I was just looking at how January went and it wasn't all that pretty - like many long term traders. Not surprising considering the All Ords is down over 10% since the end of June 2007. Any gains that may have been around at the end of December were severely damaged in January 2008. Still I have a slight profit for the year, probably similar to putting my money in the bank - which is where most of it is at the moment.
Most of the open trades have turned into closed trades over January. I have left open trades off this chart, although there are not too many of them. For the first time since I started trading systems the open portfolio is in a slight loss situation.
Currently drawdown from the peak on the chart (on the 24/12/07) above to current is around 11% and could go a little lower depending on what the open trades do.
I seem to be very busy of late with work, travel and other projects (obsessions!) but I am still able to follow my system, which is very fortunate given the state of the markets at the moment.
I am afraid that I have no words of wisdom. If you are trading a long term system that you "know" works then hang in there!
regards
stevo
4 comments:
Hi Stevo,
Firstly, congratulations on a great year in 2007.
Secondly, you wrote:
"For the first time since I started trading systems the open portfolio is in a slight loss situation. "
That's a fair effort. When did you start trading systems?
Either you didn't start in 2001 or your system is much better than mine!
Probably the latter!
Nizar.
Nah - I have a selective memory! I tend to remember the good times better than the the bad. So, in hindsight, I probably should have said "As far as I can remember since I started trading systems ..."
I didn't get TradeSim until the end of 2001. Prior to that I was working with Roy's Trade Equity code. What a revelation! Lots of things didn't work, but finding what did was much harder. I wandered around in the dark with it for quite some time until I stole enough of other people's ideas (thanks Adam, Glenn and many others) to come up with something that was I convinced myself was workable.
I tend to count the beginning of 2003 as my start in system trading. My equity curves use 1 January 2003 as a start time. I have a pre-systems / post-systems mentality!
A very fortunate time use as a start date, although the market did drop 10% in the first few months of 2003 triggering a system revision. It was probably really tough in those first few months - although the equity curve probably doesn't show it that well.
Whether one system is better than others only the future will tell!
LTCM (Long-Term Capital Management) looked really good for a few years, averaging smooth 40% annual returns (according to Way of The Turtle), and then the fund collapsed in a heap. I believe the guys behind it were really really really smart! I should get the book Where Genius Failed by Roger Lowenstein.
stevo
Hi Stevo,
Yeh those LTCM guys were very smart.
It wasn't their methods that were flawed, rather, it was a combination of a couple of black swan events (Russian defaulting on their debt, Asian crisis) and high leverage.
Their total equity was about $4billion yet their exposure was $100billion+. Pretty crazy.
It is said that there are 2 types of people who fail at trading. Those that know nothing and those that know everything. LTCM guys definately of the latter.
All in all - Way too much leverage for my liking. I might go out and grab that book, would make a good read i reckon. Another good one is the one about Enron - The smartest guys in the room. I've read that and do recommend it.
Nizar.
Nizar
High leverage sounds like a flaw in a method. Also these black swan events seem to occur frequently enough that there needs to be some consideration of them in any method.
Not saying I have it all wired, I just don't leverage when it comes to trading - which makes the risk of self destruction very low. There isn't a huge amount I can do about black swans although they tend to happen often enough that they should at least be in our test periods.
In TradeSim it is worthwhile having a look at the portfolio heat chart if you are using leverage. I just ran a simulation with 5% margin requirement. It was going ok until April 2000 came along. Risk exposure went from a mundane (but very scary) 200% plus to over 4000% and the portfolio crashed.
stevo
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