Brief update on my progress...things have gotten a lot more complicated as I now have a long position that makes up 2/3 of my account value, which for various reasons I can't sell or hedge directly. To make matters worse, it has terrible correlations with the overall market so its almost impossible to offset. Anyway, as a result, I've deviated to some degree from the core strategy i outlined several months ago. This primarily resulted in me passing up two buy signals a few weeks ago on EWZ and QQQQ which would have been extremely profitable. In spite of that, I have a growing confidence in the strategy I outlined as being a long term approach to market outperformance. My goal is to be able to make 30%+ per year and I believe this approach will achieve that. I'm looking forward to unburdening myself with this particular long position so I can get back to executing my strategy 100%....however, i'm not exactly sure when that will come to pass, so in the meantime I will continue to probably overhedge and underperform. In any case, I am now up 27% on the year, increasing my annual gains by about 5% since the last update. Until I can get back to executing my strategy directly, my updates will be infrequent. Lastly, from where my current account value stands, I am still in a 14% drawdown from the profit levels I had achieved in late April trading crude futures. A lot of damn work to make up for the two day mistake. In my mind, I would be very happy with my trading performance for the year if I could squeeze that 14% out of these last three months and end the year out of draw-down.
Update for this week...things are going pretty well, i had another up week and am now up 33% on the year. I am in a drawdown based on my current equity levels of about 10% (from May). I am positioned 50% long, 25% in TLT, and 25% in cash at the moment....looking for the highs at 1200-1220 to get tested and I plan to hedge in around that area (and maybe even pick up some inverses). All hail QE2....maybe it will get me out of drawdown before 12/31.
Things are chugging along quite well...i suppose everyone is doing well with QE2 and all. Anyway, still ahead of my goals at the moment and will stay the course through year end. Not trying to swing for homeruns, just trying to get singles consistently. YTD Gain: 43% % till out of drawdown: 7.4% At this juncture, I have closed most of my long positions. This is a deviation from my system rules but I feel the foreclosure crisis merits some caution near term. I'll take my chances on missing more gains until I see how the market digests the situation.
Had a good week this week. All of my discretionary trading was really strong, and I ended the week up in spite of a a big draw down in my core long position (which halved my gains). Weekly Gain: 1.8% YTD Gain: 48% % drawdown: 5.8% It is starting to seem really possible that I could get out of this drawdown before the end of the year. That is pretty f'in amazing given the two day 100k meltdown i had in May. So far slow and steady seems to be winning the race. As of this week I am now profitable back through 2006. Next stop is to exit the drawdown i put myself into in January, and then the following goal will be to achieve profitability over the lifetime of my trading (records going back to 2004 or so). I will be looking to make money on the short side over the next few weeks. HB
All i can say is DAMN. I guess much like being an addict, one is never really cured, only in remission. First, here are this weeks stats: Weekly Gain: -0.5% YTD Gain: 46.5% % drawdown: 6.3% From the stats, it would seem an unremarkable week. But the fact is I was up 3% in my discretionary trading as of this morning. I was short silver futures today and one look at the chart will show you what type of predicament i was in. I lost about 1.5% today on that trade alone, and worse I averaged down hoping for a slight retrace (of course, it went parabolic) and i didn't cut losses. Same kind of stupid mistake that crushed me in crude in May. I have been on an unbelievable roll for many weeks...I think my win rate is in excess of 80% over a couple of months. I believe winning so much made me hesitant to take the loss I needed to take. What is fucking ridiculous is i could have closed out on a retrace only $350 bucks down, 1/20th of my eventual loss. At the end of the week I was still up in my discretionary trading, but that doesnt excuse today's loss and behavior. I'm getting sloppy. Time to redouble my focus, tighten up again on my strategy, and make sure I finish out the year strong (and if not strong, then at least true to my strategy). Things are going to get volatile next week and its more important than ever to be rock-solid focused on execution and adherence to strategy. One a more positive note, even though I made the same mistakes i made in may, I only lost about 6% of the amount i lost back then in two days. In retrospect, I cant believe the amount of leverage I must have been using then to incur such huge losses so quickly. One thing I can say is that many months of "staying clean" seems to have made me more sensitive to over-leveraging - meaning, I almost didn't think twice about it then, while now I inherently get uncomfortable with any type of leverage that would put more than a percent or two at risk (and that is at the extreme). Going into next week, I am in a mostly neutral portfolio state. I will not make any significant trades unless the market breaks down and in that case I will start scaling in.
