Rol's Trading Journal

[Rol]

Quote from d08:

A really nice result during this difficult week. I expected something a bit worse than this, wow!

Thanks d08, I was flat going into the week, then net short during the big drop on economic worries. I have been scaling in the past couple of days, per strategy. Biggest losers for me right now include ZUMZ and JCP, both retail. I like Zumiez Inc on a fundamental basis, so I still have hopes for it next week. BTW, way to go on approaching the $100k mark!

 

[Rol]

On a roll here... So here is another chart I came up with. It is the number of signals generated on a daily basis for the past few months. It illustrates why being in the markets 100% of the time may be ill advised. You will not be able to take advantage of the dips with rtm trading if you are. It would appear that there are on average, one or two "black-swanoid" events a month to capitalize on. These are days where the strategy generated over 100 signals. In addition, I can see that a maximum position count of anywhere from 50-200 would still provide a nice balance between under and over exposure.

The days that registered 100+ signals are 3/10, 3/16, 4/12, 5/4, and 5/5. If one has the buying power and strategy with a historical win rate around 66%, I don’t know why you would not want to take every signal possible. It has been said, "Be fearful when others are greedy, and greedy when others are fearful".

 

[Rol]

Engaging multiple targets…

 

[Camdo]

Hi Rol,
You have created a fabulous thread.

The days that registered 100+ signals are 3/10, 3/16, 4/12, 5/4, and 5/5.

Lots of signals also mean the market is going down hard, so it begs the question:
Do entrys made on those days have better returns or win probability than normal?

 

[Rol]

Quote from Camdo:

Hi Rol,
Lots of signals also mean the market is going down hard, so it begs the question:

Do entries made on those days have better returns or win probability than normal?

Thanks for the kind word, Camdo. I know my journey will have its ups and downs, so I just roll with it. Kind of like knowing you can’t change the weather, but you can adapt to it each day. I view the markets as a phenomenon of nature; Always in motion, ranging from very delicate changes to eruptions of violent activity.

I will try to answer your question although I don’t know the exact statistics. In all likelihood, buying around the lows on a day that generated 100+ signals would be a great entry, but this is generally only realized in hindsight. If back testing results come to fruition, today, which I’m fairly certain generated 100+ signals (I haven’t checked yet), would lead to higher returns and win probability. I was able to enter a few more positions today that are actually green, so they will probably go on to close out as winners.

The problem encountered in my back testing is that sitting out of the market and only entering on big drops, did not improve returns. Indeed, you will find yourself trying to time the market, and may find yourself at the beginning of a major sustained market decline. Money can still be made consistently just on the day to day fluctuations in individual stocks on a regular basis, if you don’t over extend yourself. Of course you would need decent BP to do this.

That being said, my current situation is such that I am 200% exposed to the market right now, so I cannot take any more new positions until some current ones are exited. Still, I expect to have exited most of my current positions by the end of the week, win or lose. If tomorrow experiences any sort of bounce, my strategy would have maxed out buying power near the bottom, which is my goal.

Based on my equity high of $65,000, my current drawdown at today’s close is nearly 7%. So with 2X BP, my average position is down around 3.5%, which I am comfortable with. I’m not sure if it is customary to base DD on recent equity highs, or some other dollar point in the past as reference. It makes more sense for me to use recent equity, as that is the dollar amount I am working with.

In light of back testing, I am aware that my system has 5-10% draw down every few months, so this is not out of the ordinary. The month is young enough to still be able to close it out with a net profit.

 

[Rol]

I wanted to give an update for those following along, and to put in writing what I am thinking at this time of market correction. Presently, the stratagem is taking it in the assets. Draw down is hovering about 10%. It should be more like 9%, but I bought 200 shares of ZUMZ outside of the strat causing me to be down about $700 more than I should be. The SP500 has corrected over 5% from its recent highs, so my current DD is within reason at 2X BP. I programmed my trading platform to display in real time equity %DD and exposure for easy reference.

If I had no equity curve and back testing to refer to, I would really be questioning myself right now. This is about how it was during the Japan earthquake regarding DD, although the dollar amount is greater this time around. The strat recovered dramatically then, and I am confident it will recover eventually this time too. While a loss is a loss, it is harder to bear I think when you are below your initial investment as opposed to giving back some of what you have removed from the markets. I am currently down a month or two of profits, oh well.

I fixed the problem I had with not being able to include unrealized P/L in my equity curves. I plan to start a new equity curve at the beginning of each month, instead of a new one each week. I will also post YTD curves monthly. Since my goal is no losing months, it will be interesting to see if the curve of the month can pull out a gain. This month should be especially challenging. I think any time frame less than a month is too short to evaluate a strategy. Ultimately, I want to get to where I can just concern myself with monthly average gains, and not worry at all about daily fluctuations.

