I thought, why not test my ideas posted here:
http://elitetrader.com/vb/showthread.php?s=&threadid=72707
Thus in this journal I am going to manage an imaginative fund called Verisimilitude. I will have 1 million dollars AUM for easier accounting. The goal of the fund is to mimic the performance of the S&P and trying to outperform it by a few good calls.
Well, if you read the original thread, the strategy itself should outperform the S&P by 4% without really doing too much. But I am going to spice it up in this journal, and trying to have a much better performance then the market, using very few trades and only 1 trading vehicle.
So this is the general strategy: I put 80% of the money in a CD yielding 5% a year. Thus it will give me a safe 4% return on capital. The rest is put in a futures brokeraccount, and will be used trading ES futures. Since 16 futures will give me exactly 1:1 leverage on the million, and the goal is beside outperforming the market to do it in the safest and less risky way, I will not overleverage. I will call this 16 contracts the Unit. Occasionally I will use less than a unit or for a quick intraday move up to 2 units, but generally, the idea is to be in the market with 1 unit when the market most likely to go up and being in cash or short when I think it is going down.
In the original thread I came to realize 2 problems that I have to overcome when following this strategy:
1. Avoiding margincalls.
2. Premium between the futures and the index.
To avoid a margincall, I have 200K on the broker's account thus if I am in the market with 1 unit, the market can fall 15% before I get a margincall. I think that gives me enough flexibility and I will get into cash or short the market if I think it is necessary.
The premium between the futures and the index is about 3 ES points a month. Thus just to get the same performance as the S&P does, for a whole year I have to make 36 ES points more. Please note, that if I don't make that 36 points (which is 3% at current marketlevel) the fund still should make 1 % more than the S&P, because of the 4% CD interest gain.
Since I am starting this journal just a bit after the year passed its half, my CD return is cut in half, thus I am going to get only 2%. But I only have to make 18 ES points as an advantage. Also the market yesterday closed at 1236, a full 1% below where it started the year, thus I have a built in 1.5% advantage (2+1-1.5), even if I don't make any extra points. Well, timing is everything in investing/trading. But to be honest, I will note both the absolute and relative performance at year's end.
As a summary: The goal of this journal is to try to outperform the S&P using a simple strategy, 1 trading vehicle with relative few trades in the simplest and least risky way. The trading vehicle is most of the time 1 unit (16 ctrs of ES), occasionally using 1 extra unit for intraday moves.
Well, since the fund has just started, I am looking for getting in long on Monday...
http://elitetrader.com/vb/showthread.php?s=&threadid=72707
Thus in this journal I am going to manage an imaginative fund called Verisimilitude. I will have 1 million dollars AUM for easier accounting. The goal of the fund is to mimic the performance of the S&P and trying to outperform it by a few good calls.
Well, if you read the original thread, the strategy itself should outperform the S&P by 4% without really doing too much. But I am going to spice it up in this journal, and trying to have a much better performance then the market, using very few trades and only 1 trading vehicle.
So this is the general strategy: I put 80% of the money in a CD yielding 5% a year. Thus it will give me a safe 4% return on capital. The rest is put in a futures brokeraccount, and will be used trading ES futures. Since 16 futures will give me exactly 1:1 leverage on the million, and the goal is beside outperforming the market to do it in the safest and less risky way, I will not overleverage. I will call this 16 contracts the Unit. Occasionally I will use less than a unit or for a quick intraday move up to 2 units, but generally, the idea is to be in the market with 1 unit when the market most likely to go up and being in cash or short when I think it is going down.
In the original thread I came to realize 2 problems that I have to overcome when following this strategy:
1. Avoiding margincalls.
2. Premium between the futures and the index.
To avoid a margincall, I have 200K on the broker's account thus if I am in the market with 1 unit, the market can fall 15% before I get a margincall. I think that gives me enough flexibility and I will get into cash or short the market if I think it is necessary.
The premium between the futures and the index is about 3 ES points a month. Thus just to get the same performance as the S&P does, for a whole year I have to make 36 ES points more. Please note, that if I don't make that 36 points (which is 3% at current marketlevel) the fund still should make 1 % more than the S&P, because of the 4% CD interest gain.
Since I am starting this journal just a bit after the year passed its half, my CD return is cut in half, thus I am going to get only 2%. But I only have to make 18 ES points as an advantage. Also the market yesterday closed at 1236, a full 1% below where it started the year, thus I have a built in 1.5% advantage (2+1-1.5), even if I don't make any extra points. Well, timing is everything in investing/trading. But to be honest, I will note both the absolute and relative performance at year's end.
As a summary: The goal of this journal is to try to outperform the S&P using a simple strategy, 1 trading vehicle with relative few trades in the simplest and least risky way. The trading vehicle is most of the time 1 unit (16 ctrs of ES), occasionally using 1 extra unit for intraday moves.
Well, since the fund has just started, I am looking for getting in long on Monday...