I plan on doing updates at the end of each month on how the strategy is performing and some thoughts about what is working and ways to improve it.
After a week of action the market finds itself essentially flat. I had a rough start initially but my strategy has done decently so far but obviously one week of testing is nothing sufficient to base a conclusion. Sell disciplines have essentially been the difference so far which will likely be true moving forward as well.
Market wise I am fairly surprised we have held up so far even though friday volume was very light. Economic data is getting progressively worse and the market has stayed bullish, reversing a fairly large drop on Thursday. Overall I think investors are in a "buy the dip" mode but I am predicting a more prolonged pullback over the next month or so as we get panic that positive ecnomic progress is slowing down. I of course could be wrong and I will watch the market to tell me the next move and attempt to position accordingly with the strategy.
Total Strategy Return Since Inception: 2.17%
Saturday, February 27, 2010
Tuesday, February 23, 2010
Follow-Up to 2009
So overall 2009 was a decent year. I am disappointed in how it ended though. I ended up 117% overall however considering where I was that is not very good. The Amazon trade was a big loss that should not have happened and it was hard to recover the rest of the year. The good news though is that I learned a valuable and expensive lesson and will trade smarter because of it. There are some key take aways from 2009 I think:
In general, I think I managed risk fairly well considering I was essentially trying to short the market since July and still managed to make gains until AMZN. I over traded for the market environment we had but obviously in the moment it is harder to be objective and hindsight is 20/20. That said, I did fully support and participate in the rally from March-May and then started to become skeptical but a major pull back did not materialize.
For 2010, I'd like to see myself with more consistent performance with smaller draw downs and less trading. That is obviously part of the plan with my new strategy so we will see how it goes. I have to put full faith in my trading system to truly test its worth so I will need even more patience and discipline. I often wonder if making it completely mechanical would be ideal but at the same time I think I have become disciplined enough over the past 3 years to intervene at my discretion.
Key Metrics to track for 2010:
Theoretical vs. Actual Expectancy
Drawdown analysis
Standard Deviation of portfolio vs. Index
Absolute and Relative performance
Attribution Analysis
Average Capital at Risk
I am looking forward to this challenge and hopefully a good year, but even more so I will look to learn from things that don't work. Ultimately I want to have a sustainable long term strategy that can return consistent profits in different market environments. Stay tuned.
In general, I think I managed risk fairly well considering I was essentially trying to short the market since July and still managed to make gains until AMZN. I over traded for the market environment we had but obviously in the moment it is harder to be objective and hindsight is 20/20. That said, I did fully support and participate in the rally from March-May and then started to become skeptical but a major pull back did not materialize.
For 2010, I'd like to see myself with more consistent performance with smaller draw downs and less trading. That is obviously part of the plan with my new strategy so we will see how it goes. I have to put full faith in my trading system to truly test its worth so I will need even more patience and discipline. I often wonder if making it completely mechanical would be ideal but at the same time I think I have become disciplined enough over the past 3 years to intervene at my discretion.
Key Metrics to track for 2010:
Theoretical vs. Actual Expectancy
Drawdown analysis
Standard Deviation of portfolio vs. Index
Absolute and Relative performance
Attribution Analysis
Average Capital at Risk
I am looking forward to this challenge and hopefully a good year, but even more so I will look to learn from things that don't work. Ultimately I want to have a sustainable long term strategy that can return consistent profits in different market environments. Stay tuned.
Sunday, February 21, 2010
Strategy Launch
I have developed a potential strategy I feel could be fairly profitable that I will be officially launching tomorrow. I would like to track the strategy performance over a year and hopefully develop a successful track record. This is a more conservative and passive approach than my typical trading so it will be interesting to see the results. It has the potential for great success in terms of theoretical expectancy but of course the reality could be different which is the whole point for testing it.
I won't go into specifics at this time for obvious reasons but the main focus will be on risk management and the exploitation of market behavior. The strategy is fairly simple yet not necessarily obvious which I think could be a good recipe for success.
