System Drawdown

The last 6 months

2011-12-12T16:10:00.000+11:00

Trade entry and exit are from the last set of orange arrows on each chart.

They are not all winners.

2011-07-22T15:01:00.001+10:00

Sun was a long relatively fruitless trade, the only bonus being some dividends.

MIN was not a disaster, but it didn't make much.

I lost some money on this one and the next one.

July 2011

2011-07-06T10:28:00.000+10:00

Only one buy signal was triggered.

The nicest sell for the month is shown below. I bought LYC for at $0.83 and got out at $1.88, 127% gain over 11 months on a reasonable position size. Not in the MSB trade league that I had earlier this year, but not too bad.

I am still offloading some positions for the month.

MSB trade

2011-05-14T12:14:00.000+10:00

MSB turned out to be a big winner. I had a profit exit in April 2011 and exited at an average price of $8.97. Purchase price average $1.41, giving a gain of 537% over 17 months. It was nice to sell into a rising price on MSB.

I also had a couple of small losers, CFE (-18%) and RED (-25%) but fortunately the MSB gains made these losses insignificant.

I didn't get any buy signals at the end of April, only sells.

stevo

Some Small Gains

2011-02-02T22:33:00.000+11:00

These are 2 relatively short trades for me, considering that this portfolio has a couple of "trades" that have been running for well over a year.

IGR trade 14.3% gain


AVO trade 8.3% gain

I have been targeting getting in and out of stocks on the open or the close. I find that I can put through good volumes in these periods, although I should do a bit more reading about the process that occurs at these critical market periods.

stevo

First sell this year

2011-01-26T16:49:00.002+11:00

Out of SBM at breakeven.

Just a chart

2011-01-26T16:41:00.000+11:00

Just a chart for The Chartist

First post for 2011!

A couple of trades

2010-11-08T21:23:00.000+11:00

Below are a couple of trades I exited recently.

These trades were taken using a weekly system. Both AND & KCN were bought in June 2009 so they were well over a year old. Andean Resources (AND)was a profit exit, although it's really an option I don't use much with this system. AND are a takeover target. Both of these are in my Super fund.

Computers

2010-10-03T15:51:00.000+11:00

I have changed desktop computers 3 times this year! I find myself drawn to AMD based systems. I tend to go for the underdog. I like the idea of having strong competitors to massive companies like Intel and Microsoft. AMD systems tend to be cheaper and work just as well. AMD offer more bang for my dollar and my old penny pinching habits die hard.

AMD is not really a struggling minnow and has been fighting Intel for quite some time, as shown by the $1.25 bn settlement last year. Dell has also been under the spotlight for their "symbiotic" relationship with Intel. I think that it would be true to say that the concept of fair competition has been stretched to the limits when examining the computer giants.

Many of the worlds supercomputers run AMD and Linux so I am not in bad company.

Microsoft lost the plot with Vista and triggered my interest in Linux. There is a massive amount of software for Linux based machines and most of it is free. In Ubuntu I just go to the Software Centre and search for what I am after, including very good photo software (Digikam and Gimp), excellent browsers (Chrome, Opera and Firefox), a number of Office packages (Open Office or Libre Office, Gnumeric, Abiword) Evolution for emails, not to forget such gems as Virtualbox, GnomeDo, Tomboy Notes and Lucky Backup. I even have a virus scanner, although I don't use it much. Some of the anti-virus software really bogs down Windows based machines.

The Ubuntu Software Centre is a little like Apps on an iPhone or marketplace on an Android phone.

I have Windows 7 running on a virtual machine for downloading share prices. Windows 7 is also essential for running Tradesim.

Running a Linux based operating system is a bit like being a member of an outlaw bikie gang. A one percenter, Outlaw nerd, that's what I am. More than 90% of computers run Microsoft Windows. It's amazing that Linux exists at all given the huge user base Windows has.

So why change computers 3 times in one year. One reason is because it was very easy to do. I just pulled the small (32gb) SSD drive that holds my operating system out of the old computer, along with my data drive, and plugged them into the new setup, booted up and away it went! Try that with Windows 7.

stevo

Spreadsheets & Amibroker

2010-10-03T14:49:00.000+11:00

The chart above shows system performance without a profit target versus the chart below that has a profit target.

I haven't posted for a while. I find myself becoming quite secretive about trading methods and system performance!

But I have decided that I am happy to share some stuff about what can be achieved with Amibroker and some spreadsheets. The series of charts above were generated using a dummy variable in Amibroker to produce a range of outcomes from the Explorer. I have mentioned this elsewhere in this blog.

I use a template spreadsheet and just copy the data from Amibroker straight into the spreadsheet and up pop the charts above. These charts were produced using Open Office, not the best spreadsheet software on the market but certainly the cheapest - free. It is quite capable for basic tasks like the one above.

These charts are created using frequency distributions. The intervals for the distributions are automatically generated.

A profit target between 200% and 400% for the long term system (ave hold time of 290 days) shown above works quite well. Not a lot is gained by setting a higher target, and drawdown is slightly worse.

Update

2010-01-22T16:32:00.005+11:00

Whilst the market does what the market does I have been working on a few things of late.

Firstly I have turned comments off on the blog from (except for registered users) for the moment because of the spam that started to fly around.

I have also started implementing Praemium to see how it goes keeping track of trades and bank accounts. So far the trade recording has been great, with trades showing up in my online portfolio without me touching a keyboard. If the banklink side goes to plan I will should have very little paperwork to contend with.

I have also been dabbling in computers. I built an AMD based machine (Athlon X4 620, 8gb ram, 64gb ramdrive, 500gb hard drive) for around $800.

The most fun has been running Windows XP in a VirtualBox, with the physical computer loaded up with Ubuntu 9.1 (karmic koala). So I can run Amibroker or TradeSim on a virtual machine but have access to the free software that comes with the Linux distribution.

The screen-shot shows Tradesim and Amibroker running. I captured the screen whilst rotating it in Ubuntu. I will also be trialling Windows 7 on a virtual machine, although I am pondering as to whether I should get 64 bit Amibroker.

With trading systems I am still starting up my monthly time frame system for my super fund - it takes a while to get change over from one system to another. 2009 was a good trading year and many traders would have profited from the strength of the market.

stevo

Customers trade

2009-12-21T14:32:00.003+11:00

Exited this one last week - I was hoping to make a year with it. Just over 120% up.

Walk Forward testing – some thoughts

2009-11-24T17:43:00.007+11:00

The numbers below are from a weekly system I have been playing with. It’s not really a complex system, although it does use ranking of stocks potentially to boost results – something I am still contemplating as a strategy.

The buy signal initially only used one indicator – the one optimised in this test. I then added in extra criteria, but only when the index was bearish as determined by a moving average. I then added a ranking criteria based on momentum – the system takes the strongest stocks in terms of momentum. So the breakout criteria optimised in these tests is a major component since when the market is bullish it is the only buy criteria used.

The table below shows out of sample only results for 3 walk forward simulations. The walk forward used optimisation of a parameter used in an indicator, a dummy parameter with the real parameter fixed throughout the test and, in the final test the indicator that used the real parameter was deleted from the buy signal altogether. The optimisation metric used was profit factor in all tests, although it’s sort of irrelevant if the test is optimising a dummy value.

Working on the hypothesis that the in-sample tests are irrelevant, and to save words, I have left the in-sample results out of the above table.

The orange colored rows are using a dummy walk forward optimisation variable with the parameter / indicator removed altogether from the buy signal, instead of being a fixed value as in the white rows, or the optimised parameter in the yellow rows.

I also graphed CAR% below to get a better picture of the results.

So - the questions are;
1. Does the buy parameter / indicator being tested make any difference?
2. Is the system robust?
3. How valuable has the walk forward process been?

Q1 Whilst at first glance it doesn't make much difference look at the Maximum System Drawdown column, especially the last row when drawdown hit 57%. Whilst the parameter often doesn’t do a lot it was certainly worth having in the buy signal during the Global Financial Crisis. Exposure to the market was also often higher than the other tests when the indicator was removed, as was the number of trades taken.

Q2 The system's robustness is something that I would test using Monte Carlo analysis for further verification, although the system performed well over a range of different market conditions. I would like to understand what path the ranking is leading me on through the range of possible paths through the market.

Q3 I get a lot out of walk forward, but not in the sense that some people might. I am not keen on changing indicator parameters on a regular basis, but I have no real proof that my lack of keenness is warranted. But as a method of testing a strategy over a range of different market conditions and portfolio start-up dates it certainly is useful.

Without going into a lot of statistics I would be happy to say that there is no significant difference HHV optimised and changed every walk forward period and HHV "intelligently" fixed, however taking the parameter out altogether….no.

stevo

Rubber glove bagpipe

2009-11-14T13:48:00.003+11:00

Wonderful stuff - you should see what he does with a condom.

