Monday, November 01, 2010

Trades log performance- the first two months

The trades log has now been running for two complete months now, and I thought I'd note some observations about the performance in that time:

You will see that the majority of the trades cancel each other out - small gains contra'd by small losses. This is normal for a trend following strategy - no-one knows which stock will perform as intended, so you are making a rational 'bet' based on your previous experiences when seeing a similar chart set-up of another stock.

The bulk of the profits are generated by a small percentage of the trades - in addition these are the stocks that tend to be held the longest.

This is a clear case of letting your profits run, and cutting your losses short (by the disciplined use of stops).

Normally, a trend following system will only generate a win percentage somewhere around the 40% mark, however I have proven to myself over the last few years that I can beat this, by generally aligning my trades with the trend of the general market. You will see that all the trades made in the log are on the long side, in accordance with the (somewhat bumpy and slow) uptrend in the indices.

In addition to the win percentage between more than 50%, the size of the winners is larger than the size of the losers (when expressed as multiples of R) - always a good combination!

You will also note that none of the losses made have equate to the full amount risked on the trade - this is because at some point I was able to move the stop up per the chart.

I would also mention that a couple of the losing trades 'gapped' through my stop levels, however, as previously mentioned, I use guaranteed stops on my spreadbets. On these ocassions, the small premium you pay is well worth the cost, and I was stopped out at 'my' stop level. I would also mention that the stop prices on the log are as indicated on my charts (which track mid-price), however I tend to place my actual stops slightly lower in order to facilitate the spread between the bid and ask price.

A trader only has a limited amount of capital, and ultimately the discretion part of my system is choosing which stock to select out of a number that potentially meet my criteria. There have been more than a few that I haven't traded which have performed exceedingly well. On another occasion, the roles may be reversed, and I may have a bunch of stocks outperforming the market.

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