Yearly Performance

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

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

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

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

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

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

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

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

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