Rol's Trading Journal

Kohanz,
That is interesting that you mention factoring news into the equation, because I have considered that. My back testing does not regard news, and I imagine it would be very difficult if even possible to address news historically to back test. However, I have made some observations about how news relates to stock price. Generally upside earnings surprises are made public after markets are closed, so they generally gap the next day and you miss a good part of the price move. While it appears to me that downgrades are made public around the market open, often leading to steep sell offs right after the news is made public. It would be nice to have a way for the strat to avoid going long stocks that had the word “downgrade”, in their recent news. TradeStation does have a way to incorporate news into a strat, but I haven’t looked into this yet. I believe many professional traders actually have trading algos that use news like this, which would help explain sudden rises in volume within seconds of a news release. A nice counter strat to what I currently am doing would be to short stocks that have, for example, “downgrade” or “earnings miss” in their news, accompanied with volume spikes. I have decided that when news is really bad for a stock, whether it has merit or not, to fight the trend is generally not profitable.

 

I was stopped out on 4 losers around the open, that the strat exited about a week ago. It did not help with reducing losses much to keep holding them beyond the strat exit. I need to remind myself that tying up cash in losers means missed opportunities in higher probability setups. Currently, I have the largest cash position I have had in a long while, holding only 4 positions.

The profit factor is not good to me. When I was back testing single stocks and then averaging the profit factors, I noticed that it often started out around 1.5 or less until the collection of more data. Then it reverted more towards 1.75 after 100's of stocks were included, thus smoothing things out over time. I actually look at my strat as a conservative investment style that just happens to have an extremely high turnover rate. The profits are not something I could live off until I had a mil or so. The nice thing is that I anticipate my strat is scalable into the millions.

Year to date, I am beating the SP500. I am up 6.72% ytd M2M, while the SP is up 5.35%. It is not much, but it is better than underperforming.

Total Net Profit $3,362.11
(Per Share) $0.06
Gross Profit $14,757.76
Gross Loss ($11,395.65)
Profit Factor 1.3
Total Number of Trades 504
Percent Profitable 60.52%
Winning Trades 305
Losing Trades 199
Avg. Trade Net Profit $6.67
Avg. Winning Trade $48.39
Avg. Losing Trade ($57.26)
Largest Winning Trade $400.56
Largest Losing Trade ($478.54)
Max. Consecutive Winning Trades 15
Max. Consecutive Losing Trades 25
Total Shares/Contracts Held 52911
Total Commission $1,216.86
Return on Initial Capital 6.72%
Annual Rate of Return 39.44%
Buy & Hold Return -0.91%
Return Retracement Ratio 5.08
Trading Period 1 Mth, 29 Dys, 6 Hrs, 27 Mins
Percent of Time in the Market 58.46%
Max. Equity Run-up(Daily) $5,834.49
Date of Max. Equity Run-up 2/18/2011 15:00
Max. Drawdown(Daily)
Value ($5,037.32)
Date 2/23/2011 15:00
Max. Trade Drawdown ($1,448.32)

 

I picked up a nice indicator from the TS forums that displays earnings dates for stocks. I have it displaying the stocks I currently track. Ciena Corp is reporting before the markets open Monday. If it disappoints investors, I may look to short it, as it is currently overbought looking. STRI is reporting next Thursday. I sold the stock last Thursday. The chart illustrates what I meant when I said I used stops to prevent a winner from turning into a loser. However, if possible, I like to let my winners run to the close as buyers step in and shorts begin to cover.

I may try to create a short strategy by pulling the earnings release date into the code, and then saying something like if the open is less than the low of one bar ago then sell short…

 

I got into trouble at the open when a message box popped up on my TS platform that said “odd lots not allowed with this security.” Once I acknowledged the message, all the orders that had been queued executed. I then found myself with over twice the number of positions I was allowed to have and exceeding my overnight buying power! I have not figured out which security it was that caused this yet. Throughout the remainder of the day, I was able to exit enough positions for a net gain to get my overnight buying power to $494. I will remember to turn off order entry macros in the future before acknowledging message boxes. I am now (for better or for worse) positioned to the gills for an up day tomorrow.

Entries today: 37
Exits today: 11
Realized P/L (3/10/2011) $236.22

 

Able to see gains by buying the dips in oil related and metal stocks recently:

 

Total Net Profit $4,507.33
(Per Share) $0.07
Gross Profit $18,077.38
Gross Loss ($13,570.05)
Profit Factor 1.33
Total Number of Trades 587
Percent Profitable 60.65%
Winning Trades 356
Losing Trades 231
Avg. Trade Net Profit $7.68
Avg. Winning Trade $50.78
Avg. Losing Trade ($58.74)
Largest Winning Trade $412.37
Largest Losing Trade ($478.54)
Max. Consecutive Winning Trades 15
Max. Consecutive Losing Trades 25
Total Shares/Contracts Held 62714
Total Commission $1,432.87
Return on Initial Capital 9.01%
Annual Rate of Return 44.25%
Buy & Hold Return -1.05%
Return Retracement Ratio 3.53
Trading Period 2 Mths, 10 Dys, 5 Hrs, 50 Mins
Percent of Time in the Market 58.25%
Max. Equity Run-up(Daily) $5,551.25
Date of Max. Equity Run-up 2/18/2011 15:00
Max. Drawdown(Daily)
Value ($3,831.77)
Date 2/23/2011 15:00
Max. Trade Drawdown ($1,448.32)

Performance YTD 9.01%
SP500 4.06%

Experienced a nice day today, buying the open, and riding it higher. I am still about $1000 away from my 2/18 equity high, but the trend appears upward. Would like to see a higher PF and % profitable though. I had to move the start date to 12/30/2010, because of an open trade around the New Year that TS was miscalculating, causing me to realize a greater profit than I actually had.

I guess my system is working so far because I am not shaken out of my positions. Just when my trades seem most hopeless, is when they often turn around.

 

Here are the daily returns for the past 28 trading days. The days with zeros are weekends or holidays. You can see that big down days are generally followed by big up days, which is why it is important to stay with the trade, until an exit signal is given.

 

Stops can be useful at times:

 

It is good to have exit rules in place ahead of time:

 

Hi Rol,

Your system looks to me like some kind of mean reversal system and the result is simply great. However, I have two concerns,

First, you seems to use 2x overnight buying power, can you handle some kind of black swan event which may be much worse than 9-11 and the market simply gapped down 30%. Do you have enough time to adjust your position to meet the margin?

Second, Is your system scalable? Suppose you have one million equity, do you have enough signals which you can enter? You may have some liquidity issues at some point.