Linsey has a website as well.

stevo

TradeSim Parametric Testing - good stuff!

2009-11-12T22:28:00.003+11:00

I always thought it would be nice to optimise on position size criteria. It can be done in Amibroker, however TradeSim has really excelled with the recent upgrades to their software as shown by the following charts. It is clear that, with the system below, there is not a lot to be gained from increasing risk much beyond 1% in terms of net profit. Drawdown will increase, with some decent size outliers to spoil the party. I am sure I would manage to become an outlier (in the wrong direction) in actual trading!

These tests were run using TradeSim Enterprise Edition. I used Amibroker to generate the trades without having made any changes to the setup I had in AB for the previous version of TradeSim. The charts above do not do justice to the quality of the output - although the TradeSim site has better examples.

The charts above are from a monthly system I am using, as mentioned below.

regards

stevo

Monte Carlo and spreadsheets

2009-11-11T22:11:00.002+11:00

I couldn't find any posts I had put up on this technique. I run Monte Carlo simulations (as many as you have the patience for - I did 200 runs) in Amibroker and then export the data to a spreadsheet.

The graphs shown above were done using Open Office, but any decent spreadsheet software will do (although OpenOffice is free for those that are frugal with their dollars :) ). I have done the same thing using Excel as well. I didn't generate the data for these graphs but the technique is quite easy once you master how to work out how to auto generate the "Bins" for the frequency distribution.

I put this up on ASF in response to a question - I haven't visited ASF for nearly a year.

regards

stevo

BTA & CTX - A couple of trades

2009-11-11T17:31:00.003+11:00

I closed a couple of system trades over the last couple of weeks. CTX didn't do much, except to lose some dollars for me.

BTA was a more interesting ride. I remember taking the entry on this stock because it had closed at $0.87 on the Friday and jumped to $1.405 on the opening the following Monday when I was about to take the trade. I usually struggle to remember an individual trade after a couple of weeks. It peaked at at $1.79 for the week whilst I entered at $1.61! The volatility forced me to scale back the position substantially to reduce risk. I got out at $2.72.

I am wondering if I could consider recalculating risk on this sort of trade a couple of weeks in and add to the position size - something to ponder (but not lose sleep over).

The dog is looking at me like I should feed him so I better go - I sometimes wonder who is wearing the leash! According to accepted wisdom my dog is 90 human years old, although I haven't seen too many 90 year old men chasing possums (younger women maybe, but not possums)

regards
stevo

System design & testing

2009-10-13T07:23:00.009+11:00

This post refers to a monthly time-frame system I mentioned a couple of posts ago.

To design this system I used ASX data for around 500 stocks from January 1999 up to the end of 2004. The initial ideas were coded and then optimised. The buy signal is made up of 2 variables and the exit is a simple ATR trailing stop plus a simple, rarely triggered, profit exit.

I optimised the variables, fixed them and forward tested up to September 2009. The whole exercise was completed over a weekend. It's not a question of what time-frame to use, trading is about what works for the trader.

The security profit distribution shown below has the top 50 winning trades excluded to see if there are any big winners impacting on the results. I excluded the top 50 since there were over 1000 possible trades over the 10 year period.

Yearly profit is shown below ($500,000 capital kept constant) again with the top 50 trades excluded.

Yearly profit without trades excluded.

I am ranking the trades, not so much to improve the performance of the system, then to stop me wondering which stock to pick out of the handful presented.

I also did some runs where I started the system up at the beginning of every year from 2000 through to 2009. There are some difficult startups based on these runs, but nothing that a trader that understands the system could not ride out. I am not starting from scratch anyway since the portfolio is already close to fully in the market.

regards

stevo

Couple of Trades

2009-10-08T18:14:00.003+11:00

A couple of trades that I closed recently. Nothing spectacular, but profits are profits. This system is the one I have been trading in this portfolio since January this year. The first trade was CUS (Customers) way back in January and it's still running.

LYC above was looking pretty good, but then I believe that the Chinese couldn't buy into the company due to FIRB rules and the price took a bit of a tumble - although I won't complain about a 40% plus gain.

stevo

Possible New System

2009-10-07T18:32:00.003+11:00

Click on the chart to get an animation!

I have been a little busy lately, but I have had time to work on a new system. The chart shows what the system's potential could be. One thing that many people would struggle with is that the system runs on a monthly time frame. It should do nicely for my super fund.

I'll post some more test info when I get a chance - got to go.

stevo

Weekly Systems

2009-09-09T20:12:00.005+10:00

In response to a recent question and stealing from something I did sometime ago...

Advantages of long term weekly systems;
1. Big money comes from big moves. Some of the biggest winners in the Australian market took several years to develop.

2. Less trades, less mistakes (although I still seem to manage!). Less trades (or trading) does not mean that less money is made or that less money is committed to the market. I am often fully invested.(I spent 6 months out of the market last year!)

3. Less time required (although the more capital the more time it takes). Much of my time is spent researching systems and strategies (not lately though - just trading). I also work, although my hours are quite flexible.

4. Reduced noise. Weekly charts allow the trader to stand back from the market and see the bigger picture. When I am on holidays I will often only check the prices on the weekend to see if any exit signals have been triggered.

5. Liquidity becomes less of a problem. I can buy or sell a stock on more than one day in a week, just as some might buy or sell several times through the day to get the position they want. I will buy up to 8% of average weekly volume, although I rarely do.

So weekly systems suit me, although each to their own.

I use the All Ordinaries index (around 500 stocks) as my universe of stocks.

The number of trades that trigger is dependent on the trading system used, the time frame and the number of stocks scanned. One of the systems I am currently using ranks the trades. I limit myself (in this system) to the top 4 stocks in the list. Another system allows discretion - flip a coin, look at the fundamentals, consult the stars, whatever, to make the final selection from the possible trades presented.

I use 1% risk position sizing. I don't worry too much about portfolio heat - I can easily have 20 trades running, although some will be below 1% risk due to lack of volume.

My biggest problem lately is adding extra money into the portfolio when it becomes available. I have been looking into the future and position sizing based on capital that will become available in the next 6 months from other sources.

I'm off to Europe for a while,

regards
stevo

Cheap netbook & Amibroker

2009-08-22T19:43:00.003+10:00

I loaded Amibroker onto a small 10" Kogan Agora Pro laptop to see how it would go. I had no problems installing and running Amibroker on the netbook - not all that surprising except it's running a version of Ubuntu linux called gOS. It just installed using Wine without any hassles.

It's not all trouble free, help and the editor seem to have some bugs, but as a small cheap travel computer to monitor a system it would work quite well.

The laptop itself is running surprising well - 2gb ram & 160gb hard drive for $439 plus postage is not bad. The wireless is not as powerful as my Dell but works ok. Considering that you can pay twice that for an iPhone it's quite impressive. Whilst it won't make a phone call it does come with Skype ready to go and a webcam built in - I'd like to see Amibroker run on an iPhone!

The screenshot is of one of my current trades, FXL. It's a very nice trade so far, although it's not over yet.

stevo

Animating Trades

2009-08-01T09:08:00.001+10:00

Stevo - just playing around. If you click on the chart above you should get a slideshow of some of my current trades.

stevo

PAN trade and an update

2009-07-29T07:42:00.003+10:00

PAN was nothing spectacular but at least it made some gains. I re-entered this trade when the buy signal was triggered a week after I sold it. This system ranks the trades and I just take them in order so I have less decisions to make.

There has been a few sells in July as the market wobbled a little - some winners and some losers. Other sells included DYL, MMX, ETC, DOM.

Trading started up again back in January 2009 when signals started to appear. I was cash before then. With longer term systems it's usual to only realise loses in the startup period - winning trades tend to last longer whilst losing trades are cut short.

Over the last week substantial gains have crept into the portfolio - the market is looking promising. I am pretty well fully invested.

stevo

At Last!!!

2009-05-30T14:12:00.003+10:00

At last I sorted out my software to handle another cash account and put in all my back contract notes since September 2008. The following charts are based only on trade profits and losses. Interest and some dividends will help take the edge off the year, just a little bit.

Yearly performance shows that I gave everything that I made in 2007 back in 2008. Such is trading. 2009 is shaping up ok at the moment, at least the calender year will. It would be nice to present the data in financial years.

The equity curve suffered more than it needed to as I put significantly more money into the market over the last 18 months.

I am close to fully invested at the moment. Best trade this year is CUS.

stevo

Profit to Risk - current portfolio

2009-05-11T07:16:00.005+10:00

I thought that Profit to Risk on current trades was a good way to see how the portfolio was tracking. The chart shows actual trades in the market.

