Kospi + HangSeng Holy Grail?

[Sell 'em]

I've been trading for many years, and spent some time at a too big to fail bank doing fundamental analysis. As a trader I've made money, but on net have lost way more money than I care to admit.

I've finally settled on a methodology that trades Kospi options/futures and the HSI/MHI HangSeng Futures - a methodology that I'm very excited about.

I'm beginning this thread in order to help organize and flesh out my thoughts. Also to harvest thoughts/insights that other board members might bring to the discussion.

Results from last week:

Beginning capital: $3099
# of trades: 35
wins: 29
losses: 6
winning %: 83%
Max gain: $1,351
Max loss: $850
Gain on the week: $3,219

So this coming week I will pursue the same strategy with beginning capital of about $6,300. I did some stupid things last week so right now I am actually expecting much better results. I should also note that my results have been very consistent, generating anywhere from 15% to 21% return on capital each day.

For example, last week's max loss of $850 was actually the last trade of the week, and wasn't Kospi or Hangseng. Instead my discipline broke down and I shorted the ES upon release of consumer sentiment numbers. Had I not put that one trade on, results would have been much better. That points to perhaps my biggest challenge right now - discipline. I've been experimenting, some might call it 'gambling', in many instruments for a long time. Hopefully some candid posts on this thread will help to embarrass me into greater discipline, knowing that I must confess breakdowns should they occur?

I'll follow this up with a quick post on my methodology.

 

[Sell 'em]

Ok, a brief synopsis of my methodology.

For the both Chinese and S. Korean equities there are many firms that are listed in both the US and in the local markets. Each morning in Asia I benchmark where relevant instruments traded/closed overnight in the US, together with qualitative factors, to map out where I think the Kospi 200 and HangSeng indices should trade. On Friday my maps were as follows:

Kospi 200:

One std dev high: 211.2
Midpoint: 205.7
One std dev low: 200.3
*These numbers shifted a little over the course of the day as the Won appreciated.

HangSeng:

One std dev high: 22,319
Midpoint: 22,069
One std dev low: 21,819

Generally the aim is to be a seller at levels above the midpoint, and a buyer below. Of course momentum and other factors need be taken into count - this is heavily reliant on experience.

 

[Sell 'em]

Carefully reviewing my results from last week, here are three improvements I must make for the coming week:

1. I must trade HSI/Kospi exclusively. The time is past for experimenting with other instruments. This cost me about $790 (net) in the previous week.

2. I need to forgo selling individual Kospi options for a quick scalp. Commission rates are relatively high for this type of trading given my current small scale, and the time frame doesn't allow for adequate benefit from time decay. This activity cost me about $260 (net) last week. Lots of small gains plus a couple of big losses that I let run. Not a winning strategy.

3. I need to be more cautious during the HangSeng's afternoon session - currently 1:30am-3:15am EST. This bridges the open of European markets and makes my anchors to the previous close of US market much less robust. Haven't bothered to tally my trades via timestamps, but I may have been net breakeven or loss during HangSeng afternoons. I won't forgo the afternoon sessions entirely, but I will be more cautious on entries, and reduce size to about 25% of that used in the morning session.

That is all.

 

[mishnas]

The Hang Seng Index is a capitalization-weighted index of 33 companies, meaning that the largest firms (based on market value) carry the greatest weight.

Accordingly, when you check the US indices you must be sure to take the different weightings into account or your system will be skewed.

Also, I don't know how often the weightings are changed but it would be prudent to find this out and adjust your buy/sell parameters when the weightings change.

If this is your only method, I assume you don't day trade the hang seng? In which case, how did you manage to hold positions given the volatility of the hang seng and the size of your account?

Also, as far as I am aware, the Kospi only trades in regular size, not minis? Again, with which broker did you manage to trade the Kospi with a small account?

I'm not doubting your words, just interested in trading the kospi myself, but unable to do so because of my account size!

 

[Sell 'em]

Quote from mishnas:

The Hang Seng Index is a capitalization-weighted index of 33 companies, meaning that the largest firms (based on market value) carry the greatest weight.

Accordingly, when you check the US indices you must be sure to take the different weightings into account or your system will be skewed.

Also, I don't know how often the weightings are changed but it would be prudent to find this out and adjust your buy/sell parameters when the weightings change.

If this is your only method, I assume you don't day trade the hang seng? In which case, how did you manage to hold positions given the volatility of the hang seng and the size of your account?

Also, as far as I am aware, the Kospi only trades in regular size, not minis? Again, with which broker did you manage to trade the Kospi with a small account?

I'm not doubting your words, just interested in trading the kospi myself, but unable to do so because of my account size!

With this small account I only traded MHI futures, HSI options, and near-the-money Kospi options. Rarely hold anything overnight. (Currently holding HSI calls overnight in a paper-trade acct.) System has been consistently very profitable. Alas, I blew the account out trading crude oil overnight. It's a discipline issue, and now a lack of risk capital issue ... I'll be back.

Btw, I have broken down the consituent issues relating to the HSI and related securities traded in the US. Namely HSI is very overweight HSBC and other Chinese banks so this must be taken into account. Kospi 200 is easier to replicate with a simple ETF. Primary issues relate to keeping up with Won/USD fluctuations and North Korea-related developments.

I'm going back to work, and I may be subject to employer-imposed trading restrictions. Also, I will soon no longer be a 'non-pro' so my fees will rise significantly.

Happy to trade this for someone who can put up a small stake. A US$4k stake will do. IB will lock trading access if capital falls below US$2k so that is the rough stop loss. A small stake is viable because the system is primarily intra-day, Kospi options trade in very small increments, and the MHI contract is small enough. If someone is looking to learn how to trade these two markets, this could be a good learning experience.