While last years thread was reflective of my road from ruin to redemption, and contained all the best human foibles, including no shortage of greed and avarice, this years thread will be a much tamer affair.
Herein I will document year 2 of my 5 year plan to become an individually wealthy (and retired) investor and trader. First, my goals for this year:
1) Targeted return of 30%+, but no less than 20%
2) Outperform the S&P500 Index monthly
3) Suffer no Max Drawdown worse than 20%
4) Lose no more than 10% in any one month
To achieve this year's goals, I will continue with my latest strategy, which represents my 3rd in the last 12 months. This year I will solely pursue the following:
1) Trade a mechanical commodity futures swing trade system (holding period 1 week to 8 months)
2) Trade a mechanical ETF swing trading system (holding period 1 week to 2 years)
3) Selective hedging operations to manage overall risk and correlated risk
4) A small position in DecisionMoose signals (10% of portfolio)
5) Extremely selective discretionary swing trading (almost a negligable part of strategy, but very satisfying)
At minimum, this will be an interesting exercise in the use of mechanical systems. Most of my success last year came through discretionary swing trading, which I have decided to abandon due to having inadequate time to focus on that (while having kids and a full time job). I decided I need a a system with a longer time horizon, with longer holding periods, that would incur less commissions.
Here are the basic stats on the two systems I will be trading:
ETF Long Term Trend Following:
2003-2010 36% Car MDD 21%
2010 35% Car MDD 8%
Commodity Futures Swing Trading:
1990-2010 39% Car MDD 27%
2010 53% Car MDD 10%
I mostly traded and tracked real time the ETF system last year, and the results were consistent in practice with the current back test results. The futures system I developed a couple of months ago and is more of an unknown quantity.
Part of my reasoning for developing and trading this system is my belief that we are probably entering a long term commodities super-cycle driven by demand from emerging markets. I know that was the theme last year, but I'm talking about a 20 year cycle of real scarcity, not risk-on based investing by investment banks. I want to profit from that cycle, and I believe this is the most profitable way to do so.
The biggest unknown, and risk, in trading both of these systems simultaneously is the risk of being overleveraged and too highly correlated, resulting in a worse drawdown than either system has experienced individually. I have not done, and don't really know how to, marry up the backtested volatility of both systems to understand what kind of MDD I would have incurred if running both simultaneously.
To mitigate this risk, I will be hedging with options where possible and I may choose to skip certain trades if I feel the instruments are too highly correlated and putting me too much at risk.
I realize that is probably less optimal than simply using appropriate position sizing, but to trade the futures system it is a necessity (as the nature of the system and high leverage in futures exposes me at even the smallest position size).
HB
Herein I will document year 2 of my 5 year plan to become an individually wealthy (and retired) investor and trader. First, my goals for this year:
1) Targeted return of 30%+, but no less than 20%
2) Outperform the S&P500 Index monthly
3) Suffer no Max Drawdown worse than 20%
4) Lose no more than 10% in any one month
To achieve this year's goals, I will continue with my latest strategy, which represents my 3rd in the last 12 months. This year I will solely pursue the following:
1) Trade a mechanical commodity futures swing trade system (holding period 1 week to 8 months)
2) Trade a mechanical ETF swing trading system (holding period 1 week to 2 years)
3) Selective hedging operations to manage overall risk and correlated risk
4) A small position in DecisionMoose signals (10% of portfolio)
5) Extremely selective discretionary swing trading (almost a negligable part of strategy, but very satisfying)
At minimum, this will be an interesting exercise in the use of mechanical systems. Most of my success last year came through discretionary swing trading, which I have decided to abandon due to having inadequate time to focus on that (while having kids and a full time job). I decided I need a a system with a longer time horizon, with longer holding periods, that would incur less commissions.
Here are the basic stats on the two systems I will be trading:
ETF Long Term Trend Following:
2003-2010 36% Car MDD 21%
2010 35% Car MDD 8%
Commodity Futures Swing Trading:
1990-2010 39% Car MDD 27%
2010 53% Car MDD 10%
I mostly traded and tracked real time the ETF system last year, and the results were consistent in practice with the current back test results. The futures system I developed a couple of months ago and is more of an unknown quantity.
Part of my reasoning for developing and trading this system is my belief that we are probably entering a long term commodities super-cycle driven by demand from emerging markets. I know that was the theme last year, but I'm talking about a 20 year cycle of real scarcity, not risk-on based investing by investment banks. I want to profit from that cycle, and I believe this is the most profitable way to do so.
The biggest unknown, and risk, in trading both of these systems simultaneously is the risk of being overleveraged and too highly correlated, resulting in a worse drawdown than either system has experienced individually. I have not done, and don't really know how to, marry up the backtested volatility of both systems to understand what kind of MDD I would have incurred if running both simultaneously.
To mitigate this risk, I will be hedging with options where possible and I may choose to skip certain trades if I feel the instruments are too highly correlated and putting me too much at risk.
I realize that is probably less optimal than simply using appropriate position sizing, but to trade the futures system it is a necessity (as the nature of the system and high leverage in futures exposes me at even the smallest position size).
HB