A profit to risk of -0.5 would mean that the trade is half way to the maximum risk for the trade. So if risk was $10,000 then a profit to risk of -0.5 would mean that the trade is down $5,000. A profit to risk of -1 means that it would be time to sell.

This portfolio is showing some promise. I have some buying to do today.

Since I changed bank accounts part way through this financial year my records are in a bit behind, which is why I haven't been reporting portfolio performance (or lack of) on the blog. I have to link another bank account to my cash book in Stockmaster, whilst not losing data from the old account. I am sure that it is easy to do but I haven't worked it out yet.

Thanks Comsec for complicating my record keeping and adding an extra bank account to the mix! They have a set up where I have a Cash account and an Investment account. Everytime I make a trade I have to remember to transfer the correct amount from the Investment account to the Cash account so the trade can be settled. If I buy a few shares and sell a couple over a few days I have to do the maths and make sure that the correct amount is in the account. If I try to maximise interest I have to transfer the funds on a daily basis. If I am short then they charge a $50 plus fee even if there is millions of dollars in the Investment account, although if I ring them they supposedly waiver the fee. I have had to ring them once this year already.

I should have left things as they were rather than chasing a little bit more interest. I was 100% cash and an extra 1% (or something like that) seemed worth it at the time.

Enough of my complaining.

stevo

SBM sell signal

2009-04-24T14:25:00.003+10:00

Another sell for the system. I acted on this on the monday following the signal. This weekly system is only just starting to get back into the market. I will probably only be selling losing trades for a few months.

The most promising trade in the portfolio is CUS. It was purchased back in January 2009 and is most of the gains in the portfolio.

stevo
Please note: I am not making any recommendations above. This blog is historical by nature - not real time in terms of trading.

RMD sell

2009-03-15T09:18:00.003+11:00

RMD looked promising, for a while.

stevo

Failure to act

2009-02-20T08:24:00.005+11:00

I have really beat myself up on a failure to act on a sell signal.

I have used the excuse that I sold most of them so it's not such a big deal. But I am far from perfect – I stuffed up. It's easy to see the mistakes others make, but it's harder to accept failure in oneself.

I sold 2/3rds of BKN way back in September 09 when the signal was given for an average price of $9, but there was a part of the order just sitting there at the end of the week. I am out now for a substantial loss.

I guess I learned something. Experience can be the worst way to learn, but maybe sometimes it's the only way. Maybe someone will learn from my mistakes.

stevo

Sailing and trading

2009-01-28T18:03:00.003+11:00

I know it's not trading related, but it's what I have been up to lately. The Google Earth image is a plot of the path of my sailing kayak last weekend. I have coloured it by distance, starting with red and finishing with magenta.

I have had a couple of buy signals in January (and both trades were taken!) so I might start posting some trading soon.

stevo

Small Ords performance

2008-12-15T08:08:00.003+11:00

On the 14 March 2003 the Australian Small Ords Index closed at 1388.1 and then the market started it's upward run to peak at 4098.1 on the 2nd Novemember 2008, not far off tripling in value.

Then the index proceeded to give back most of the gains in a little over a year. There was plenty of warning. The drop was not as fast as in 1987.

The Small Ords only has to give up another 195 points and it's back at where it was at in 2003. The Small ords is down 61% from it's peak a year ago, whilst the All Ords is around 50% down.

I have been looking at fundamentals lately. I am tempted to push some super money into some high yielding "blue chips". So far I have resisted the urge, dimly aware of my poor ability to pick winners through fundamental analysis. For me the numbers don't give the full picture.

stevo

Note: The S&P/ASX Small Ordinaries index is comprised of companies included in the S&P/ASX 300 index, but not in the S&P/ASX 100 index. It ignores the top 100 stocks and gives a view of the smaller cap stocks on the Australian market. It is a favourite index of mine.

System state

2008-12-02T22:57:00.003+11:00

From the interpretation window in Amibroker.

STATE - Last 26 weeks
--------------------------------
SystemOff = 22 Weeks
SystemOn = 4 Weeks

So the system has only turned on 4 weeks in the last 26. The Small Ords is down 59% from it's peak.

I still haven't updated the blog in terms of system performance. With so little happening I haven't been in any rush - hey it's my blog and I'll blog if I want to. Maybe I will wait until January.

stevo

AQA, NHC and some glorious nudes

2008-10-07T08:04:00.008+11:00

Just a couple of charts of some recent sells that I made. AQA was a bit of a disappointment, but not a disaster. NHC was a rare bright spot in the current market. Their may be others but I haven't been getting any buy signals lately!

I have been busy working on Linux so I haven't updated my quarterly performance yet. Maybe sometime later this week.

Part of my doesn't really want to look, and the other part is busy with other things - like buying a house, painting my study, and "renting" a wonderful painting by Robin Norling - similar to the one below.

The painting I am looking after was designed to be mounted on the ceiling. It is certainly going to be a wonderful when I finish! I couldn't fit the painting in back of my station wagon so it's going to be a decent size on the ceiling.

stevo

Linux & Amibroker

2008-10-05T20:56:00.005+11:00

Shown is a screenshot of Linux running Amibroker - The cube effect in Linux is very nice.

There is a very helpful website - Amibroker for Linux. So far I don't seem to have any problems running Amibroker on Linux. I am running an Intel Core 2 Quad CPU and 4 Gb ram with Ubuntu Linux 8.04.

I will do an update on the portfolio soon since it's the end of another quarter.

stevo

Music collection scattered all over my desk

2008-08-26T08:30:00.004+10:00

When I was young I can remember sitting on the floor at a friend's house with album covers all over the floor.I don't feel that old and yet the world has changed. Moose is the open source front end I am currently running on my music server. Moose simulates my youth on my desktop as I slide the mouse over the different albums to select which one to play.

I urge all fellow traders to mellow out on some fine music as they contemplate the day.

stevo

NAS & Linux - wonderful technology

2008-08-21T07:18:00.004+10:00

I am still around! At the moment the market doesn't really interest me. I have had no signals and only hold one stock - NHC.

I have however been sorting out my network. I dropped a Qnap TS109 II into the mix. It's a NAS (network attached storage) unit. I bought it to store my music collection (stored in lossless FLAC format) and play to my Squeezebox, but it's also very useful for backing up data.

It also only needs around 14 watts to run and I can turn my desktop off to play music. I realised that I only really use the desktop computer for backup and as a music server, although I did set up a music system with it with a USB DAC plus some homemade "concept" speakers. But the desktop is too noisy for a Hifi setup. The NAS doesn't have a fan and is very quiet but I can't plug the DAC into to play music. It's headless - no screen or keyboard of it's own.

Any computer on the network can access the NAS and upload / download files, photos etc. The Squeezebox links wirelessly to the NAS to play music. My daughter's Macbook can also use it. I think that the desktop computer is going back to work so I can remodel my study - rip up carpets, paint walls, new blinds and some decent furniture.

Enough of my rambling - I will post some charts soon and maybe even talk about trading!

stevo

St Bees Island

2008-07-22T08:48:00.003+10:00

Not a bad spot to drop anchor for the night. I went for a kayak around the boat - lots of tortoises. We are anchored in a passage between St Bees Island and Keswick Island. There was not much wind when we left Mackay but it will pick up later in the week. It's probably a good thing since Mrs Stevo is on board and she is not a keen sailor. We will head north somewhere today, depending on the wind.

I am sure that the markets can wait for me, they probably won't even miss me! I sold a few on Friday before the close and there are no buy signals at the moment. I don't mind being mainly cash at the moment.

I will post some charts when I get a moment, but it's not been a good start to the current financial year. That makes it a good time to go sailing. The boat is a 54 foot Hanse fitted out with more electronics then the Starship Enterprise - I bet they didn't have internet on board. All the more to go wrong though and you need a degree in electronics to sail it. Fortunately I'm not the skipper.

stevo
(able seaman & cook)

Yearly Performance

2008-07-01T19:31:00.003+10:00

The yearly chart shown above gives a different view of trading performance from 2003 to June 2008. It good to step back and look at the big picture.

The last bar also contains substantial open profits. As I often mention percentages are difficult to calculate, but average returns are much better than the returns I would get out of commercial property - and lots less hassle.

2008 is looking pretty average compared 2007. I did add substantial sums of money throughout 2007. I haven't included bank interest or dividends to these results, they are just an added bonus.

I have cut back the number of trading systems from 4 to 2 systems. The main system has been running since 2003.

All systems are long term weekly trading systems. I don't short stocks and I don't use leverage, not because it's a bad thing but just because I don't feel the need at the moment.

stevo

Trading Results - January 2003 to June 2008

2008-07-01T07:58:00.003+10:00

The following charts show actual trading results for my portfolio from January 2003 up to now. This is over 5 years worth of trading on the Australian Stock Exchange using weekly trading systems, long only trades.

