SO EASY a Caveman Could Do It!!!

Discussion in 'Professional Trading' started by paysense, Mar 7, 2009.

  1. Hey there folks, Pay$ense here.

    I'm not going to say I am financially independent or that I come from a rich family.

    In fact my financial means are presently ever so modest. However, I have recently wrapped up a major milestone in the financial career I decided to embark upon almost 10 years ago.

    I set some modest goals in 1998 that I tried out on paper until the end of 2001. My math and engineering degree led me to an investigation of whether or not market-beating results were even possible. I gravitated towards attempting to develop a relatively simple approach that I could easily manage while keeping my day job and focus on my family.

    After reading up on various investment strategies, I decided on selling covered calls which work good during most periods: sideways and uptrending markets. These had the promise of a 3-8% monthly return. Compounded for as many months per year as possible, indeed a very strong annual average is possible!

    My initial attempt to paper-trade the strategy using a purely mechanical method, ran into some strong headwinds: the Asian Contagion (Oct. 1998). Although I had a strict stop-loss methodology, continuing to vy for high returns selling call option premiums - during a market "correction" - made for losses that quickly began to stack up.

    Although the market bottom came soon enough - coupled with heady monthly returns from my covered call strategy. . .the losses we quickly made up <i>and them some.</i> It occurred to me that it would be <b>much better</b> to side-step unfavorable periods and fortunately I was able to put to use - with a high degree of reliability - market indicators that would allow for me to do this, since as they say: "cash is king".

    These methods proved <i>extremely promising</i> during the subsequent tumultuous "bear market" years, which still provided many tradeable rallies between corrections. The gains (albeit paper-trading) began to stack up and <b><i>my performance graph smoothed out markedly.</i></b> It seemed I had indeed achieved what I had set out to accomplish.

    <b>My compounded annual average yielded a 50% return over multiple year periods - even decades. Max drawdown was also very favorable approximating 12%.</b> Each and every market downturn repeatedly found my past strong gains going into cash and my charts showed a straight-line flat period, while the rest of the market tanked. Each new entry made my "out-performace" versus the market that much more with a contrasting divergence.

    THIS IS SOME REALLY EXCITING STUFF. No, it does not appear to be that attractive to the investment "pros" due to its simple nature, but the results were jaw-dropping nevertheless. Each and every year it became routine to not only out-perform or "beat" the market by 25% within 3 to 9 months, but the very fact that as long as we have a Stock Market, <b><i>I could do this powerful compounding strategy for years and years.</i></b>

    As it turned out that was just the beginning. I liquidated $20,000 of my 401k and began trading <i>real money</i> in 2002. Well we all know how that turned out. The ensuing 9 months seemed insufferable. After all, I was ready to make money NOW and the market severely corrected forcing me into cash (similar to this past year). I did make back my drawdown in the final quarter of 2002, but I then embarked on a very prolonged and profitable journey during the ensuing bull market period.

    It was amazing! I learned how to manage this phenomenal return in my sleep. More importantly, I knew it could be done for decades. I was so confident, that I opened up a website to "train" subscribers how to accomplish the exact results if they would just receive my e-mail alerts and of course pay me $70 buck a month. I lost my job and family through divorce that essentially left me with nothing. Even my trading account was liquidated.

    Did I have anything to fear? No. I knew this strategy like the back of my hand and <b>I KNEW THE RESULTS WERE UNPARALLELED</b> - even compared to complicated hedge fund systems. I was on my way to financial freedom...after all subscribers were now filling my account! These were my returns - real and at my website where I posted all trades:

    2002: 0%
    2003: 120%
    2004: 45%
    2006: 34%
    2007: 12%
    2008: 28%

    So far so good. I started calculating how many years it would take to make 10's of millions of dollars. Yes, I still realized I would need additional capital to REALLY GET OFF THE GROUND. I never gave up and continued to improve and fine-tune my covered call strategy, but was still reluctant to <i>directly solicit</i> a partner that would allow for me to trade a larger account. I knew things would eventually work out and just to be patient.

    I came to EliteTrader in May of 2007 and began to share a bit about my life's project. A very content filled 2006 trading experience ran against a difficult (for my strategy) first half of 2007. I was sure the tide would soon turn and sure enough the market started to correct in August 2007. As they say, the rest is history.

    The government intervened, preventing me to gain against the market for the rest of that year. Fortunately, with the start of 2008 - by BEING IN CASH - I was able to starkly out-perform and even embark on a tradeable rally from March to mid-May (tracked here at ET). I "beat the market" that year by 68% on top of a nice 34% return. Patience indeed paid off, since for all of 2007 I wasn't able to gains much separation from the benchmark indexes - but it all came back to me in 2008!

