Weekly results of a wanna B algo trader - 2011

[Engine99]

Finally flat and able to get my finances back in order. I tried the “close all positions” feature of Interactive Brokers and I've to say it worked like a charm in a real live trading account. I got filled on all trades at the limit price (obviously on the bid for the positions I was long, on the ask for the positions I had to buy back). My final account balance was 250705 (+107k that are excluded from this calculation that I've had to deposit to cover the margin today), the S&P performance of the same funds would have resulted in 227920 (including dividends on commissions on both ends). I pretty much failed on all my trading goals and took quite a hit in my trading confidence. I did however manage to preserve my capital, so that's about the only good thing about this experience (Q1/Q2/Q3 – 2011). I'll obviously get started again, I'm itching to get back into the market, but I'll take at least a couple of days off looking at the S&P right now. I also went through a technology refresh (switched my Dell laptop for an Apple, upgraded my trading backtesting server, operating systems and execution environment) and will take more and more advantage of cloud technologies where ever it makes sense.

As far as this journal goes, consider this my “going off the grid” post. I'm not sure what I was looking for but I'm positive I didn't find it. The same is true for my blog (theclosetgambler.com). I'm sure it was somehow related to bragging rights (a couple of month ago I've had a decent return and nice smooth equity curve, so back then it was “look how great I'm doing”), then probably some basic sanity checks (does it really make sense to take 100k of my home equity line to make sure I can cover my margin requirement), overall I don't think it really helped my trading results. Thanks a ton to the folks contributing (jedwards, dgunz, mike805,etile), I really appreciated your input, there's not a lot of sanity in this community, so being able to bounce some ideas off people is always very valuable. I'll continue to responsd to questions or messages but I won't post P&L, strategy performance or other content in my journal or in my blog.
I'm still advancing towards my goal to trade for a living, set backs like these are a necessary evil I suppose and compared to my 401k fund manager I kicked butt. I'll continue my quest and 250k seems like a great starting balance for my next iteration, however after talking to several others who do this for a living I'll be less focused on beating the
S&P 500 benchmark index and will be more focused on other goals that I completely missed in this attempt.
There are several journals I follow but one I've loved for many years was neke's
http://www.elitetrader.com/vb/showthread.php?s=&threadid=213286 . Dude, I know you're in a slump as well, I have no good advise for you (your thread has enough of that ), but good luck going forward.
The same goes out to the larger trading community. This is the best game in the world, good luck beating it, I'm sure our trades will cross paths from time to time.
Final Performance: 3815
Final S&P 500 Performance: -20934
Final Saving Account Performance: 1447

 

[jedwards]

Sorry to see you go, I enjoyed reading your postings.

To be honest, I don't know why you're being so hard on yourself, it certainly seems like your algos combined were doing pretty well, especially considering the markets. It definitely took a big hit, but once we get over this rough patch, don't you think it will get back to making money?

It seems like you took a hit along with the SPX at the same time, so maybe have you considered cutting back size when the VIX goes over a certain amount? If you had cut back your size by 1/2, I think your system would have done much better, no? Maybe that's something to consider in your next iteration.

Regardless, good luck and I hope to see your next journal soon!

 

[Engine99]

Quote from jedwards:

Sorry to see you go, I enjoyed reading your postings.

To be honest, I don't know why you're being so hard on yourself, it certainly seems like your algos combined were doing pretty well, especially considering the markets. It definitely took a big hit, but once we get over this rough patch, don't you think it will get back to making money?

It seems like you took a hit along with the SPX at the same time, so maybe have you considered cutting back size when the VIX goes over a certain amount? If you had cut back your size by 1/2, I think your system would have done much better, no? Maybe that's something to consider in your next iteration.

Regardless, good luck and I hope to see your next journal soon!

I do think I'll make decent money once we get back to less fear; My sweet spot is a VIX in the 18 to 25 range.

Now I could have avoided the costly bike tour a couple of weeks ago, but my biggest mistake was not following my standard exit rules. First there was the debt ceiling issue and once we went nuts there, I stopped adding new positions at all (so not even half size but 0 size), but I didn't exit the existing ones cause (famous last words) "I hoped the market would come back". Then the S&P downgrade came but at that time I was hedged already.

I guess here's what bugs me the most.
When the markets are somewhat calm, I barely beat the S&P. I'm honestly having the hardest time measuring up to the S&P performance in 2010. When the markets are a little wilder (08 and this year), I beat the S&P but I still have a hard time making decent returns (and it's very stressful too since I've had to move serious equity just to be able to get out of my positions). Decent returns in my opinion are north of 10% after taxes. I compare that to other traders who make north of 15% every single year and there's a grand canyon between these two performances.

I honestly think because I'm trying to beat the S&P, trying to be profitable and trying to make decent returns, my overall performance suffers and volatility increases. So my next try will be without the public (or the two guys who actually read my journal, thx for that by the way !!!) watching. I hope that way I'll get less volatile results and more confidence that I can accomplish my goal.
I truly appreciate your input though and helping me put my results into perspective.

 

[Engine99]

As this year is winding down and as I can barely move because I’m so stuffed from all the Christmas turkey, it’s time to reflect on the last four month of trading to close out 2011.

Interestingly after having a really tough time in August (see previous posts) I’ve had a really good recovery.

In October I’ve had a business trip to Chicago and met with two former floor/prop traders for dinner. While they did not show me “the holy grail” they did point out some of my mistakes (mostly that I’m trading too big in most of my positions and can't handle when they go against me). Since then I’ve had quite the roller coaster. I’ve had about 12% return on my account by mid November, had a really bad week @ Thanksgiving (anyone remember those big down days) and almost gave back all my profits. Then in December I’ve been positioned perfectly, short volatility and ultra long deltas and managed to make about 20% in December (22% for the year). If I know anything I know that I need access to capital a lot during times when the market does not cooperate. E,g, in November I’ve had to transfer 50k (25 into each account) to avoid margin calls (otherwise I'd have to close out some positions to raise cash). For 2012 I’ll reduce my account slightly (from 350k to 320k) and will try to go for a 40% return. Confidence (and trading account balance) is at an all time high right now and has been like that for the last two weeks. After my rough spot in August I’ve completely ignored my account balance, didn’t do weekly or daily P&L, stopped tracking the various strategies and just focused on doing the right thing. It actually worked and helped my trading quite a bit; I didn’t get lost in the daily details and ended up higher for the most part.

I hope that most of you guys did well also, let’s enjoy the remainder of this dull trading period and get in shape (physically and trading wise) for 2012.

My trading goal for 2012: 125k