Worth $36,615.93 (After 1K deposit)
Real-time Unrealized P/L $0.76
 

Attachments

Code: 
[color=green][b]
Initial Capital (2/10/2012)	$30,000 
Total Net Profit	$2,350.83 
(Per Share)	$0.27 
Gross Profit	$3,373.99 
Gross Loss	($1,023.17)
Profit Factor	3.3
Total Number of Trades	266
Percent Profitable	76.69%
Winning Trades	204
Losing Trades	62
Avg. Trade Net Profit	$8.84 
Avg. Winning Trade	$16.54 
Avg. Losing Trade	($16.50)
Ratio Avg. Win:Avg. Loss	1
Expectancy	0.53
Largest Winning Trade	$131.85 
Largest Losing Trade	($135.11)
Max. Consecutive Winning Trades	17
Max. Consecutive Losing Trades	6
Total Shares/Contracts Held	8670
Total Commission	$426.20 
Return on Initial Capital	7.84%
Annual Rate of Return	55.11%
Buy & Hold Return	0.32%
Trading Period	1 Mth, 19 Dys
Max. Equity Run-up(Daily)	$2,792.84 
Date of Max. Equity Run-up	3/26/2012 15:00
Max. Drawdown(Daily)	
Value	($715.97)
Date	3/6/2012 15:00
as % of Initial Capital	2.39%
Max. Trade Drawdown	($140.70)
	
Net Worth	$36,806
Wkly Performance	1.59%
Dollar Gain/Loss	$442
S&P Wkly Performance	0.75%
Cum. Perform. (2/10/12)	8.84%
S&P Cum. Performance	4.76%
Correlation to S&P	0.60
Current Exposure	77%
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I stopped out of XLE for a $70 gain. I think I will increase the number of daily signals taken. This will keep me from feeling the urge to load up on ETFs. Exposure is at a more manageable level. I am pleased with the stats overall so far. I wouldn't mind a sideways market, as my RTM strategy does well in that environment.
 

Attachments

Code: 
Symbol Type Filled/Canceled 
 CME Sell 04/02/12 02:58:58 PM
 MRO Sell 04/02/12 02:58:58 PM
 DFS Sell 04/02/12 02:58:58 PM
 R Sell 04/02/12 02:58:57 PM
 SUN Sell 04/02/12 02:58:57 PM
 EWZ Sell 04/02/12 02:58:57 PM
 VZ Sell 04/02/12 02:58:56 PM
 JBL Sell 04/02/12 02:58:56 PM
 CBG Sell 04/02/12 02:58:56 PM
 DNR Sell 04/02/12 02:58:56 PM
 LXK Buy 04/02/12 08:50:13 AM
 SHLD Buy 04/02/12 08:36:11 AM
 JBL Buy 04/02/12 08:35:06 AM
 TSO Buy 04/02/12 08:34:03 AM
 MRO Buy 04/02/12 08:32:48 AM
 EWZ Buy 04/02/12 08:32:26 AM
 EBAY Buy 04/02/12 08:31:47 AM
 LTD Buy 04/02/12 08:31:12 AM
 DHI Buy 04/02/12 08:30:27 AM
  
Real-time Account Net Worth $37,176.45
Real-time Unrealized P/L $69.71
Real-time Realized P/L (Today) $350.98

Exposure started the day at 77%, rose to 106%, then closed at 51%. I was a bit surprised to see so many positions exit at the close. Several I had been holding a few day, so it was nice to get out with some profit on them. I plan to up the ante by funding my account with 60K, to get the balance up to 100K. 30K will be a 403B loan and 30K a bank loan at about 9% interest. I won’t make any more contributions to may trading account, as I will be paying off the loans as soon as I can. I was reluctant to take out loans, but I will be conservative with my funds and hedge when my draw downs occur. Last fall I tracked many small caps, which I believe sell off greater during bear markets. I also traded stocks below their 200 DMA which I no longer do. Aiming for a 50% exposure to only the SP500 stocks should help with DD. I figure since TS charges over 7% margin interest anyway, if I can only use it on rare occasions, it would be the same difference as a bank loan. Hey, some market wizards took out loans (of course some of them blew up too). It would be quite different if I was taking out a loan to meet margin. My goal might be to outperform the S&P 2:1, while keeping exposure at 50-75% most of the time.
 
It was a fairly light day, buying and selling a few. I talked to a friend today who has been getting into options. He says you can make a lot of money. I told him I think more about how much I can lose. I know for me personally, I could get into trouble with the leverage of options, currencies, and futures, so I have not opened an account for them. He also thinks the automation space has been so exploited by large firms, that it is too difficult for individuals to make work. He was told that the markets are gambling, but he responded that like Vegas the “house” can still make money. I believe to realize any edge you have to be cold, calculating, and, consistent over a long period of time; not exactly common human traits. It was a good thing I lightened up during what turned out to be yesterday’s dead cat bounce, as I viewed charts this afternoon of some of the stocks I sold yesterday. I should be increasing exposure some more tomorrow, though.

Basically I need to trade everyday as if tomorrow is just the beginning of the worst thing that could happen to my account. I think by initiating even a nominal size short as soon as a draw down begins to develop, will help get me into the trend following short mindset. Especially, as I will be viewing it as a hedge, and not overly concerned about it making big money. I have heard mention of “forced shorts”. Does anyone know exactly what “forced short” means?


Real-time Account Net Worth $37,115.66
Real-time Unrealized P/L ($104.97)
Real-time Realized P/L (Today) $114.40
Exposure 39%
 
Quote from ocean5:
''Real-time Account Net Worth $36,615.93 (After 1K deposit)''
How long did it take?
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I’m not sure what you are referring to by, “How long did it take?” Some of the current balance is due to past contributions and some are profits. This journal is not about all the money I made or lost before starting this journal, it is about what I am currently doing now and the evolution that is occurring. Once I get my balance to 100K, I plan to cease the contributions and just compound the profits for a more realistic equity curve and stats.
 
Quote from Rol:

I’m not sure what you are referring to by, “How long did it take?” Some of the current balance is due to past contributions and some are profits. This journal is not about all the money I made or lost before starting this journal, it is about what I am currently doing now and the evolution that is occurring. Once I get my balance to 100K, I plan to cease the contributions and just compound the profits for a more realistic equity curve and stats.
More...

LOL... I just realized you thought this was a "taking 1K to 30K" journal. :D
 
Market seems a bit unstable after the Fed announcement yesterday that more QE was not needed right now. I think in the future, I will look into trading in the direction of the market’s reaction to Fed announcements. Unrealized loss is not over 1%, so have not opened any short positions yet; that will likely change tomorrow.

Real-time Account Net Worth $36,943.87
Real-time Unrealized P/L ($268.52)
Exposure 65%
 
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