    <b>PLEASE NOTE.</b> Something interesting happened in November 2007. <b>I came to the sudden realization that my very effective method of targeting rallies and downtrends could allow for me to profit from a more diversified instrument that could scale up large.</b> Hence, my foray into futures. On a suggestion, I opened an account with and began going LONG and SHORT ES, NQ, TFS, YM, etc. using various leveraged amounts. I ran two systems into the ground using every scenario I thought possible to iron out exacly what I could do with these insturments. <b>It seemed a no brainer to actually triple or even quadruple my annual average with a lot less work.</b>

    I then began an audit exactly year ago. Worst-case we would get a prolonged non-trending market that gyrates in volatility - preventing me to attain what seemed like a sure proposition. A no-brainer right? 200% per year with contained drawdown. Even if we did get a crazy market, it would <b><i>eventually</i></b> turn in my favor and allow for a BIG jump in my equity that again could become routine!

    Which brings us to the present. I got the exact worse-case market with the only comfort being that the best days are ahead, since we all know how markets work during most periods. Thus far I have achieve a 125% return with a max drawdown of 35%. The attached equity curve has ranked me in the top 10 of all systems at C2 based on longevity and APR. Out of 7000+ systems that have come and gone over the last 5 or so years. . .only 50 are actively traded with a profit that are at least one year old.

    I can now hardly sleep with excitement even though I am hardly a wealthy person. For the last 6 months I just lay in bed awake all night - waiting for a break that will open the door to go to the next level. My routine is now less than an hour a day. The results are next nothing next to remarkable. Key: I will accomplish this compounded growth in each and every year.

    I have not given up and continue to grow my track record. I know I could probably "pound the pavement" and get someone interested in backing me, but I am a patient man. After all once I do embark on the next phase of my journey - MANAGING FOR A PARTNER A LARGER ACCOUNT - my greatly increased annual average will produce awesome growth MUCH SOONER. ($100k compounded at 150% for 3 years is $1.56M. I have calculated that over any 5 year period, my average will be closer to 250% with futures. Though, it is not a problem to do 150% per year with ETF's.)

    If there is any "life" in the blood of "investors" here, then let's engage in the topic of how lofty this goal really is and indeed the huge implications of what the realization of it can accomplish. I guess in my own way, I am tentatively seeking an avenue to capitalize on my management efforts.

  2. Current period performance is important and unfortunately your system is basically flat since the second week of October. If that equity curve does not shoot up in March, I would say go back to the drawing board.
  3. Paysense,

    Looks to me as though you had a few good trades in the early part of October (probably shorts). Other than that, the rest of the equity graph is uninspiring. You need some sort of a reality check if you think you are going to get partners and additional equity.
  4. Thanks for your analysis and I agree with you. The last three months were lackluster. I scaled back my leverage too much.

    Although the market went sideways, I was too cautious. I now realize I can increase leverage when shorting a bit more.

    That limited my gains with the recent move by the indexes to new lows. It is important to remember that I ONLY gain traction when the market moderately or strongly trends. The past year did not allow for many months for this.

    Of course I am expecting that I must show producing equity that the next 3 - 6 months should display. Anything else (including a severe drawdown) would be unacceptable.

    I will still try and network to find someone who will want to let me trade a larger account. All in due time. If I continue to track OP money for a few months (alongside the market moves), perhaps a person will know many others that can then move in with much larger funds.

    <b>I only need a jump-start.</b>

  5. Equity charts can display things differently. This is a logarithmic chart. I flattens out the view of 1 yrs. growth from $35k to $80k.

    Of course in 6 months equity may/should equal at least $125k, which is almost 4X starting equity. That may display nicer.

    Maybe it is just me, but navigating with fair to good results most of the time <i>feels</i> successful. I can't tell you how awful less than desirable results are to me as a trader/manager.

    How many ways can a market annihilate an account - especially with levered instruments? I've known more than my share - not a few!

  6. Current period performance is important and unfortunately your system is basically flat since the second week of October. If that equity curve does not shoot up in March, I would say go back to the drawing board.

    Beauty is in the eye of the beholder!

    You can be certain there exists millions of investors that would be more than happy to have their accounts be 'flat' since last October. (probably more than a few money managers as well)

    I say, keep up the great work!
  7. P$

    You may be a market wizz, but why would you publish a simi-log chart that flattens out the gains as one of the powers of 10 is approached. ?

    Could you please publish your monotonic equity curve ?

  8. Thanks for the replies. Here are some alternate views.



    I realize things take time. I have had to exercise much patience with the market this past year-and-a-half. More may be required.

    I console myself in the fact that my APR is now 150-250% when before with covered calls it averaged around 50%.

  9. Good job. I'm in the same position as you - I have an edge and I'm looking for more funds to trade it with. I have a system on C2, but I'd be interested in following your results... can you pm me the name of the system?
  10. Thanks. I have sent a PM to you. Also, if anyone is interested you can click my Profile and get more info.

    #10     Mar 9, 2009