Period Update for December 11/29/2014 - 1/3/2015 (5 weeks) Bad way to end the year, down 63K (19.5%). Rude reminder of what the market can do when you get complacent. I made 142K for October, the monstrous month earlier reported. Then thru the first few weeks of November (upto 19th November), I was up 100K for that month as well: almost two months of >100K each. Then the dream started. I realised that the size of those gains was abnormal relative to my account, but couldn't help but think of the time when this (>100K/month) becomes a normal occurrence (normal as in average). Of course it is OK to dream, but somewhere got lost in that dream, and the drawdown that followed was almost inevitable. Compounding the loss for this month was a 10K loss suffered from a blunder - left wrong instructions that my automation interpreted to go short, instead of intended go-long: by the time I realised, I was down 10K, when it should have been the opposite. As I go into 2015, I am cutting down size, and re-evaluating what is permissible. I don't need to take as many trades as I do. Emphasis remains making the most of those few GREAT opportunities, but it is important to avoid if the trades don't fit. For the year, was up 197K (195%). Code: -------------------------------------------------------------------------------- Opening Balance: 321,833 Net loss for period (62,734) Cash Withdrawal (3,000) ------------------------------------------------ Net Balance: 256,099 For the Thread YTD 2014 (1/4/2013 - 01/03/2015) Opening Balance: 101,037 Net gain 197,562 (Up 195%) Cash Withdrawal (42,500) ------------------------------------------------ Net Balance 256,099 ---------------------- TRADES TYPE Exit Date/Time P/L STOCK 2014-12-01-14-00-59 -15888.6 OPTION 2014-12-01-15-54-35 -6026 OPTION 2014-12-01-15-54-34 -704.5 STOCK 2014-12-01-15-49-16 5023.6 STOCK 2014-12-01-15-52-39 -4385.3 OPTION 2014-12-02-15-49-28 6773.1 OPTION 2014-12-03-13-36-39 -4261.5 STOCK 2014-12-04-15-47-01 13236.1 STOCK 2014-12-04-11-19-37 -1292.1 STOCK 2014-12-04-15-45-45 1307.1 STOCK 2014-12-05-14-48-28 -4377.4 STOCK 2014-12-05-13-02-08 -14196.3 STOCK 2014-12-05-15-01-08 -10299.1 STOCK 2014-12-08-15-36-05 -5309 STOCK 2014-12-08-15-08-56 -15319.1 OPTION 2014-12-08-14-23-47 -2788.8 OPTION 2014-12-09-15-23-32 35314.6 OPTION 2014-12-09-13-12-21 4174.3 OPTION 2014-12-10-10-27-52 5038.1 STOCK 2014-12-10-13-26-45 -276.8 OPTION 2014-12-10-15-04-12 -4881.4 STOCK 2014-12-11-12-09-27 1543.8 STOCK 2014-12-12-15-36-20 -5453 OPTION 2014-12-12-10-29-20 -7554.6 STOCK 2014-12-12-14-57-39 3253.8 OPTION 2014-12-12-10-40-14 -2940.1 STOCK 2014-12-15-14-00-03 -25314.4 OPTION 2014-12-15-13-41-27 2837.7 STOCK 2014-12-15-13-40-45 613.5 OPTION 2014-12-16-09-42-48 -1524.7 OPTION 2014-12-16-14-37-41 11863.4 STOCK 2014-12-17-09-33-40 -201.4 OPTION 2014-12-17-11-21-41 -11436.3 STOCK 2014-12-17-12-05-16 -10550.4 STOCK 2014-12-17-15-32-01 1514.2 STOCK 2014-12-18-11-08-35 3843.6 OPTION 2014-12-18-11-02-04 1850.8 STOCK 2014-12-18-11-52-45 1215.2 STOCK 2014-12-19-09-52-15 5709.1 STOCK 2014-12-19-14-52-37 6113.6 STOCK 2014-12-19-09-34-48 -1862.2 OPTION 2014-12-19-10-25-33 -6050.8 STOCK 2014-12-19-14-53-04 1465.1 STOCK 2014-12-22-15-01-07 -3923.9 OPTION 2014-12-22-15-50-40 -3149 OPTION 2014-12-23-15-25-50 -5288.6 OPTION 2014-12-24-11-54-25 -4581.5 OPTION 2014-12-26-11-11-51 -211.5 OPTION 2014-12-26-15-37-05 3129.9 STOCK 2014-12-26-15-49-59 1009.8 OPTION 2014-12-29-14-32-07 3887.8 STOCK 2014-12-29-15-55-11 -3707.5 OPTION 2014-12-30-16-06-42 -3294.2 STOCK 2014-12-30-12-09-20 1079.1 STOCK 2014-12-31-15-00-47 4403.4 STOCK 2014-12-31-15-01-13 3027.5 STOCK 2014-12-31-15-33-10 -2648.9 OPTION 2015-01-02-15-38-55 -5849.1 STOCK 2015-01-02-15-02-38 730.9 OPTION 2015-01-02-15-36-31 1901.4 STOCK 2015-01-02-15-55-20 1113.4 STOCK 2015-01-02-15-13-54 -152.8
