Hello, Can you beat buy&hold on a yearly basis? By beating I mean improving returns, max DD, volatility and Sharpe with a minimal number of RT transactions (more than 4/year is a lot). So, can you do it? And if you can, please explain what kind of strategy you use (no details needed). Thanks,
Nfactorial you can beat buy and hold on a yearly basis as an intermediate term trader. I wrote my automated trading systems to do that several years ago. I trade them all the time in my retirement. Your main specification of 4 trades a year defines how you will trade it. You will have to trade from weekly charts to get the number of trades that low. With swing trades I get a minimum of 25 and up trades a year on a daily chart and with positions a minimum of 10 and up trades a year on a daily chart. All my systems are designed to trade with cycles that use a stop based reversal type of strategy.
Absolutely. Using only 2 weekly setups that identify medium term trend changes, never getting emotionally attached to the stock, and having a trailing stop just outside the weekly trend support that you bought into. The trailing stop needs to be monitored and adjusted regularly. There should only be a couple of entries a year at most for any given stock.
buy & hold is a joke. hold until when? buy the ES 1070 on 9/23/09 and where are you today, eight months later? buy anywhere past that and you are underwater... other stats rendered moot 4 turns per one hour may be appropriate these days here, but a good trader can beat buy & hold for the past five years inside of one
It depends on what the buy and hold is. If you buy and hold the right company, re invest the dividend, you can do amazingly well. Buy and holders don't worry about stock prices like traders do, but if you buy and hold a company that goes bankrupt, that's not going to help you beat a trader. So you can't just compare investing to trading, it depends on the skills of each. What if you had bought and held bear sterns? Or Lehman?
If you could double your account in a year but you had to make 1,000 trades, would you do it? That's 4 per day. Or are the rules more important? And if somehow you did that once, how many YEARS of buy & hold would that beat? Or maybe decades?
Good question. So few discuss actual returns I don't really know how most other traders do. I know returns in the 100's of % are possible and that losses, or at least underperforming the market are more common. This year I updated my spreadsheet so I could better track my results, trade by trade and across accounts. Using these metrics: Annualized Gain, Sharpe, Profit Factor, Correlation to market, Weekly Standard Deviation, Max Drawdown. For the period from 12/31/2008 thru 5/21/2010. I beat buy and hold a number of ways: 1. Buy and hold a set of diversified, uncorrelated (as much as possible) ETF's, with a low allocation (33% target) to equity. Rebalanced no more than annually: 12%, .89, 1.4, 67%, 1.8%, -8.8% 2. Long term trend following in mutual funds with a minimum 30 day hold period and generally less than 10 trades per year: 12%, 1.07, 1.53, 53%, 1.5%, -6.6% 3. Active stock trading, buying weakness, selling strength, and buying stocks based on quantified factors, such as momentum, value, earnings, volume, etc. Hold time days to weeks. Hundreds of trades per year: 61%, 2.45, 2.12, 20%, 3.4%, -20% For comparison, the market as measured by VTI (Total Stock Mkt): 15%, .60, 1.28, 100%, 3.4%, -28.9% The people that buy and hold and say trading is risky have it backwards. They are taking the big risks. Good trading strategies can greatly reduce the risks and/or increase the returns. My sharpe calculation is just Annualized Return/Annualized StdDev, ignoring risk free interest rate, so not comparable to others. Profit factor is Total gains/Total losses.