 

[GekkoToBe]

Quote from Rol:

The SP500 has corrected over 5% from its recent highs, so my current DD is within reason at 2X BP

Is your strategy correlated to the S&P500 ?

 

[Rol]

Quote from GekkoToBe:

Is your strategy correlated to the S&P500 ?

Thanks for bringing that up GekkoToBe. I think overall I correlate more to the Russell 2000, especially the past few days. I just checked that index and it is down 9% from its April 29 high, almost the same as me. Occasionally I find myself overweighted in a sector such as metals, oil, retail, airlines, or financials to name a few. I chose the SP500, just because it is more widely recognized. My portfolio constantly changes, so I felt the SP500 may be a nice average of my holdings, but this may not be true. I rarely hold any stocks in the DOW.

 

[benwm]

Quote from Rol:

Since my goal is no losing months, it will be interesting to see if the curve of the month can pull out a gain.

Rol - I think you have developed a method which seems to have a genuine positive edge, however, I would caution that for a long only strategy such as yours, "no losing months" is an unrealistic goal. You have to accept the bad with the good, and boy, with the way the Fed has printed money the past couple of years stocks have certainly had it good.

I have strategies that I KNOW will have bad weeks and months...it is guaranteed...but they still generate decent profits overall. I view the bad runs as a way of shaking out others who might be testing similar strategies, in the hope that any potential competition will be misdirected from a good strategy. No free lunches, and all that jazz!

What you might want to do is attempt simplify the strategy somewhat so that for the same # of trades you are able to generate similar PnL numbers. That might free up your time to developing a short only strategy to run alongside this strategy.

If you can find a short strategy with a positive edge you will stop caring about the direction of the market. I like the way you've approached this project, but maybe you need to think outside the box, look for a completely different method to add some diversification.

 

[Rol]

Quote from benwm:

Rol - I think you have developed a method which seems to have a genuine positive edge, however, I would caution that for a long only strategy such as yours, "no losing months" is an unrealistic goal. You have to accept the bad with the good, and boy, with the way the Fed has printed money the past couple of years stocks have certainly had it good.

I chose to set the bar a bit high of "no losing months" for the challenge. Back testing demonstrates that I can expect 1 or 2 negative months per year, but the losses are generally in the 1-2% range. While my strategy is “long only”, I think it is a stretch to think of it that way. With an average hold of 2-3 days, and many trades intraday, longer term trends are irrelevant to my strategy. In fact, many of the stocks I trade in and out of are in longer term sideways to downtrends over a period of weeks to months. The buy and hold return on positions I have held is usually around zero, as I post each week and month. Currently in a 7% DD, I am still up about 28% for the year.
For many of my profitable intraday trades, the stock actually closes lower than the previous day, and I am “long”. My strategy would not be appealing to large institutions that establish large long term positions, can’t use margin, and have requirements to be nearly fully invested in the markets all the time. My strategy is for the “little guy” running circles around mutual funds.

Studies have shown that the majority of mutual funds can’t even beat their underlying benchmark. So much for buy and hold and fundamental analysis, IMHO.

I am counting on the good times outweighing the bad times with my strategy. I feel like Rocky in the ring who keeps getting back up after getting knocked down and told to stay down. When the market deals me a knockout, my strat will stutter and appear to go down for the count, only to bounce back with increased vigor. It won’t walk away!

I have strategies that I KNOW will have bad weeks and months...it is guaranteed...but they still generate decent profits overall. I view the bad runs as a way of shaking out others who might be testing similar strategies, in the hope that any potential competition will be misdirected from a good strategy. No free lunches, and all that jazz!

I know my strategy will have bad weeks and months too, I don’t know when though. One point of this journal is to demonstrate that on a month to month basis, draw downs can be minimal, and returns can beat the hedge funds. I would like to think my returns have been decent thus far, although I read on ET there are those making 1000% returns (between classes that is).

What you might want to do is attempt simplify the strategy somewhat so that for the same # of trades you are able to generate similar PnL numbers. That might free up your time to developing a short only strategy to run alongside this strategy.

If you can find a short strategy with a positive edge you will stop caring about the direction of the market. I like the way you've approached this project, but maybe you need to think outside the box, look for a completely different method to add some diversification.

Going short may not be in my blood. I have not had overall success with it discretionary as well as in back testing. I have no urge to wing it, and will have less of an urge when my funds grow. I would like to believe I am thinking outside of the box, as I have not read of anyone doing what I am doing. I would also like to keep it as simple as possible, rather than resulting in diversifying my edge away.