March Quarter

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

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

System Performance - 2 views of the same picture

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 couple of good months

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

Smooth sailing?

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

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

Getting a handle on performance

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

Monthly Performance

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.

Monthly Performance for 2007

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

% Profit by trade

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

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

Jan 2007 Quarterly update

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

Early 2006 performance

2006 was a good year, although I am jumping the gun a little since it is not quite over. 

Open and closed profits realised over $260,000, plus some dividends and bank interest. 
However $170,000 is in unrealised profits and will be carried forward into next year.

Realised profits were down over previous years, but nothing of concern considering the level of open profits moving into next year. A good year could easily be one where there are no realised profits because no sell signals are given and open profits are growing.

I made a slight loss in the last quarter, but adding an extra $800,000 to the portfolio is doing reasonably well, aided by the excellent market conditions.

Wishing all a merry Christmas and a happy New Year.
Stevo