The quarterly closed trades histogram shows periods of little activity, with long term trades easily going 3 or more quarters. The last bar shows Q3 2008 and consists of all open trades.

Whilst Q2, 3, & 4 of 2007 show lots of profit taking in Q1 & 2 of 2008 I gave some of those profits back. The systems buy signals turned off for nearly 5 months from November to March so I also managed to accumulate some interest in the bank account.

The equity curve shows the drawdown for the first 2 quarters, as well as the open profits going forward. It actually looks worse than it felt, since the open trades offset the closed trade drawdown over the 6 month period. I am not going to try plotting daily or weekly open equity curves which would show a different picture again.

A year ago there was a much different mix of stocks in the portfolio. The current portfolio consists of roughly 61% Energy sector, 34% Materials, 4% Utilities, and 0.38% David Jones (Mrs Stevo likes the shareholder discount card!). The one stock (EWC) in the Utilities sector holds power stations somewhere in Asia - I know now because I just looked! It's hanging on by a thread and could easily be an exit shortly.

I am surprised by the strength of the coal miners. I have MCC in another portfolio and it's well past the magic (in my mind anyway) 100% gains mark in less than a year. Unfortunately I didn't put it in this portfolio, although coal stocks do feature. Iron ore minors also feature prominantly and something called New Hope Corporation (Great name - I think it's a coal miner) looks promising on the chart.

stevo

Only a week till the financial year ends

2008-06-23T21:08:00.004+10:00

It's only a week till the year ends, although a lot can happen in a week on the markets. In terms of realised profits it looks like I will break even.

Add in some dividends and bank interest and it's an ok year for me, at least when compared to the indices. Otherwise it was a very tough year. The Small Ords is down 20% and the All Ords is down around 14%. Unrealised profits in the portfolio are ok at around 16%, so I am not hanging onto any big losses.

A couple of sells this week. PAN (the old SMY) was exited on Monday for a loss of 20% & WSA realised a little over 50%. Position sizing meant that I bought roughly 30% more of WSA than PAN.

I think that I learnt that consistency and perseverence pay off this year, and it's been a good walk forward experience. The current trading systems I am running have stood up quite well and I am very glad that I have them.

stevo

Another exit - long term loser

2008-06-11T00:11:00.003+10:00

I got out of this one today after the sell signal triggered on the close of last week. No other exits signaled for this week.

It's unusual to get a trade that lasts as long as this one (26 weeks) and still manages to lose money.

stevo

May 2008 Portfolio Performance

2008-06-01T08:03:00.003+10:00

I have a lot of open trades that are showing promise, as can be seen in the equity curve below.

The ideal situation for me would be for no profitable exit signals to fire at least until next financial year, delaying any tax implications until the following financial year. But exit signals have to be taken when they are triggered.

The above chart shows closed trade profit or loss for each quarter, except for the last quarter. The last quarter is dynamic - it shows trades that have not yet been closed.

The first quarter 2008 was the worst quarter I have experienced since Jan 2003. The second quarter is shaping up ok. There was a bit of a surge in the stocks I hold at the close of the month and I wouldn't be surprised if they fall back a bit next week.

The average trade length from January 2003 until May 2008 was 148 days and the longest trade was 694 days (RCD: opened 5/5/03,closed 29/03/05), so I am not day trading.

stevo

More on breakouts

2008-05-21T08:26:00.003+10:00

I made the trade shown above in my super fund. IPL was up over 35% in a 6 month period when I took the trade. It had one week in the previous 6 months where it jumped 18%. I bought in at $26 and sold at $72.

Another signal fired not long after the exit. It would have been nice if the exit wasn't given - but that's the way it goes. Sell up and move on. I didn't take the second leg. When the second buy signal was triggered the stock was up 220% over the last year!

From when the 2nd buy signal was triggered to mid May 08 the stock put on another $100.

How many traders would have looked at IPL and thought it's had a good run surely there's not more to come? I did, although I picked up MCC as a consolation prize.

So much for discretion.

stevo

Random Entries and Black Swans

2008-04-30T18:05:00.004+10:00

Systems;
1. Simple breakout.
2. HHV breakout.
3. RSI breakout - RSI must be above 70.
4. MA "breakout" - classic C crossing the MA, not really a breakout.
5. Random entry - uses Random()>0.955 in Amibroker.

The above chart shows the RAR of the 5 different entries teamed with a 12 week timed exit. So the exit is always taken 12 weeks after the entry.

Position sizing was 10% of equity.
The tests were run on the current ASX200 stocks.
The 0 to 80 axis is a dummy variable to generate 10 possible outcomes of each system. Positionscore was set to random.
Trades delayed and timeframe was weekly and the test was run from 1997 to December 2005. This allows, if so desired, for out of sample runs on all the systems up to April 2008.

You could investigate this sort of stuff for years wondering if the results are real, whether you are curve fitting, whether you got some test methodology wrong, or whether the whole concept of testing is flawed in some way etc.

stevo

Equity Curves

2008-04-27T23:48:00.003+10:00

I always thought that multiple equity curves from a Monte Carlo would be fun to plot.

The program is free from TickQuest.

I have to admit I don't really know what I am doing!

stevo

Even a monkey could write a great novel

2008-04-21T20:14:00.004+10:00

I have been reading Fooled by Randomness by Nassim Nicholas Taleb. It’s a challenging read, but worth the effort by anyone that is into system design. I haven’t finished it yet.

To quote p.163;
“Beset with insomnia, the computerized day traders become night testers plowing the data for some of its properties. By dint of throwing monkeys on typewriters, without specifying what book they want their monkey to write, they hit upon hypothetical gold somewhere. Many of them blindly believe in it.”

The reference to “monkeys on typewriters” relates to the theory that if enough monkeys are put in front of typewriters eventually one of them will write War and Peace. I strongly suspect that the number of monkeys required would be impossible to find, let alone feed!

Any results need a good dose of scepticism – even a monkey can write a great novel!?

Trading is not just about making the maximum profit. “The greater the profit the greater the chance of going broke. “ (stevo 2008). Well maybe – I am not really into hard and fast rules. If I try for 100% plus returns using leverage then I might make it 3 out of 4 years, but the 4th year will wipe me out. If I plug for 20% I am less likely to self destruct.

Then there is the ride taken. I did some work on a fairly simple system. The equity curves are shown below. The system was developed using data from 1999 to 2003 so the walk forward equity curve looks pretty good.

Figure 1 Basic System

The first curve is the basic system from 1999 to March 2008. It looks pretty good considering I am not pyramiding profits into the system, just trading with a flat amount. The second equity curve has an index filter added to turn the buy signals off if the market looks weak. The equity curve is still pretty good, but total profits are down compared to the system without the index filter.

Figure 2 With index filter

But when I look at the period from Jan 2007 to current a different picture is painted. Without the index filter the equity curve is south of the zero line for most of the period, whilst the index filter version looks much more tradeable. . I always remember starting up a system back in 2002 and immediately losing money. Startup is always hard! Starting this system up at the beginning of 2007 would have been tough.

Figure 3 Basic system from 2007

Figure 4 With index filter from 2007. Note that a lot of the money was made in just a couple of trades, but at least it wasn’t given back as in the basic system.

Over the last 5 years from 2003 to 2008 turning off a system when the occasional market dip occurred didn’t really help make money. It was better to be in the market all the time.

But it’s not only about CAR (compound annual return) it’s about the ride taken. Measuring the ride can be difficult, but the equity “curve” paints a picture that most people can understand

stevo

March Quarter

2008-04-10T09:45:00.003+10:00

Not the best quarter. I've posted a yearly chart as well as the quarterly. The equity line is looking a little shaky for the start of this year. There are some early signs of life in the market - let's see what the rest of 2008 brings.

stevo

March quarter, systems and competition

2008-03-19T08:46:00.009+11:00

I thought I would look at how my portfolio was performing in preparation for the end of another quarter. I plotted my closed trade equity curve and discovered that the equity curve hadn't done much at all since I last posted one below.

I couldn't see any difference because there has only been 2 closed trades since the last posting at the end of January and the gains and losses have been so small that they had little impact on equity.

I have mainly been trading one system for the last 5 years, although I have tried to introduce new ones at times. I keep coming back to a system that I am comfortable with, although in testing it may not be as profitable as some others. A few others trade my favourite system and to reduce competition against them I developed yet another system, currently called 50%, although I will change the name soon. I basically took my favourite system and stripped it of the bells and whistles.

Competition in the market against others probably isn't that big a problem. For starters there is some discretion in stock selection and this has resulted in quite a bit of variation in portfolio makeup. This has resulted in my brother being up around 15% (including open trades) for the current financial year, whilst I am struggling to get 5%. He has IPL and CEY in his portfolio from October last year, whereas I don't.

