At Last!!!

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

Trading Results - January 2003 to June 2008

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

Equity Curves

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

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, systems and competition

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

Tough Month - closed trades equity curve

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

2007

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

Net Profit per Security, Equity Curves & other stats

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