Don't let anyone tell you that a professional doesn't make mistakes. In this forum I am going to share with you sins of my past and probably sins I am about to commit. I have strong views and most of them are contrarian. To express these views outside of my much narrower hedge fund trading mandate I run a small PA (private account) with Interactive Brokers. Having worked with RAPA in some shape or form of its current existence for close to a decade, it has been extremely rare for me to run my PA account through any rigorous money management or risk analysis software. Today I am saying that has to end as I have been using this account as a playground for amusement and ego stroking and quite frankly it is unprofessional. Over the course of the next few months I hope to periodically or perhaps obsessively post my PA dashboard screenshot and try and navigate a more professional time series of returns to the ones you are about to see. This is as open and as honest as one can get, I am officially exposed. If you wish to join the conversation please do with constructive input. I must add that I have had an extremely successful PA trading history with very large % returns since inception which is to a large extent what I have lived off. However the volatility of the returns are pretty similar to the ones presented here, and this is what I am hoping to avoid in this account as I place it in the watchful eyes of the public. I will leave my comments until the next post, at this stage it is time to just observe and reflect. PS. you will notice that the dashboard is showing the drawdowns as positive which is a bug that will be fixed in the new release later today.
Just to begin with I ain't happy I am running with a -2.624 beta so I am almost 3X as sensitive to the market and my bet is to the downside. I am not going to go into my individual holdings but I looked at the portfolio this morning and said I am crazy with this type of exposure. I have to trim, which I am just about to do but Globex is closed for the moment. I need to live to fight another day. This short the US market is hurting real bad. I forget the actual statistic but it has been about 36 days without a correction of more than 1%. One thing I know for sure is that when it does correct it will be a lot sharper and deeper than 1% but I am in survival mode. If you look at drawdown on the chart and on the table you will notice that it works off the high water-mark so the drawdown is calculated from the highest equity point reached. To end this post off on a positive note, when you look at the Fund beta to the S&P500 since inception it is -2.234 so clearly I have carried a strong bearish bias which at certain points was extremely profitable, but the point is the markets have climbed 3.65% over the exact period of the fund and I am down only -12.68% which means that I have actually produced alpha 0.210% in bizarre kind of way. In other words although the fund is highly negatively correlated to the market over its life I have managed to increase and decrease my leverage to point of adding some value.
Globex is back up and running and like I said I would I have cut my size as I am way to exposed to an extension of this market rally.
The expectancy calculations are really telling. [FYI, I have always calculated expectancy based on daily PnL and not on individual trades. The reason is twofold, one because I am usually trading a portfolio of positions at one time and a long will offset a short, and the second reason is effort. It is more difficult to make a time series of returns for each and every trade. It is especially so if you are doing it after the fact and the option chain you were invested in has expired.] The % win loss for the daily and the weekly is very much in line with my typical trading style. Unfortunately the max and min returns are on steriods in this account. (down boy) :eek:
I am expecting a sharp market reversal, I don't feel nearly big enough for the move down, but I think it is going to be more prudent being patient and waiting to see the reversal before adding size. I remain 100% short with modest leverage by my PA standards, but from a beta perspective there is enough octane to pull back losses on a short sharp pullback.
The latest rally in the US commenced on 19 December, what you will notice is that there has only been 1 day in the last 45 where there has been a down day greater than 1%.
You will notice an increase in the beta of the account, as I position for a correction of the move up since 19 Dec 2011. The risk in the account is now high, so caution needs to be maintained if for whatever reason the falling market breadth suddenly picks up.