Funny. Looks like a quarterly trend. Hopefully the next leg is not to the downside as suggested by the graphs
Neke, Keep up the good work. The equity curve all boils down to one's belief. Do we make our own luck or does luck make us? I've seen evidence of both schools of thought at work in the markets. Perhaps the wisest course of action is to not allow the extent of the drawdown to repeat. I'm not sure how you feel about it, but there really is something to the Kelly criterion. I'm thinking of incorporating it consistently into my trading. More info can be found here: http://en.wikipedia.org/wiki/Kelly_criterion I used it to rather remarkable success on a series of wins at the craps table at Las Vega's Stratosphere casino. If I recall correctly, I progressed from a 5 dollar bet with 10 dollar odds to a 200 dollar bet with 600 to 800 odds. The Stratosphere had phenomenal odds at one time, usually it is only 2:1. I think they went up to 10:1 when I had my string of wins. I want to say that at the height of the run, I had around 4500 to 5000 dollars on the table spread around 4 to 5 numbers. I started with no more than 500 USD. I walked away with around 4000 USD. It would have been more had I hit the height of the run and gotten back the winning bets. For anyone reading the above, it was a fluke. I took the money and ran. I aggressively discourage anyone from going to a casino. The risk of addiction is great and very few games have even a slight positive expectation.
Maybe you could allocate a larger percentage of your portfolio to automated trades. Or, you could do a withdrawal of funds, say $40K, to bring your account balance in line with the "On Track" balance? Or...you could ignore the graph and just keep executing your strategy. It's nice to have options.
Some thinking about the little quiz: Initial asset USD10K Nb of trades 52 Probability of win 50% Average profit 20% Average loss -10% Risk free rate 0% I simulated 1000 random states of the above assumptions with 4 asset allocations (from 1.25% to 25% for the risk exposure): <font face="courier"></font><blockquote><pre><font class="t2"></font><hr> % of risk exposure 1.25% 5.0% 10.0% 25.0% Nb of Trades 52 52 52 52 P&L Mean 3,613 22,300 89,347 58,138,583 P&L Min -4,801 -9,306 -9,958 -10,000 P&L Max 16,801 429,609 13,109,428 56,040,942,167 P&L Std Deviation 1,307 17,615 427,293 1,771,496,167 Loss Nb % <-5K 0.00% 0.70% 0.80% 2.50% Profit Nb % >490K 0.00% 0.00% 1.00% 11.90% <hr></pre></blockquote><font class="vb"></font></font></p> In the first case, the chance of losing at least 5K is null whereas it represents 2.5% in the last case. With 25% of risk exposure, the P&L max found among 1000 random draws is USD56 billion: better play this game than the lottery! If you are very lucky, the maximum profit is 10,000x((1+2x25%)^52-1) i.e. USD14,346 billion! With 25% of risk exposure, the chance of winning at least 490K is around 12%.
Did you try simulating with a bigger leverage (50%,100%, 200%, 250%). I think 250% is the optimizing leverage - with a huge drawdown
I did not define the risk exposure. 25% risk exposure corresponds to your optimum (r=2.5). 25% risk exposure equals a leverage of 2.5 with a maximum loss of -10% (25%= 2.5 x 10%). 25% => r= 2.5 10% => r=1 5% => r= 0.5 1.25% => r= 0.125
Neke, Great job on the journal. Inspiring. Well done for not listening to the nay-sayers at the beginning... G
Neke, How do you screen for stocks/options to trade? Do you use fundamentals or pure technical analysis? Thanks.
