Rol's Trading Journal

I made some changes to my system going forward, which should minimize volatility. While I enter positions in 1/3 and then 2/3 increments, I was working under the false assumption that not all my positions would get the full 3/3 fill, which happened during the great sell-off of 2011. In normal times only about 1/3 of my positions go to the full 3/3 fill before exit, so I had been balancing risk for the "good times."

I am returning to position sizing per equal cost rather than equal shares. While I was estimating actual average share price relatively well, it is difficult to gauge the risk taking. When I started my journal some of the smoothness of the curve was due to this equal position sizing by cost, I think.

I have coded my trading platform to alert me when the E mini crosses below its 200 DMA. In addition, I coded my system to only take trades when the E minis, as well as the individual equity, are above their 200 DMA, although it is a little late for that during this end of the cycle. I want to focus on buying dips on stocks that are in longer-term up trends as well as the overall market being in a healthy uptrend. For the time being, I may allow new positions as long as they are above their 200 DMA, even though the E mini is not.

I think the media, market technicians, and algo traders, give so much attention to the 200 DMA, that it is becoming a "self fulfilling prophecy" of sorts that when the market tests the moving average, it can signal a regime change. What I want to avoid are poor quality stocks dropping into the abyss, as well as large down moves in the broader market.


I exited some holdings today to reduce exposure that the system had already exited. Some were for less of a loss and some for more. I am holding on to the remainder of my stock portfolio for the time being in the hopes the market finds a bottom here, and then can trend higher for the remainder of the year. I know "hope" is not a strategy, but it is all I have going at this point.

I started the year with $47,853 and the current balance is $60,806. Net profit is $1,740 and the rest of the gains are from contributions. I can look on the bright side and just pretend that I have remained out of the market this year, and just now am entering.
 
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Initial Capital (8/1/2011)	$75,829 
Total Net Profit	($15,425.97)
(Per Share)	($0.73)
Gross Profit	$7,796.54 
Gross Loss	($23,222.51)
Profit Factor	0.34
Total Number of Trades	149
Percent Profitable	43.62%
Winning Trades	65
Losing Trades	83
Avg. Trade Net Profit	($103.53)
Avg. Winning Trade	$119.95 
Avg. Losing Trade	($279.79)
Ratio Avg. Win:Avg. Loss	0.43
Expectancy	-0.38
Largest Winning Trade	$1,075.00 
Largest Losing Trade	($1,767.00)
Max. Consecutive Winning Trades	7
Max. Consecutive Losing Trades	18
Total Shares/Contracts Held	21209
Total Commission	$344.20 
Return on Initial Capital	-20.34%
Annual Rate of Return	-322.08%
Buy & Hold Return	-4.20%
Trading Period	21 Dys
Max. Equity Run-up(Daily)	$15,958.98 
Date of Max. Equity Run-up	8/17/2011 15:00
Max. Drawdown(Daily)	
Value	($28,048.64)
Date	8/8/2011 15:00
as % of Initial Capital	36.99%
Max. Trade Drawdown	($3,114.00)
	
Net Worth	$61,827
Weekly Performance	0.31%
S&P	-4.57%
YTD Correlation to S&P	0.65
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I managed a modest recovery from the 8-8 lows this week and avoided a return to those lows, although the overall market has returned there. I decided to place hard stops on my positions as the market attempted to trend back up, and if hit, so be it. Therefore, by the time the market took the nasty AH nosedive on the 18th, I had a high cash position. I was not anticipating a double dip; I just wanted to return to my system trades. Besides, I have never been much of a buy and holder.

Even so, I cannot sugar coat my performance as of late. I was checking out the Topaz NQ100 over at C2, and it is having one nasty run for August as well. Some discussions over at its forum are similar to this one regarding excessive DD, and the need for a longer-term horizon, and hedging.

I have added a few more lines to my stats: Net Worth, Weekly Performance compared to S&P, and YTD correlation to S&P.
 

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I took a couple fades off the open with two short ETFs. Only problem was I forgot to change the input setting for position size when I changed my code back to per dollar amount rather than per share, so rather than buying 100 shares of each, I bought 100 dollars of each, lol.