I will keep my favourite system for my super fund and make the new 50% system the system of preference for the portfolio reported here. I tested both systems combined and weighted trades towards the new system. So the 50% system has priority and, if any money is left, it goes to "old faithful". I am finding that I will make more if I trade a little more, although the ride will be bumpier.

Since I nearly went to cash it's like starting up the portfolio again. System startup is always a difficult time.

Happy trading,

stevo

Trading, GPS navigation and mates

2008-02-27T16:20:00.003+11:00

I have a mate, a really good friend.

I rely on GPS navigation systems when I drive around the city. I figure that, even though there may be a quicker way, on average, I am better off with a good navigator. My mate (call him Peter) detests sat nav systems – he knows the city exceptionally well and the nav system is pretty well nearly always "wrong".

Peter decides that he wants to trade, wants to make some easy money. The managed funds he holds are doing ok but he is sure that he can do better. So he comes to me. I know that it is not as easy to show someone how to trade so I give him a list of things that he has to do – set up a brokerage account, get a data feed, buy software, work out how much money he wants to use. I want him to think about how much effort is involved. This takes him around 18 months to set up since he is very nervous about jumping into the market and also has very limited computer skills (his wife is much more comfortable with computers).

I give Peter a system, as well as a list of simulated trades that the system would have made over the last 5 - 10 years. I suggest that he studies these past trades to see how the system performed, what it’s weaknesses and strengths are, to get a feel for the system. I am very conscious that this is unlikely to happen. Paper trading is very hard. The pull of the markets, the excitement making that first trade is far too strong to waste time understanding what could happen and how the system behaves.

As usual, after waiting for some years before he can gather the courage to face the markets , the market struggles and Peter loses a little bit of money. But soon he falls into a rhythm and seems to be following the system quite well. He even wings a couple of trades because he believes that he is getting a feel for the markets.

Then the market has a bit of a downturn and Peter, who has been trading quite well for around 18 months thinks that he can improve the system by ignoring the sell signals, much like he ignores a satnav system. For a few trades he waits a few weeks and then gets out a little better then acting immediately on the signal.

But then he ignores the sell on CHC. This is not the only sell signal ignored, there are a couple of others, but this one illustrates the point nicely – none of them have recovered yet. Instead of getting out at around $2.50 back in December 2007 he holds it.

It’s early February and Peter isn’t looking too happy. I ask him how the trading is going.
“I don’t want to look” he tells me.
Over a couple of days I find out about CHC and another trade that have gone seriously wrong.
“What should I do? What would you do?”
“I would have sold CHC back when the signal was given.” I tell him. “If I did somehow ‘forget’ to act on a signal then I would get out as soon as I realised my mistake. I would sell immediately and move on.”

I am in a risky position. It is just as likely that as soon as the stock is sold it rebounds back above a $2 and Peter is cursing acting on my system based advice and believing that his judgement is better than any system. So I make sure that he understands it’s his decision, he is outside the system and I really have no special knowledge of what might happen to this stock over the next few months. He is navigating blind in a city where roads are built, moved and destroyed every day. In this sort of city a well thought out strategy is required if you want to get to your destination.

This is a true story and I take the following from it;
1. If you are going to trade a system then trade the system, don’t try to beat or “improve” the system on the fly.
2. Believing that you have some special, innate ability, some “gut feel” for the markets is a seriously delusional state of mind. Sure you can be lucky some of the time, but luck tends to run out the more it is relied on.
3. Taking a loss is hard for many people. We are not brought up to take losses. Trading is not a natural activity for humans to undertake.
4. Some people seem to be able to follow a system as easily as they breathe. They don’t question, they don’t try to beat it, and they just follow the signals and move on. For others it is not that easy!
5. Don’t look back – always move forward. What could have been is irrelevant. Peter would always say things like “if I had held it longer it would have recovered.”
6. We tend to see what we want to see. It is easy to find examples that validate our beliefs about the market and ignore the trades that don’t.
7. Some people are not suited to trading a system, or trading in general. They should go for managed funds or use a blue chip buy and hold approach.
8. It is much better to learn from another’s experience than to be the guinea pig yourself. Experience is the cruellest teacher when it comes to trading.

Do we really believe that we are, without any training, strategy or insider knowledge, natural born traders? Or do we just try to sway the probabilities in our favour and hang on for the ride?

stevo

Tough Month - closed trades equity curve

2008-01-31T13:08:00.000+11:00

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

TWO & OST

2008-01-10T06:31:00.000+11:00

The TWO trade triggered in Christmas week whilst travelling. Volumes were very light so I exited over 2 weeks for a 53% gain.

OST was easier to exit and I got out in the Christmas week for an 8.6% loss.

The only other exit in December was KCN for a 16% loss.

Stevo

2007

2008-01-01T19:52:00.000+11:00

Just a couple of charts showing closed trade performance (as per TradeSim style reports for those that use the software).

Performance that includes monthly drawdown, dividends and adjustments for cash etc will take me a lot longer.

The closed trade equity curve is looking ok - it's heading in the right direction.

I know that people like percentages but that is a little more difficult for me to produce, especially since money tends to flow in and out of this account.

Suffice to say this isn't paper trading results - this is real money. It wasn't a brilliant year (greater than 50% gain would be a brilliant year :) ), but I really have nothing to complain about. If I can average greater than 20% compounding over the next 20 years financially I will be ok. Some might think that this target is too low?

I have taken the Y axis labels off the charts but just assume that they are in dollars. The portfolios traded with a relatively static capital base up until the end of 2006, but the capital more than doubled in 2007. If you look back on the this blog you can probably make some extrapolations if you desire.

I have probably mentioned previously that adding capital can be quite challenging. If enough is added it can nearly be like starting the portfolio up again. Startup is the hardest time in a portfolio.

I have a lot of cash (around 40%) on the sidelines since the systems have mainly been off through November & December.

Wishing everyone the best in 2008!

stevo

Market Volatility

2007-12-16T17:51:00.001+11:00

The chart above shows the small ordinaries index on the Aussie market. The small ords is made up of around 300 stocks but excludes the top 100 stocks (ASX100). So all the big banks and giants like BHP & RIO are taken out of the picture. All the so called blue chips are stripped out of the picture - I usually don't hold too many blue chips in a portfolio.

The chart is weekly. The top chart shows weekly movements in the Index close price. The most volatile time on the chart occured this year, with a move of -8.46%, followed by a +7.3% reversal. This must have been very challenging for short term traders and certainly woke up some long term trend followers!

The bottom chart shows 52 week ROC (adjusted). The switch from below the 0% line to above it is clearly shown back in 2003. The white horizontal line on this chart goes back 52 weeks.

The red bars on the middle chart show when one of my systems turns off. The green lines show when the system is on - colour is very useful on charts!

Now to state the obvious. We are at a potential turning point. We appear to be drifting sideways with some wild swings in either direction.

I am not going to try and predict the future from this chart because that is not the way I trade, except to say that it is pretty obvious that the market is more volatile now than it has been.

This post was inspired by Andrew's Humble Money blog and his post on The Return of Volatility.

regards
stevo

System Performance - 2 views of the same picture

2007-12-16T08:16:00.001+11:00

I am a bit slow this month!
The first chart shows monthly performance based on open equity, whilst the second chart shows quarterly performance of closed trades.

Both charts show 2 views of the same portfolio. The closed trades chart (although the yellow bars of the chart include any open trades in mid December) is similar to the charts that TradeSim generates. The chart only looks at closed trades. It ignores the daily gyrations of the portfolio and only looks at profits made when the stock was sold.

So the top chart shows how much was given back before profits were taken, whilst the bottom chart totals profits made on closed trades. It's hard to imagine that the charts show the same portfolio and that the data was taken from the same source.

I am really only concerned with the closed trades profits. Note that the bottom chart shows quarters whilst the top chart is in a monthly time frame. I prefer quarterly (or yearly) charts, since I am looking long term performance.

stevo

A minor selling spree

2007-11-27T22:37:00.000+11:00

Not quite a selling spree, but 4 sell signals in one week kept me busy on Monday.

The best trade was OMH above.

I also did ok on MGX, and lost a little on SSM and AVX. I would be around 50% cash. Fortunately the winners thrashed the losers this time. OMH was nice.

With a little bit of luck I won't have to do much whilst travelling (all the more likely with a weekly system), although I will have internet access in most locations I am staying.

stevo

Just taking it easy

2007-11-17T09:59:00.000+11:00

I am getting a bit of sailing in of late. It's not much of a photo but there was a bit of swell around and the wind was good enough to fly a hull on some flat water once I ditched the other guys (they were hungry) at Patonga.

