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Just Buy The Dip

  1. Hi All,

    I am starting a journal to document how well I can compare going forward to a system I developed. I am starting with $100K. I kept a journal here several years ago trading mostly stocks. I just recently got back into trading as I have been focusing on my career.

    This time around, I will be trading just a few broad leveraged index ETFs. I am keeping it to a few so that I can take every trade given by the system. My goal is to match the monthly percentages of the strategy. This way, I will know I am on track to meet the goal of nearly 30% average annual returns. Profits will be reinvested, so position size will grow as equity increases.

    Since 2009, the system has had a 40% draw down. So, I know I am putting myself out there to be ridiculed. To achieve above average returns, I feel you need to accept draw down. At least I have not discovered a way to avoid it. Besides, the system appears able to claw back in a relatively short amount of time.

    When I came back to ET, it was good to see some people still actively posting such as d08 and Scataphagos, who had posted in my prior journal. Feel free to follow along, chime in, and ask questions.

    1-1-2009 to 12-31-2017.png
     
  2. Are the etfs fixed or do stalled, underperforming etfs get replaced with better performers?
     
  3. Since you stated that you have not been trading since you have been focusing on your career, what does the P&L chart represent. Is that the hypothetical results of the system that you developed?

    Props to you for posting posting your trades going forward. Not many here offer disclosure.
     
  4. Hi eurusdzn,

    The etfs were fixed during the backtest. I selected a few etfs that would target different segments of the broad market. At times, some will be doing better than others. One thing I found is that after equity markets have sold off, they tend to rebound. Sure, there will be losses. I have to maintain a long term vision, and avoid getting caught up in the now.

    I debated whether to include a small cap etf as it had the largest draw down, but also provided the best return. In the end, I decided to include it to keep me engaged in the market by offering more signals, and to make the journal more interesting.

    I eliminated many etfs because their focus was too narrow (commodity, country, sector for example). They can get stuck in extended downtrends and were not suitable for my strategy.

    I don’t anticipate any of the etfs I have selected to underperform over the long term, so I won’t replace them. I don’t want to introduce any selection bias when going live after the backtest period.
     
  5. Hi spindr0,

    The P&L chart represents the hypothetical performance for the backtesting period. I know it does not include 2008, but the etfs I am trading did not exist back then. I tried backtesting the strategy with SPY during the 2008 crisis. Multiplying the draw down I would have gotten trading SPY by the leverage I am currently using, I came up with a 51% expected DD.

    I know it sucks, but I am just a simple retail trader who doesn’t know any better. If that happens again, time to reload the account. No worries about anyone piggy backing my trades. I may need to just “catch the mega wave” between black swans to make this work.

    There may be some live calls and screen shots for entertainment purposes, but updating stats regularly will be my focus. I think many ETers really geek out on that stuff.
     
  6. Rolan. Buy the dip has been a great strategy since 2009 but your a bit (8 years?) late to the game here. Like everyone else I have no idea where the next major bear market will come but it is always getting closer.

    Are you using leverage and trying to find the bottom of a dip or just buy more the lower it gets ?
     
  7. You can accomplish that in under a Year, if you have the risk appetite for it -- and skill, strategy and to a lesser extent...luck.
    And all the other necessary building blocks, and ducks lined up,

    I would even have the gall as to so much as to say a Month...but you'd need a direct line to God for that perfect storm scenario playing out to your favor,

    When you compound, the sky is the limit for that atom bomb. -- But it's extremely rare for a trader to have everything in place for a healthy average gain, after average gain, on top of another average gain,

    Be a top 1% trader, or nothing at all. Or better yet, the top .10% of traders,...in the World,
    High-Five the Moon :confused: ...Make Being Elite Great Again 2018
     
  8. you'll do well.
    No matter what, the markets are literally designed to go up over time. You're on the right side of the market when you only trade long. Buy dips and breakouts on the ES etc and i'll see you in a few years as 4k ES or so.
     
  9. Ha Ha...Don't encourage me!
     
  10. Hi Jakobsberg,

    I admit I am probably late to the game and missed out on a great run. January isn’t even a terribly good month for my strategy! I am not using margin, but the etfs are leveraged. So, no worries about margin calls. Some entries are lower, some are higher. I enjoy riding the market ups and downs. It is entertainment for me. Some go to Vegas. I made friends with “draw down”.
     