I could've written this almost verbatim when I took my last (and hopefully very last) large loss. I'd been on roll with an 80%+ win rate and had a chance to exit a position that retraced from a $2000 loss to a mere $500 loss, yet I held on for a $6500 loss instead because the further it ran against me the more I was certain it just had to retrace back to a "reasonable" price. There were the trend followers of the world buying every dip to the trend line and making a killing, and there was me thinking "This is becoming more and more ridiculous and these prices are totally unsupportable fundamentally." I was very much correct, but the market can remain irrational for a long time before finally coming to its senses. HB, it's like alcoholism, I think. Don't even take a sip of that "average down and hope" cocktail.
Ha! Its funny, same experience almost to a T! I am not so convinced about the "no average down" rule....or, at least, after 10 months and thousands of trades, I believe that scaling in, and particularly doing so when averaging down, is a profitable strategy. The issue, however, is that by its very nature it weakens ones resolve and muddies the waters in a way that its easy to further average down or not have a well defined loss point. Of course, it depends what your trading strategy is. If your trading very specific price action setups (bars), then averaging down would be foolish as its likely against your "edge." I find myself frequently trading countertrend, and rather than trading specific "patterns", I tend to trade extremes, often in reaction to sentiment or news shifts. Its a lot less well defined, and scaling in two or three increments has been very helpful. I'm still not 100% convinced its a long term successful strategy, but I've had so much success over so many trades, that my confidence is growing. It is truly more discretionary than mechanical, which everything I've read on ET would lead me to believe not viable. (everyone says develop rules, find an edge, measure your profit factor, execute with discipline). But, I do believe its viable though fraught with risk related to discipline and psychological shortcomings -- more so than a mechanical edge which is more easily definable/repeatable.
Its interesting to note that had i not blown up on those two days in May, I would now be up close to 140% with very low volatility and 85%+ winning weeks. Not a lucky bull run or trend following in a hot market, but hard core grind it out countertrend mean-reversion scalping. A lot of it in ridiculously trending government-manipulated markets. If its worked in this market, it should work even better in other markets. Or maybe not. Once i've done it for three years successfully, I'll feel more certain. I'm a year or so and 5000+ trades in, and starting to believe that this discretionary mean-reversion approach has some potential.
First, here are this weeks stats: Weekly Gain: +9.1% YTD Gain: 73.5% % drawdown: 0% (!!!) This has been an extremely momentous week for me. I've accomplished what I really felt to be impossible, which is that I've managed to pull myself out of drawdown in this calendar year. After running my account up 70% or so in the first four months of the year with risky strategies trading crude futures, and then losing all my gains PLUS about 30% of my capital in two days, I really didnt think this would be possible. Just after those two days in May, I very nearly stopped trading permanently in order to protect myself from losing all of my capital. But, after a couple of weeks of consideration i decided to make one more attempt with a more methodical, mechanical, and risk focused approach to trading. Since that time I have had very few down weeks, and no significant drawdowns. I have been imperfect with regard to following my rules, with last week being a great example, but I have been extremely risk focused and that has paid big dividends. Along with pulling myself out of drawdown, I accomplished another very important milestone - I have made back every dime i ever lost since I began seriously trading in 2004. Well, not seriously trading, but trading with significant capital. I am now ever so slightly net positive since 2004, and given market performance over that time I am about where i would be with a buy and hold strategy. Actually, this is the second time I accomplished that milestone this year, but this time I plan to stay above that threshold As for my current market standing, I only have one major long position and oherwise I am in cash. My system says be very long but hedge, but I am just not comfortable with the situation. If anything these days, I am so risk focused that I am not letting my winners run eough. I really should be up quite a lot more if I had followed my system to the letter. We'll see how the next two months go. I'm most concerned with finishing out the year at least where I am now. At that time I will perform a deeper retrospective and establish a plan for the coming year...
First, congratulations on following a systematic and disciplined approach and managing to recover from a loss - I know the feeling - Now, you have in a sense proven to yourself the importance of doing your trading in a cold-blooded analytical fashion and the dividends such an approach can bring. Secondly - an observation - Not letting your winners run (as per not letting your system run their course) now might cause problems in future when your system does go into a drawdown - since you might not have enough wins to cover for future losses. Old adage - Save for the cold winter which is sure to come in future. Other than that, Keep up the good work and best of luck.