Systems are off at the moment. I did't get any sells so, trading wise, there isn't much to do. If work doesn't want me for a while (people keep wanting to have meetings) I will get in some sailing. I will be all December in Europe - my preference would be to stay in Sydney on a beach somewhere.

stevo

Yilgarn Mining exit

2007-11-08T09:10:00.000+11:00

YML is a trade I exited this week. This one is outside the All Ords stocks, something that I do from time to time if there is enough turnover.

This one could easily move 10% in a week, and sometimes more than this in a day. For those that think they could trade it short term best of luck! I was in it for 9 weeks.

stevo

A couple of good months

2007-11-04T09:10:00.000+11:00

The green bars show monthly portfolio changes. The red line, with Y axis on the right hand side, shows cumulative gains. All costs (inlcuding quarterly tax payments) are taken into account, as well as dividends. The results are adjusted for capital additions and withdrawals.

Not a lot to say really - things are ticking along ok. The market has been incredibly strong, with the odd wobble to remind us that it can't last forever. My preference is to look at closed profits only, but I only sold one stock for a small loss in October - BTA (see chart below. A portfolio may rise substantially and then give some back. I look at closed profits on a quarterly basis.

If a portfolio goes up 30% and then settles back to a 20% gain on closed profits have we lost 10% or gained 20%? If a portfolio goes up 20% and we exit there is no 10% loss and we are "happier" Open profits are not money in the bank. It is a never ending process.

stevo

Yearly % profit charts in Amibroker

2007-10-27T07:09:00.001+10:00

This is something for system testers.

There is a really nice bit of code at the AmiBroker Knowledge Base

The chart above was produced in Amibroker. The Knowldege Base explains a bit about it.

Anyone that has been reading this blog might realise that I was successful at the auction I went to a couple of weeks ago - see the weekender picture below.

stevo

Somewhere north of Sydney

2007-10-23T19:16:00.000+10:00

The beach is just down the path.

stevo

Long term focus and another exit

2007-10-23T07:45:00.000+10:00

I exited BTA last week. I thought it might have some promise but it just drifted slowly down till it lightly touched the exit point.

Since my sell off a couple of months ago I have been buying through September. There has been a lot of life in the market, especially resource stocks. The strength of some stocks has surprised me - YML, MGX, OMH hold some promise. My very limited research tells me that they are all involved in iron ore in WA. I also picked up MIS in the super fund - yet another iron ore company.

I am definitely overweight in materials and energy stocks at the moment. What happened in the market just a couple of months ago is a distant memory.

stevo

Sydney Ferries

2007-10-21T13:29:00.000+10:00

There are some things in life best avoided.

Smooth sailing?

2007-10-02T19:25:00.000+10:00

This is not my boat!

I took the picture though. We had the mainsail reefed and huge westerly gusts (40 knots plus) made for an exciting test run in a friend's new yacht. It was pretty hot (29) and the helicopters were pulling water out of the river trying to put out the fires raging through Kuringai Chase National Park. Hanse yachts are made in East Germany somewhere.

I find such big boats a little overwhelming, my meagre sailing skills have all been in something that weighed less than 500kg (and often less than 100kg) not 18000kg. I think I will be sticking to my Hobiecat, more fun for way less cash.... and then there is the issue of not wanting to tie up good trading capital in a depreciating asset.

I am always drawn to water - surfing, swimming and sailing. Sailing is the area that I have the least experience.

September was a real turnaround month on the markets. The portfolio plunge for August was partially recovered in a very strong market. I guess that the one lesson that I learnt (again) was to not count open profits as in my own pocket.

Mrs Stevo found a little weekender on a beach somewhere north of Sydney. I guess at least land, especially waterfront land, tends to hold it's value. I will see how I go at auction - they are a bit like trading aren't they?

stevo

Simulated trading, discipline and knowledge

2007-09-19T19:29:00.000+10:00

The top chart is a TradeSim run of the main system I use and the bottom chart is actual performance from 2003. They look pretty similar if you can mentally adjust the Y axis.

There are a number of things that I will mention;
1. I trade more than this one system so comparison with only one system is probably not totally accurate.
2. I pull money out and put money back in. The lift in the current year is because I put more money in.
3. I have pretty much pulled most of the profits out for various frivolous pleasures - the TradeSim run did not pyramid profits. I pumped more money in early this year.
4. Discretion is designed into the system - every run I do on TradeSim will give a slightly different result.

I think that TradeSim is an excellent product. The data for the run above was output from AmiBroker (thanks Glenn for the code which is available on the Yahoo site). The system used for the test above was actually designed using Metastock. The software doesn't necessarily make us better traders.

I read Way of the Turtle and the last couple of pages crystallised the thought that has been lingering in the back of my mind for some time.

The best way to trade systems is to write, test, optimise, walk through individual trades and immerse oneself in the process to design a system that suits the individual.

The more confidence one has in the system the more likely it is to work.

Giving a system to someone, even with a lot of coaching, will probably only work if that person pulls apart the system, changes aspects of it, and puts it back together.

Many don't have the time, effort or capital to put into the process.

Enough lecturing,
stevo

Waratahs

2007-09-07T17:48:00.000+10:00

For any Aussies out there this is probably one of the best known flowers. We were up at the Brisbane Waters National Park, just north of Sydney, today and the Waratahs were out in force.

stevo

Getting a handle on performance

2007-09-04T11:22:00.000+10:00

Looking at the monthly chart above I had a lot of open equity in July and I gave a bit back. Around 12.5% - I can live with that. The results above also take into account all costs, tax payments, accounting fees etc, as well as any dividends and bank interest.

The closed trades equity curve, from January 2003 to present, above paints a different view and probably reinforces the idea that it is dangerous to count open profits as my own!

Monthly profits - again just looking at closed trades profits, although the September bar reflect open trades profits. This chart is the same way TradeSim plots monthly profits on simulations.

I sold a lot of stock last month whilst on holidays up north, not the most ideal spot to be trading. A couple of years ago I spent a month in Europe and didn't need to exit any trades. Trading weekly makes it a lot easier to go away for a few weeks. August 2007 however wasn't a good time to take a week off, but I did enjoy myself.

The main thing is that I followed the system, whilst I know of others that thought that they would wait till the price went up a bit before they got out, or worse still, they ignored the system! Both approaches leave me speechless. I give myself quite a bit of flexibility by using a weekly time period already, but to actually break my system rules is unthinkable.

I am reading "Way of the Turtle" by Curtis Faith and am pleasantly surprised that it is very readable, although I am only up to Chapter 3. Outcome bias is mentioned in Chapter 2 - the tendancy to judge a decision by it's outcome rather than by the quality of the decision at the time it was made. Holding on past the sell signal may have given a better outcome in hindsight but was the wrong thing to do in terms of following a trading system. I am sure that a lot of dot.com disciples that still hold some worthless dot.com company might, in hindsight, agree with me.

stevo

AmiBroker testing and Excel

2007-09-03T11:14:00.001+10:00

Many system testers focus on optimising variables like moving averages. But it is also possible to get a better understanding of position size, risk and other trade parameters.

The following charts were generated from Amibroker optimise runs. I optimised a number of criteria, %Risk, minimum position size $, capital and maximum number of trades held - all at the same time. What results is a lot of data that I then transfered to Excel. Using Autofilters and pivot tables in Excel I can fix some parameters, as well as exclude others, and create 3D charts as shown below.

I had some fun with colours - the default ones set on my version of Excel didn't really work for me.

So in the one spreadsheet I have, amongst other things, a large number of 3D combinations to consider. I lose the ability to rotate the charts but I did customise the colours to my liking. It's a little time consuming generating pivot tables and determining what values to include / exclude, what parameters to fix and what value to fix them at but I feel I am only scratching the surface with Excel.

regards
stevo

3D rotating charts video

2007-09-02T09:48:00.000+10:00

Rotating the charts in Amibroker makes it a lot easier to work out what is going on.
stevo - unfortunately the video didn't post.

The Good, the Bad and the Ugly

2007-08-22T19:40:00.000+10:00

I picked the best (the good) and worst (the bad) percentage losers for the week. The Ugly is the peak to trough drawdown that I will suffer, probably around 12% once the dust settles. Such is trading. As ASX.G (or more correctly Peter Bernstein in Against the Gods) mentions "the disutility caused by a loss will always exceed the positive utility provided by a gain of equal size."

Tell me about it!

It was nice to sell into a rising market on Monday, always with the thought in the back of the mind that maybe I am selling at the very bottom of the recent market action. Such is trading.

stevo

Stevo's Luxury yatch

2007-08-19T06:46:00.001+10:00

Maybe I exagerate just a little.