  11. Yes theapprentice, markets have an upward bias. Buy the retracements, Buy the breakouts. I discovered that exact entry point had less to do with profitability than I originally thought. Position sizing and proper use of leverage had a much greater impact overall.
     
  12. You may be interested in this thread since I was doing a similar thing then buying the dips

    https://www.elitetrader.com/et/threads/2015-journey-continues.289061/page-2

    Good luck.
     
  13. That's what I plan to do, compound healthy average gains.:thumbsup:
     
  14. Thanks for the link Jakobsberg. I like reading Journals of people who are trading outside of their primary career. You have a thorough Macro view whereas I am primarily technical.
     
  15. I had some trades on going into the new year, which I closed this year. I caught a small piece of the new year rally, which I suppose is better than totally missing out. I shoulda just bought and held, LOL. I am 100% cash now. Just getting accustomed to result reporting, as I’m a little rusty. Probably do weekly updates and then start a new equity curve each quarter or something. Any open trades will be posted mark to market.

    Total Net Profit $713.16
    Gross Profit $713.16
    Gross Loss $0.00
    Profit Factor n/a
    Total Number of Trades 5
    Percent Profitable 100.00%
    Winning Trades 5
    Losing Trades 0
    Avg. Trade Net Profit $142.63
    Avg. Winning Trade $142.63
    Avg. Losing Trade $0.00
    Ratio Avg. Win:Avg. Loss n/a
    Largest Winning Trade $208.04
    Largest Losing Trade $0.00
    Max. Consecutive Winning Trades 5
    Max. Consecutive Losing Trades 0
    Total Commission $6.00
    Return on Initial Capital 0.71%
    Buy & Hold Return 8.08%
    Annual Rate of Return 28.84%
    Trading Period 9 days
    Max. Equity Run-up(Daily) $792.65
    Date of Max. Equity Run-up 1/5/2018 15:00
    Max. Drawdown(Daily)
    Value ($108.64)
    Date 12/29/2017 15:00
    as % of Initial Capital 0.11%
    Max. Trade Drawdown ($36.66)
    equity curve.png
     
  16. This will help you. Don't ask how or why. Just adsorb it. :)

     
  17. Thanks Overnight, I feel much better now!:banghead:
     
  18. Hey, I feel your pain about should-have-held positions. Just sending you some vibes to help you deal with it. Wheeee!
     
  19. In seriousness, contemplate. Man.

     
  20. Thanks for the vibes Overnight, my namesake song also helps me keep on...
     
  21. Ug, Limp Bizkit. Rolan, you need to expand your mind. First, rolan is an anagram for loran, which is a navigation system for aircraft.

    Second, you need to get better music in your head! Ack, that album SUX!

     
  22. I
    I think I'll stick with Enya, I actually prefer new age music. I need to hang on to my brain cells anyway :vomit:.
     
  23. You prefer "new age" music? Ug. Buy the dip. :)

     
  24. Not bad, I dig nature scenes and non main stream female "world music" vocals.
     
  25. I have many weird. It is silly! Wheeee!
     
  26. good god! why did you have to edit your post? o_O
     
  27. Because it is fun!
     
  28. Indeed!

    Have at you!

     
  29. Not quite, I may need to report you to the moderators :sneaky:. Wait, I have a better idea! I think we can create a new futures market product to speculate on. Who has better taste in music.:rolleyes:

     
  30. I win the contest. The mods here know me and my foibles. I've already gotten back-handed slaps by Magma. (Yes, they hurt). I have ET scars from the establishment, and have learnt my limits.

    Hey, it is your journal. I was just having musical fun here. Righto, back to journal business. Sorry for the tangent. :)

    Will be interesting to see how your compounding works out.
     
  31. I hope you set a stop loss! It's all good fun. 3 glasses of vintage select moscato with sweet flavors of ripe apricot and aromas of juicy peach helps! Yes, I cringe when people withdraw their profits. Never get anywhere, unless you roll the bones.
    https://www.bing.com/videos/search?...542A15EE275AD70DB481542A15EE275AD70&FORM=VIRE
    Sorry 'bout that misquote error. I think plagiarism is frowned upon on ET. Although, Now I know your have issues if you don't like RUSH!
     