Have you done any correlation analysis relating to the different strategies? Many of them appear to have strong correlation which causes the massive swings in equity. At this rate you can only take 3 months like this and you're in the hole, significantly. Consider also that it was december, a fairly calm month.
Ahhhhh yes a true gem of trading wisdom. I'm sure most of the stocks you're trading move the same way my index does. Almost every day, 1 trade will catch the majority of the action.
There isn't much correlation between the strategies except market direction related, but between individual trades of each strategy. So if I am holding two positions in stock4 long - most of the time they will act the same way. Well, december was not quiet for some of my strategies like stock4. That was the best performing strategy before then, but turned in the worst performance of the year that month, basically accounting for all the losses (yes that included a blunder mentioned that might have made a +20K difference).
Attached is the performance by strategies and by months. As depicted, stock4 accounts for all the loss in December. I am not too puzzled, because, apart from the blunder, it is not way out of expectation, like I will explain later when I present the 'Net Percentage' criterion for measuring performance
Market direction related correlation is the real killer of "faulty diversification" as it tends to be highest when the volatility is sky high. If you're often long in correlated equities with similar time-frames then it's my suggestion that you kill the lesser strategy, effectively minimizing risk. Have you run the returns for correlation?
Now time to review the performance of my strategies over the last year. The earlier chart shows the absolute ($) returns of the strategies. On the basis of that you think option4 was the best strategy, and that option1, stock1,stock2,stock3 were all losing strategies. However, I go back to analyze performance based on "Net Percentage" gains. For example, if a strategy had two trades: one was a gain of $6,000 in January with a balance of $100,000 in the account, while the second trade was a loss of 12,000 in November with an account balance of $400,000. On the whole the strategy would seem to have lost $6,000 for the year, so is a losing strategy. But based on percentages it is actually profitable - the first trade returned +6%, while the second trade was -3%. Total percentage comes to +3% which is positive. Over the last year my equity balance has ranged from about $80K to a high of $400K+ (sometime in November), so I take cognisance of that in computing performance. I also try to adjust for "compounding effect" of losses, by using reciprocals. If a trade lost 20% of my equity balance, I know I need +25% to return to break-even, so in determining Net Percent contribution, that trade will be treated as negative 25%. I sum all the contributions for all trades in the strategy and below is the summary of the results for the year by strategies. From the summary, I could really say there is one losing strategy (stock2 - of which minus 28% was from the CRAY trade in February) Code: 2014 P/L 2014 Net Percent stock4 97609 66.7 option4 120250 52.2 option2 19379 20.7 stock5 20445 12.1 stock3 -25476 11.1 option1 -2815 01.6 stock1 -10804 00.4 stock2 -22023 -11.1 153.8
In the Hedge Fund Market Wizards book, Jack Schwager uses a ratio he calls Gain to Pain ratio. It measures return to risk. Can you calculate this ratio for 2014? The formula is very simple..sum up monthly returns and then divide by the absolute sum of the negative monthly returns.