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Things have been improving for me. My equity is 67K and it had gotten down to 47K at one point. I still have a ways to go to get back to my equity high of 81K.

I was flat at today's close, but bought 6500 shares of BAC after hours, hearing about Warren Buffett's 5 Billion investment. The stock appears to have broken out of a trading range on a gap up today with increased volume. I wish to treat this as a momentum play, and hold for several months. Could be that retail traders have given up on the stock, and now professionals are beginning to accumulate, or so the story goes.

A went to Barnes & Nobles over the weekend and picked up several books on trading, many on trend following. Here is what I picked up:

  • Jack D. Schwager: Market Wizards, Stock Market Wizards, the New Market Wizards
  • Michael W. Covel: Trend Following - Learn To Make Millions In Up or Down Markets
  • Michael W. Covel: The Little Book of Trading - Trend Following Strategy for Big Winnings
  • Michael W. Covel: The Complete Turtle Trader
  • Edwin Lefevre: Reminiscences of a Stock Operator
  • Alexander Elder: Come Into My Trading Room, Trading for a Living
  • Curtis M. Faith: Way of the Turtle - The Secret Methods that Turned Ordinary People into Legendary Traders
  • Mark Douglas: Trading In the Zone

I am looking for inspiration by learning from some of the pros. I am reading The Little Book on Trading now. Most of the traders so far in the book buy channel breakouts, and then hold for as long as possible with no upside target. They just move their stops, and when the stock turns after an extended trend, they just get stopped out for a gain. Many of their biggest winners were of several months to year's duration. That is a type of trading I would like to pursue, to the short as well as long side over many markets. It would be a nice addition to my RTM trading I currently do, as it may fill in some gaps in my current strategy.
 

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Initial Capital (8/1/2011)	$75,829 
Total Net Profit	($9,484.48)
(Per Share)	($0.31)
Gross Profit	$11,113.71 
Gross Loss	($20,598.19)
Profit Factor	0.54
Total Number of Trades	175
Percent Profitable	58.29%
Winning Trades	102
Losing Trades	72
Avg. Trade Net Profit	($54.20)
Avg. Winning Trade	$108.96 
Avg. Losing Trade	($286.09)
Ratio Avg. Win:Avg. Loss	0.38
Expectancy	-0.20
Largest Winning Trade	$1,075.00 
Largest Losing Trade	($1,767.00)
Max. Consecutive Winning Trades	19
Max. Consecutive Losing Trades	17
Total Shares/Contracts Held	30646
Total Commission	$527.68 
Return on Initial Capital	-12.51%
Annual Rate of Return	-153.73%
Buy & Hold Return	-2.69%
Trading Period	28 Dys
Max. Equity Run-up(Daily)	$18,564.16 
Date of Max. Equity Run-up	8/26/2011 15:00
Max. Drawdown(Daily)	
Value	($28,048.64)
Date	8/8/2011 15:00
as % of Initial Capital	36.99%
Max. Trade Drawdown	($3,114.00)
	
Net Worth	$67,328.49
Weekly Performance	10.82%
S&P	4.77%
YTD Correlation to S&P	0.69
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I was stopped out of my BAC position for a $200 gain. I had too large of a position anyway to be holding it comfortably overnight.

The TS platform froze on me last night, and so this morning without realizing it, order entry macros were disabled. Thus, I missed several buy opportunities off the open today. I am now back to being flat.
 