  32. You are misquoting me. I do not have anything to do with that bit on Bing, or "Miscato."
     
  33. If I were doing this strat, I would look at the typical price rise vs decline (declines are usually faster) and slap on weekly collars to prevent major drawdowns. Say, for example, a good up week is 4% (just a guess) and a bad down week, a crash, is maybe 8-10%. The pattern is something like U-U-U-D. So if you limit upside to 2 or 3% and downside to same, you would have a safe and steady strat, methinks, and never more than a 3% drawdown.

    You could even push out the downside to 4% and buy more puts (keeping neutral on premium), potentially making money on a serious drawdown.
     
  34. Hi misterkel,

    Thanks a bunch for the ideas you have presented. I haven’t traded options, but it’s something I want to learn more about. Do you or anyone know of a good resource? I’ve had scribbled on some paper by trading computer “Buy Put Options” for a few months.

    In Backtesting, my Win % is greater than my loss % , but my average loss is greater than my average gain. I'll eventually start posting expectancy when I have more trades. Like you said, declines are usually faster. I would only want to use options as hedge. My fear is that it would reduce my alpha significantly.

    Isn’t hedging with options what Hedge Funds often do? Their annual returns have been about 2% for a decade I believe. I would sure like protection from a major DD. I just don’t want it eating up my profits in the meantime. I just need to learn more about the subject.
     

  35. Well, a collar is pretty simple - it's just long stock, short calls and long puts. Yeah, it would eat into your alpha, but it really helps adjust your risk, allowing for far larger position sizes, leading to better alpha. With weeklies, it's great because you can roll them exactly when and where you want. I'd look at the best percentage gains in your market (SPX, I'm guessing) for a week and sell calls at 80% of that. Then buy corresponding puts (same price, they'll be a little further out because puts cost more). I'd probably adjust slightly for a credit so you make a bit of money on the options, too. Alternatively, go lower, risk a worse drawdown, but get more puts, then in a really bad crash, you'll actually make some money - maybe a lot, because you'll be overweighted on puts.

    example - spy at 200.
    You hold 500 shares.
    Sell 5@206 calls (3% upside)
    Buy 6@193 or 192 puts - adjust until you're flat or have a credit.
    Get into position on Friday, then you're clear against a weekend surprise.

    I like options against downside, too - you never get stopped out. And if you're smart / know your markets, you can close out a loser with much smaller losses due to the premium effect.
    Good luck and have fun.
     
  36. I sat out the first part of the week, then grabbed some entries midweek, which I exited Friday for some quick gains. Back to 100% cash. It’s funny, but I don’t like being on the sidelines, but I also can’t wait to get back to the sidelines when I have trades on in case the market dives.

    Tradestation’s TradeManager Analysis was messing up calculations on the positions I held. I had to include positions in the date range that were opened prior to the date range to make it calculate correctly. So now there are a few trades included from December 19 until the end of the year with relatively small position size.

    I’ve got my work cut out for me if I am going to surpass just buying and holding.

    Total Net Profit $1,368.46
    Gross Profit $1,368.46
    Gross Loss $0.00
    Profit Factor n/a
    Total Number of Trades 15
    Percent Profitable 100.00%
    Winning Trades 15
    Losing Trades 0
    Avg. Trade Net Profit $91.23
    Avg. Winning Trade $91.23
    Avg. Losing Trade $0.00
    Ratio Avg. Win:Avg. Loss n/a
    Largest Winning Trade $306.82
    Largest Losing Trade $0.00
    Max. Consecutive Winning Trades 15
    Max. Consecutive Losing Trades 0
    Total Commission $21.59
    Return on Initial Capital 1.37%
    Annual Rate of Return 20.68%
    Buy & Hold Return 12.14%
    Trading Period 24 days
    Max. Equity Run-up(Daily) $1,756.80
    Date of Max. Equity Run-up 1/12/2018 15:00
    Max. Drawdown(Daily)
    Value ($388.33)
    Date 12/29/2017 15:00
    as % of Initial Capital 0.39%
    Max. Trade Drawdown ($110.52)


    equity curve.png