Weekly Update for week 21 ended 07/20/2007 This is an OK week, although very disappointing on the automated front. Autotrade1, a normally slow and steady performer, returned a stunning loss of 22K, all 6 trades were unprofitable. The new Autotrade3 was also unprofitable: part of the reason for this was a software bug. I have decided to cut down size on Autotrade1 going forward till further notice. On the options side, the momentum in the market continues, though not at the pace of last week. It was difficult to make any money on the short (put) side. On Monday, bought puts on FSLR when it opened on weakness on some bearish barrons' comments. That was a mistake, because of the bullish market scenario. Had to let go with a loss of 18K. Fortunately bought put as well on RIMM on that follow-up run on Monday (100 contracts of JULY 230 PUT at 3.90), selling them at 6.20 for a handsome profit of 22K later in the day. Friday also was a split day, buying 100 GOOG JULY 520 PUTS at an average of 4.60, forced to sell at 2.50 for a loss of $21K when I saw the upward momentum. Immediately went long 100 JULY 510 CALLS (when the stock was at 518.30). Sold when the stock rose to 522.50 for a gain of 44K before it backed off to close at 520.00 (Aren't those participants naughts? They ensured that both the 520 calls and puts expired worthless!). I think I was a bit over-leveraged, and it smells like a revenge trade. Glad to finish the trade profitable. With the expiration of JULY options, I should be careful not to jump willy-nilly on AUGUST options, because the spread costs become a more significant factor when premiums are high and the average gain per trade is less. I should focus on multi-day hold or on extremely compelling plays. Attached is a graph showing actual trend line vs. expected trend line towards the target (500K) by year-end. The actual results are the adjusted balances before withdrawals. Code: Balance B/F: 190,212 Gain for the week (Less Interest) 17,117 ------------------------------------------------ Balance C/F: 207,329 Number of Trades 29 Number of Profitable Trades 12 Since Inception of Thread 2/25/2007 - 07/21/2007 Balance B/F: 76,636 Net Gain (Less Margin Interest) 161,693 Cash Withdrawal -31,000 ------------------------------------------------ Balance C/F: 207,329 (Adjusted balance before withdrawals is 238329, up 211% ) Number of Trades 527 Number of Profitable Trades 308 Expected Balance at this time to be on track for Year-End Target : 187,583 Status: Ahead of Target (Based on adjusted balance before withdrawals) Top/Bottom Discretionary Trades for the week TICKER ENTRY DATE/TIME EXIT DATE/TIME QTY PURCHASE AMT SOLD AMT GAINS TYPE GOPGU 2007-07-20-12-59-47 2007-07-20-14-15-20 10000 83000 127300 44118 OPTIONS (GOOG JULY 510 CALL) RFYSF 2007-07-16-09-45-52 2007-07-16-15-45-59 10000 39000 62000 22829 OPTIONS (RIMM JULY 230 PUT) ------------------------------- QHBSB 2007-07-16-09-42-34 2007-07-16-10-50-12 20000 48000 30050 -18280 OPTIONS (FSLR JULY 110 PUT) GOPSV 2007-07-20-11-02-17 2007-07-20-12-57-59 10000 46000 25000 -21180 OPTIONS (GOOG JULY 520 PUT) (Before Interest and Other charges) TRANSACTIONS ANALYSIS FROM 2007-02-25 TO 2007-07-21 Current Week | Since Inception of Thread | Method Gains/Loss No Of Profitable | Gains/Loss No Of Profitable Trades Trades | Trades Trades Automated AutoTrade1 -22309 6 0 | 11860 142 80 AutoTrade2 2754 1 1 | 6472 5 4 AutoTrade3 -3074 2 0 | -4523 3 0 ----------- -------- ------------ | ----------- ------ ------------ Total Automated -22630 9 1 | 13810 150 84 ----------- -------- ------------ | ----------- ------ ------------ Discretionary Long 0 0 0 | -55294 142 81 Short 1626 2 1 | 45826 139 85 Options(long) 38096 18 10 | 158332 96 58 ----------- -------- ------------ | ----------- ------ ------------ Total Discretionary 39723 20 11 | 148864 377 224 =========== ======== ============ | =========== ====== ============ Net Totals 17093 29 12 | 162673 527 308 =========== ======== ============ | =========== ====== ============