I had a lot of fun on some Hobiecats off the little beach we are staying at in the Whitsunday's. Then I took out the smallest boat in the fleet with the biggest sail - not a good match! The photo does not do the 15 to 20 knot gusty conditions justice. I had some great runs, but not in this craft - it had a tendancy to tip over just when things were getting interesting.

stevo

Sailing & green turtles

2007-08-19T06:45:00.000+10:00

I'm not talking about the markets either.

You will notice in this picture that I am not actually on the craft! I few green turtles moved very rapidly when they saw me coming.

The Markets - business as usual.

2007-08-11T16:51:00.000+10:00

One of the indices that I use in my trading systems is the Small Ords. The top red line is a one week Rate of Change line.

Drops greater than 3% in a week have occured every year for the last 3 years. Prior to 2005 we had a dream run from 2002 to 2005 without any one week dropping more than 3%. Even 2002 (not a good year) did not have a week with a 3% drop. Before 2002 3% drops were fairly common.

So, to put the recent market weakness in perspective, it's business as usual for the markets. I can't see any black swans yet!

We have had it so good since 2003 so it's nice to see how our systems perform when the markets turn south.

stevo

JBH - goodbye

2007-08-10T09:23:00.000+10:00

Another exit earlier this week. The system above was one I developed for slower moving stocks like QBE and WOW.

I was hoping that the market would stay reasonably calm this week since I am heading for a tropical island for a week - work related of course. It looks like I will have to place some sell orders next week after the DOW dropped 387 points last night.

stevo

Monthly Performance

2007-08-01T09:49:00.000+10:00

Percentage gains - a slight lift on the last day of the month helped a little, as did some quite volatile stocks that are ignoring the current market conditions, such as DYE, CSM & MRX.

I include all expenses and income. I also adjust for all changes to capital - withdrawals and capital additions. I don't go back further because I only got my cashbook under control last financial year, although dollar value gains are reported for previous years in previous posts.

stevo
Note that although I mention some stocks above my systems would not be buying them now. I have had an individual buy a stock that I mentioned and then blame me when he lost money! We are all responsible for our own actions and decisions.

Obsessions, Yellow Roses & BNB

2007-07-31T21:25:00.001+10:00

The 3 aren't related! I exited BNB this week for a small gain of 15%. It's the only exit signal I got last weekend.

I find myself browsing eBay and other online stores looking for CD's to listen to. Right now I have Jackson Browne Solo Acoustic Vol. 1 playing. I use my laptop as a remote and can search for whatever music is ripped to the network hard drive. Ripped to lossless format (FLAC) and played through my Transporter music is much more accessible.

It's only recently that I actually realised that I can be quite obsessed by an idea or an approach. I also realise that my obsessions can evaporate very quickly. My long term trading obsession doesn't seem to be going anywhere, although my desire to do research is quite low at the moment. I have no shortage of trading ideas to try out either.

Yellow Roses from Chicken Skin Music is a track I have always liked although many cannot understand why!

I'll post a picture of my trading room, ala ASX Gorilla ( http://theasxgorilla.blogspot.com/ ) although my room is very mobile these days - the lounge room, the kitchen, the veranda or work. Now where did I put my camera.

Yellow Roses say goodbye,

stevo

Another chart - AZZ exit

2007-07-26T23:12:00.000+10:00

I noticed that I haven't been posting too many price charts lately. Here is a trade I exited at the end of June for a 31% gain. I have only had 2 other exits since then, BCF & FAN, and they lost around 9% and 6.5% respectively.

In the chart above the ribbon at the bottom of the price chart monitors a share index. Red means that this system turned itself off 5 weeks ago.

stevo

This blog is worth $1129.08

2007-07-19T21:46:00.000+10:00

My blog is worth $1,129.08.
How much is your blog worth?

"Show me the money" Jerry Maguire

Optimising & % trades not taken

2007-07-16T23:44:00.001+10:00

I did an 2 parameter optimise on a weekly system I am working on. The axis marked "Monte Carlo" is a dummy variable - the variable is not used anywhere in the system. The axis marked "trades not taken %" is where a % of buy signals were ignored at random.

With this long term weekly system the more buy signals ignored the lower the CAR (Compound annual return %). I could ignore 10% to 30% of the trades without a huge dropoff in performance.

The "Monte Carlo" axis shows the variation of CAR at different levels of trades not taken. If a big trade is always taken because no trades are ignored then this one trade could give a false impression of the system. By testing with a random buy variable it is possible to approach Monte Carlo simulations using a different randomising approach.

Also I randomised the buy and sell price over the week the signal was given (it's a weekly system) so, even at 100% of signals not ignored there was slight variation in the results.

Hope that all makes sense!

stevo

Red Victor One - no Turtles here!!!!

2007-07-13T19:09:00.000+10:00

Ok, it's a capital liability rather than a capital asset and has nothing to do with trading - but it just shows how obsessed we can get! Makes my daily drive look very tame.

Stevo

Curtis Faith - Way of the- Turtle

2007-07-11T19:53:00.000+10:00

Asx Gorilla put a link to this interview on his site. He makes some interesting comments on consistency and trading.

"It is easier to learn how to do it" "...the tools are much better"

stevo

3D charts & Trade-offs

2007-07-09T17:05:00.000+10:00

The 3d plots are from a new system I have been working on and show a 2 variable optimise. The first chart plots Compound Annual Return, whilst the 2nd chart looks at drawdown. I find the 3d charts feature of AmiBroker a very useful tool - that's why I am posting these charts here.

What would be nice is if we could have 4 or 5 dimensional charts! I tried using Excel surface charts to get more insight but the 3d Amibroker charts are more convenient.

One variable (ATR multiplier) didn't have much impact over the range I tested - I could choose pretty much any value in the relatively tight range I tested. This suits me.

As is often the case using the values that give the best draw down result in lower CAR and visa versa. I could trade off CAR for lower draw down.

What was good is that I finally coded up profit target code. The following code was posted on the Yahoo AmiBroker site courtesy of Tomasz Janeczko;

/* a sample low-level implementation of Profit-target stop in AFL: */
Buy = Cross( MACD(), Signal() );

priceatbuy=0;

for( i = 0; i < BarCount; i++ )
{
if( priceatbuy == 0 && Buy[ i ] )
priceatbuy = BuyPrice[ i ];

if( priceatbuy > 0 && SellPrice[ i ] > 1.1 * priceatbuy )
{
Sell[ i ] = 1;
SellPrice[ i ] = 1.1 * priceatbuy;
priceatbuy = 0;
}
else
Sell[ i ] = 0;
}

All I had to do was modify it so that I also tested for a trailing stop. I initially tested using APPLYSTOP code but to set up the system I was more comfortable coding up the profit exit. Because the Sell is dependent on the buy what sounds quite easy does require something like the code above. GP's document on looping was also of value - it's in the files section of the Amibroker Yahoo site. The Yahoo site is a wonderful resource.

I will run some TradeSim tests before I take the system I have been working on live. As usual for me it's a longer term weekly system. I think I will call it Chaos, although Chicken & Chips is tempting! There is a small restuarant that does wonderful chicken & chips at Crows Nest and I do like my food. Why not name a system after food I like?

regards
Stevo

It's a blog - not a book

2007-07-07T18:23:00.000+10:00

I guess that the posts on this blog don't really flow all that well. Hey it's a blog not a book.

There are some good books around about trading and trading systems Van Tharp springs to mind. Leon Wilson has a book with system testing in it - Breakthrough Trading. Lately I struggle to read trading books!

Dinner time.

regards,
stevo

Another Year .....

2007-06-30T13:24:00.000+10:00

I just realised that the 35% plus return I mention below is after all expenses, including accounting fees and activity statements. I adjust for capital I add as well as capital I draw out of the account. I averaged 3% compound monthly growth rate for the year.

I suppose that we all have to wonder what the next year will bring! My main system has turned itself off for this week. I only have to monitor for sell signals on a weekly basis. My ideal situation is fully invested with no sell signals forever.

stevo

Year end performance

2007-06-30T10:03:00.000+10:00

Whilst I can't complain about the performance of this portfolio it could have been better, especially when I compare the results above with the results I got out of the super fund (approx. 50% increase at first glance).

One of the reasons for the poorer performance was coming to grips with some large additions of cash to the portfolio. The trade size jumps dramatically and, whilst I might have a big winner it might be off a substantially reduced position size because I bought it when I had less capital. A big winner in the super fund (IPL) helped out, but I picked up QGC in the results shown above using the smaller capital base.

Both QGC and IPL are up over 200%

stevo

A busy month

2007-06-09T09:35:00.000+10:00

I have been pretty busy of late in my 9-5 job, but the portfolio, not surprisingly has been doing well. A few sells in the last month - OKN, SGX, MCC (the only unprofitable one) and ERA. OKN was the big winner in the group (up 137%) - see chart below. I put most of the money back into the market.

