TA3's Multi-strategy Fund

Discussion in 'Journals' started by TA3, Mar 4, 2013.

  1. TA3


    The purpose of this journal is to document my journey on establishing a multi-strategy trading account with consistent profit. I am willing to share my strategies and hopefully that can help generate discussions or ideas for all of us to improve.

    I started my IB account with $100,000 in October 2012 and as of today, the account stands at $110,000. My target is to generate 100% return every year with a maximum drawdown of 10%. I am pursuing trading full time and although I do not need the profit to feed myself, a 20% per annum return is mandatory for me to continue this pursuit.

    I am currently running 7 strategies and none of them uses TA or stop loss.
    1) Pairs trading – based on various groups of stocks a similar industry. Buy the undervalued and sell the overvalued.

    2) Biotech catalyst – taking advantage of any unusual price behaviour before and after a major catalyst such as FDA approval, ad com, phase 3 data.

    3) Leveraged ETF options modeling – mostly working with the direxion or proshares 3x ETF. I am using excel/VBA to find undervalued/overvalued options. I do hope to learn a more efficient language in the future.

    4) Volatility futures modeling – betting on spreads based on historical data.

    5) Bets on black swan events – look for cheap bets that do not have their upside priced in. For example, there have been speculations that GLD doesn’t actually hold the physical gold. Although that is a ludicrous claim, I think there is a non-zero chance that it is true. Since I can buy a long dated far OTM puts on GLD for cheap, I get a freeroll on a huge payout if GLD ends up being a fraud.

    6) Shorting various small cap stocks – way too many pumps-and-dumps, frauds or companies that has near zero chance of ever making money. I am currently focusing on the junior mining sector. It was the junior mining sector that got me interested in the financial market back in 2006. It was also the junior mining sector that wiped out 80% of my net worth back then. I am getting revenge now.

    7) Macro trades - short US treasury futures

    I do realize it takes a lot of effort to fully understand the intricacies of each strategy. However, the diversification benefit from a multi-strategy approach to smooth out the equity curve is much more important to me. Further, I do have a strong conviction that all the strategies above have a positive expectation.

    Major mistakes so far:
    1) Trading too big. At the beginning, I made a point to myself that I will always be conservative with trade sizing. That only stuck with me for 2 months. As I was getting lucky and having a lot of trades going my way, I started to relax the sizing rule and ended up with a huge loss.
    2) Do not trade any pairs before, during or after earnings. You can lose 40% in a day.
    3) Always hedge overall market exposure.
    4) If a trade starts sustaining unexpected losses, close it out. The original strategy might be flawed.
    5) Rarely remove liquidity, it is usually a bad idea.

    Thank you for reading and feel free to leave comments!