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Initial Capital (1-1-2011)	$47,853 
Total Net Profit	$7,162.37 
(Per Share)	$0.03 
Gross Profit	$70,131.11 
Gross Loss	($62,968.74)
Profit Factor	1.11
Total Number of Trades	1677
Percent Profitable	60.94%
Winning Trades	1022
Losing Trades	653
Avg. Trade Net Profit	$4.27 
Avg. Winning Trade	$68.62 
Avg. Losing Trade	($96.43)
Ratio Avg. Win:Avg. Loss	0.71
Expectancy	0.04
Largest Winning Trade	$1,936.09 
Largest Losing Trade	($1,446.00)
Max. Consecutive Winning Trades	29
Max. Consecutive Losing Trades	38
Total Shares/Contracts Held	205594
Total Commission	$4,213.85 
Return on Initial Capital	14.97%
Annual Rate of Return	20.71%
Buy & Hold Return	-2.21%
Return Retracement Ratio	0.78
Trading Period	8 Mths, 1 Dy, 23 Hrs, 59 Mins
Max. Equity Run-up(Daily)	$23,836.07 
Date of Max. Equity Run-up	7/21/2011 15:00
Max. Drawdown(Daily)	
Value	($34,775.71)
Date	8/8/2011 15:00
as % of Initial Capital	72.67%
Max. Trade Drawdown	($2,342.00)
	
Net Worth	$67,042
Weekly Performance	-0.52%
S&P Wkly Performance	-0.18%
S&P YTD Performance	-6.35%
YTD Correlation to S&P	0.68
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The up and down trending in August was not conducive to my trading style. Trending markets are obvious in hindsight, but not so much in real time. I finished the month with a 9.5K loss. I had nearly zero trading signals this week so did some small trading on the short side to fight boredom, but unfortunately missed today's gap down. I plan to do better following my system going forward.

Weekly performance was hurt due to $257 in margin interest charged for August. Overleveraging exacerbated the excessive DD I experienced. I also will be more selective with my trading signals going forward, by only taking trades when the stock has been trading above its 200-day moving average.

It will take some time to get the performance metrics back up after last months hit, but long term is the way to view performance. This accounts for short-term lucky as well as unlucky trades, and evaluating true system performance becomes clearer. As witnessed, my system has hot streaks mixed with a knock upside the head.
 

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Quote from doublet83:

Sorry if you already provided the answer to this, but what's the difference between the composed equity curve and equity curve?

This is from TradeStation help:

Composed Equity Curve at Close:
This graph shows the cumulative equity value, at the close of each day, across all symbols included in the report. It displays the cumulative equity (in $) vs. the date scale for all trades.

Equity Curve Line (Graph):
This graph displays an equity (in $) vs. trade number for all closed trades. The equity curve line chart presents trading performance on a trade-by-trade basis. This chart does not use time on its x-axis, but rather the realized profit per trade. This all-purpose equity chart is best used as a general snapshot of trading performance.


I use MTM accounting, so open positions are considered closed end of day on the Composed Equity Curve at Close chart, but display as the last trades of the Equity Curve Line Graph.
 
This has been a good thread Rol. Perhaps you will redouble your efforts, use the difficult markets as a motivation tool to improve on your strategy or find alternative ones...

What is your plan of action? Please could you share some of your observations and lessons learned?

Has the journal been worthwhile from your perspective?
 
Quote from benwm:

This has been a good thread Rol. Perhaps you will redouble your efforts, use the difficult markets as a motivation tool to improve on your strategy or find alternative ones...

What is your plan of action? Please could you share some of your observations and lessons learned?

Has the journal been worthwhile from your perspective?

Hi benwm, I made improvements, which I have described, that would have mitigated the damage done recently. I am currently reading several books for motivation and some new ideas. All of us have our own path to follow.

I thought the journal would help me follow my system better. I still have bad habits to overcome, namely taking excessive risk, especially at the worst time. I am reading Market Wizards now, which has helped. It is remarkable that many concepts I have come up through personal observation, I have read about in Market Wizards.

There are times I doubt I have an effective system, and other times it feels like I am really in a groove. The equity graphs remind me that sometimes the ride will be smooth as well as bumpy. I am hoping that using less leverage will help with DD. I remain confident that my system can find its groove once again.
 
I just finished programming a disaster stop into my system. If system wide open losses exceed 20% of the net equity, then all positions are closed. This should help keep me from over using margin, and get me out if markets go into a 1929, 1987 type free fall. It appears all the great traders have an uncle point where they get out so that they can think more clearly.

Here is a comparison of 1929, 1987, and 2011. Note how the DOW really drops once the 200 dma is breached:

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