Also MCC;

Picked up a Nissan 350z (2006 model the dealer wanted to offload for an excellent price). I tried out a few cars, (Audi TT, Porsche Boxter, BMW Z4) but the Nissan has all that I want and I am not paying for the name.

I am listening to Rich Man's Blues by C.W. StoneKing "I ain't got to think about tommorrow because I drive a brand new car". The rest of the song is worth a listen!

Stevo

Small Caps Rule! (and another sell)

2007-05-10T09:03:00.000+10:00

Out of Oakton on a profit exit (140% gain) - but it doesn't appear to be slowing down.

The Small Ords index has outperformed the All Ords by around 10% over the last year. Many people focus on stocks they know, many of them in the top 100. The biggest gains are in stocks outside the top 100 (ASX100) - those stocks we probably haven't heard of until they pop up in a scan of the entire market.

Stevo

System design, discretion and a load of fertiliser

2007-05-05T07:57:00.000+10:00

When I designed one of the systems that I trade today back in 2002 / 2003 I used data from 1996 to 2002 when backtesting. One aspect of the system includes a profit exit - an exit that is triggers when the price moves up very fast. Incitec (IPL) did this not long after I bought it and the exit was triggered as shown by the $30.40 sell signal on the chart below.

When I developed the system I tested with and without the profit exit, and the equity curve was a little smoother with the exit than without, but there wasn't a lot in it.

The exit rarely triggers so I have been using some discretion. I didn't take the exit signal on IPL above. In this example it paid off. It is possible that this aspect of the system could be dropped altogether, but I will leave it in for the moment. A bull market is not the best time to take profits. The profit exit might be more useful in a less bullish envirnment - like 2000 through to 2002.

I bought into IPL at $26 (I must have been busy that week since it opened at $25.75) Now it is the biggest % and dollar winner in my Super fund portfolio - up 103%. The trailing exit is still valid. It does surprise me that a fertiliser company can perform so well! Who buys fertiliser in a drought? I guess I should stick to trading my systems and leave the fundamentals to those that understand them.

I have another profit exit signal for this weekend. I don't know how discretionary traders cope with all the decisions that would have to make.

Stevo

ALE property group (LEP)

2007-05-03T22:23:00.000+10:00

Another sell.

Whilst I took a slight loss on the trade the dividends offset the loss for a slight gain. I sold LEP on Monday.

Stevo

Monthly Performance for 2007

2007-05-02T11:37:00.000+10:00

I am sure that all the traders out there (and I use the term in it's broadest sense) are having a pretty good year. Adding up the monthly percentage gains I am up 31% on the portfolio, including cash in the bank (rather than shares) in the base. Obviously it's best not to leave money sitting in the bank in the current market.

In the Financial Review today (Wednesday 2 May 2007, Page 20) Barton Biggs, a hedge fund manager with a reputation, is tipping that the Dow Jones Industrial Average might rise by 19% this year and that "markets in general are going higher". To quote the Fin. "shares of the largest US companies were "very cheap" relative to other asset classes."

It would be nice if he is right. A blog devoted only to market predictions that people make would keep someone really busy! I have often said that the weather tommorrow is likely to be the same as the weather today, and often enough I am right - the weather does trend.

Stevo

% Gain in a portfolio after adjusting for cash movements

2007-04-27T19:40:00.000+10:00

I have tried to get a % gain calculation up based on;
1. The amount in cash and shares at the start of the month,
2. Adjust for withdrawals and additions of cash during the month,
3. Determine the % movement in the portfolio after adjusting for the cash movement.

I get the following graphs as % gains / losses from the spreadsheet, although it is probably not correct to just sum the % moves.

The % gains of my portfolio on a monthly basis are shown below;

It's relatively easy for me to work this out now that I am balancing my cashbook and timing issues over time will be pretty irrelevant.

I better go and check to see if I have to take any action next week.

regards
Stevo

% Profit by trade

2007-04-08T23:37:00.000+10:00

Continuing on from understanding my trading results I plotted % profit for all trades since Jan 2003 up to the 1st quarter 2007. The worst % loser in dollar terms was quite small since I use % risk based position sizing. The same goes for the biggest % winner!

What I did find interesting was that I worked out I was turning over my capital 2 to 3 times. So $400,000 worth of capital typically made over $1 million worth of trades in a year. I suspect that this level of turnover is quite low for a trader. For example in 2005 I closed out $1.274 million in trades for a profit of $141,000 (excluding dividends). I averaged around $400,000 of capital in the market so return was around 35% for the year, plus some dividends and bank interest. There were a couple of months in 2005 where I had most of the capital in the bank - as can be seen from this post:
http://drawdown.blogspot.com/2007/01/money-in-market.html

Stevo

Net Profit per Security, Equity Curves & other stats

2007-04-06T18:30:00.000+10:00

The charts below are generated from my trading portfolio.

Since I add and subtract cash from my trading portfolio it's a little hard to give % return type figures. So I look at other statistics and graphs - like the equity curve shown above.

137 trades in a little over 4 years means that I am averaging 32 round trip trades a year. This means that I have at least 20 weeks a year where I just watch the portfolio.

Profit per security is an interesting chart above. I know that I stuffed up the KIM trade - my biggest loser in the last 4 years. I bought far to many by using postion sizing for my Super fund rather than my trading portfolio.

I will be happy to keep the win / loss ratio above 3. So far so good. I also am happy with the % winners I am achieving. I know that the systems I am trading could have produced better results. For starters I didn't (or couldn't) take the SMY trade....

regards
Stevo

Sun(land) sets!

2007-04-03T09:08:00.000+10:00

I exited Sunland (SDG) yesterday for a 48% profit.

I held it for just over a year - as shown by the little yellow dot on the chart a couple of weeks back. The one year target isn't a big deal since I trade in a company, but at least it was a decent length trade.

Limiting the number of trades per week

2007-03-30T17:56:00.000+10:00

Using some code Shutty found on Yahoo I was able to see the impact of limiting the maximum number of trades per week. I added the code in did an optimise and exported the results to Excel to get the graph above.

For a longer term system, like the one used for this test, it is possible to limit the number of buys to one per week and still get reasonable results.

With a shorter term system limiting the number of trades per week would have a bigger impact since the system needs to trade more - see the results for a 4 week system below.

1st Quarter 2007 results

2007-03-30T17:46:00.000+10:00

I made 3 sells and no buys (I had to pay some tax) I have some cash to make some buys in the next week.

69% gain on HGI

2007-03-22T08:19:00.000+11:00

HGI trade closed for a 69% gain. This one lasted 35 weeks. The system used for this trade has turned off for the moment.

SFH trade exit

2007-03-02T09:32:00.000+11:00

This one was in my super fund. I exited last week for a 60% profit. The system could do with a little work since I think I found a minor bug in the position sizing approach whilst using Amibroker's Bar Replay feature.

I have 2 portfolios. I trade using a company and I also trade a SMSF with 4 members. In my company I have only made one transaction, the MBP sell below, this year. The super fund has been a little more active lately. I only report on my investment company performance on this blog.

I noticed the media beat-up on the recent "market crash". I have been a little busy lately. Since I have a weekly system don't even need to watch the markets mid week. I find that the best thing to do is not to watch the market more than I need to and ignore the media reports.

Stevo

MBP trade - talk about "lucky"

2007-02-22T09:30:00.000+11:00

I bought into MBP on a signal last November. Fortunately an exit was triggered and I got out a week ago with a small gain (4%) It plummetted over 70%! I am glad I follow those stops.

Stevo

SDG weekly chart

2007-02-17T08:01:00.000+11:00

Sunland chart - exits are based on the EOW close price. Chart is for the ReefCap forum. You will notice that I am having a bit of fun with cloudcharts.
http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=15;t=000310

Jan 2007 Quarterly update

2007-02-05T15:31:00.000+11:00

This is a part quarter update. Obviously the quarter is not over yet.

The market has been quite strong over the last month, although not as good as December.

A $50,000 plus gain for the month is ok by me - see the December quarter chart below for comparison. The portfolio had no buy or sell signals for the month and I am fully invested aside from some dollars I set aside for a tax payment.

I took my first trade on a monthly system I developed. I will see how I go waiting to the end of the month before taking buy and sell signals. The system performs very well in back testing, but I am not entirely convinced that I am ready to trade a monthly timeframe. I am sure that some people would think that I am crazy trying this approach! I find that exiting on stops during the month significantly degrades the results.

One advantage is that the system can handle more capital which should come in useful for my super fund. I have tested on random entry and exit price in the month that the signal is given, as well as on the open and various other strategies. They all make money, but I am usually better off getting in / out towards the beginning of the month.

If everything goes as I expect in terms of the monthly system I will use it for the super fund only.

Steve