You have to be mindful that I am an amateur small mom and pop retail trader with no formal financial training and not a professional: 1. 20% of tradable assets is in options and I am using < 1/4 Kelly for each trade and lately I am actually down to 1/10 Kelly for I am fearful. 2. I "hope" to get a reward risk of ~2:1. 3. I win <50% of the time. I am a pure "Seeking Beta" (as oppose to Seeking Alpha) trader so I don't really have any edge. Not a good strategy when the market tanks (or in a volatile market) like today. Regards,
---------------------------------------------------------------------------------------------------- Thank you, that's very interesting and honest answers. One more question if you don't mind: You say that you don't have an edge, so what then triggers a buy signal?
Could you tell us more about your five sector index tracker portfolio? Do you stay with the same ones for years, or do you rotate around a lot? Also, do you do options 100% for a living? I am having very good success with options, but I am hesitant to risk more than a small fraction of my portfolio value.
I prefer not to go there. But here are some thoughts for you: CAPM (Capital Asset Pricing Model) - E = R + Beta(Rm - R) E = expected return R = risk free rate Rm=market return Beta = volatility over market volatility The higher the Beta, the higher your expected return, but the risk adjusted return is no different from the market so you really have no edge. In a raging bull market, on average you will be richly rewarded. Of course, once the market turns, you will ride the down side faster than the market and the risk of ruin is quite high. Bottom line: I always said I would rather be lucky (seeking beta) than be good (seeking alpha). This is a lay person's view, probably nonsense. If I don't make any sense, you folks please correct me.
Like I posted I do not trade for a living, but I do trade mostly options. The ETF section of my portfolio is chosen on the same basis as I choose stocks. The sectors are simply the DJS/STOXX 600 sectors with the STXe 600 Real Estate sector added in. The ETFs are pure trackers of those sectors - most of the ones I choose are Comstage ones simply because their offering is very broad but a few are DB ones. Basically the 5 sectors that show the most momentum are chosen at the start. A sector is sold if: it drops below position 12 on the list of sectors; it hits a trailing stop loss that is 15% off from the market at entry. if a position is sold the highest ranked non-held position is purchased. The trailing stop loss was hit once during the last three years. Otherwise I have about one transaction every two months - in 2017: 7 mutations. The returns are pretty good - last year it was over 10.5% which (in EUROS) better than the return of the DOW (9.7% in EUROS) or the EUROSTOXX100 (5.85% in EUROS) - the return is also distorted by the fact I added substantially to my portfolio funds 2/3 into the year due to vesting some bonuses.
----------------------------------------------------------------------------------------------------- Ironchef, Thank you for the response, it does make sense to me and I even think it presents a "slight" edge because it leads one to only trade vehicles with at least a slight mathematical edge. I somewhat understand math based systems. You told me a little about your methodology, so here's a little about mine. I have a 3 tiered Step System of Deck-Stacking: Step 1: Using a convoluted form of Algorithms that get Chained, broken down into Multiple Time Frames and run through a Multisystem Comparator, everything I trade has a Back and Forward Historical Mathematical Edge of 70% minimum based on many years of Historical Data and at least 1 year of Forward Testing, or I don't trade. (Note: All data in Step 1 has been programmed because it take too many hours manually). Step 2: Then I further stack the deck in my favor by requiring every trade get a discounted entry from its closing price, ranging from -15% to -40% below its closing price, depending on Signal Strength; Frequency = Sequence....i.e....Call Seq-1....Call seq-2...Call seq-3...etc..); and Overbought Levels based on the Mathematical Size plus Sequence of the Signal. (Note: All the data in Step 2 has been programmed.) Step 3: The final phase of Deck Stacking a trade in my favor is creating Gap Intervention, based on all same Market scenario's dating back many years (sometimes a decade depending on the index). Gap Intervention are rules not programmed but are manual rules in case of Extreme market conditions that create massive gap openings down or up. This prevents me from entering the market at the program output entry prices, because often times in these scenarios, the opening price is below both programmed Buy # 1 and Buy # 2. In these cases I manually interject the next lowest set of programmed entry parameters from the program [----PARAMETER SCALE FOR BRACKET ORDERS----] (Buy Limit,Sell Limit,Stop).