I will track its performance on here each month and update with some commentary and thoughts about what tweaks could be beneficial. I will look into ways to audit the performance so it can ultimately be verified if it is successful.
Total Strategy Return Since Inception: 0.0%
I won't go into specifics at this time for obvious reasons but the main focus will be on risk management and the exploitation of market behavior. The strategy is fairly simple yet not necessarily obvious which I think could be a good recipe for success.
I will track its performance on here each month and update with some commentary and thoughts about what tweaks could be beneficial. I will look into ways to audit the performance so it can ultimately be verified if it is successful.
Total Strategy Return Since Inception: 0.0%
Friday, September 25, 2009
Make or Break Point
Some fairly in depth market analysis if I do say so myself. ;-)
http://davianletter.com/blog/2009/9/25/make-or-break-point
Total Return for 2009: 143%
http://davianletter.com/blog/2009/9/25/make-or-break-point
Total Return for 2009: 143%
Sunday, September 13, 2009
New Home
I will basically be moving my blog to a new location for the foreseeable future. Since I have been writing articles for The Davian Letter, I decided to also post my blog there as well along with some other great traders so we can have a great community of market analysis and trade commentary.
Follow the link HERE to read the new blog.
Total Return for 2009: 135%
Follow the link HERE to read the new blog.
Total Return for 2009: 135%
Tuesday, September 1, 2009
Breakdown
MARKET ANALYSIS
So we finally had the break down of the flag. It was somewhat suspect yesterday as we bounced off of old support at 1015 and rallied into the close making me wary of a continued move down. This was not helped by the initial move up today as well. It was fairly interesting because clearly people were just waiting for higher prices to sell into, because pretty much as soon as we hit 1025 we sold off the rest of the day finishing on the lows. Technically that is very bearish. The VIX spiked up today moving back above the 50 SMA and will likely test 30 in the short term.
The tough thing now is the breakdown and nearly the whole short term move came in a single day as what usually happens so if you weren't positioned for it initially now you need to wait. Ultimately I think we test 980 again, but I will look for a rally to short into again. In the short term though the MO is near its most extreme oversold levels meaning there is more risk to the upside than downside however that does not mean we can't sell off more.
Ideally I'd like to see a gap down tomorrow, and I'd buy the open. I want to see a re-test of 1015 before I get short again. In the longer term we may be forming a Head and Shoulders pattern on the S&P but that way too early to tell. The funny thing is that most of all the metrics today were positive yet the collective market decided to sell it off. It is like they are coming to the conclusion I came too a month ago all at once. That is the inefficiency of the market and if you can anticipate shifts in psychology well you would be very successful. Obviously I may be correct in the long run but the reality is that I missed a near 20% rally because I was too early in my prediction. I may keep getting proven wrong but I think metrics will start to turn downward again shortly.
I decided to lighten my shorts into this move like I had planned. I got out a bit too early in the day because obviously finishing on the lows would have benefited my positions, however it was still a decent day. I am now long biased and will look to get short again into a rally. I just bought corn futures again as it is near support. I likely should have gone long soybeans and short wheat as a hedge but we'll see what happens. I feel slightly too long at the moment but will have a tight stop on it.
Total Return for 2009: 144%
Sunday, August 30, 2009
Summer-End Stall
MARKET ANALYSIS
The past 5 trading days we have seen almost a perfect flag. Nearly identical ranges and finishes generally means we are setting up for a large move once we break one way or the other. Depending on who is looking at this chart depends on their opinion on direction. Bulls will assume this is a continuation pattern getting ready to move higher and the bears will take this as a sign the market is starting to top out unable to move beyond 1035. In reality, no one knows the future so it is best to wait until it confirms one way or the other.
The McClellan Oscillator is also not really helping us as it is in the middle of its range so risk is equally skewed both ways in the short term. Most Bullish percentages are still at very high levels however oddly enough we can see that the Nasdaq 100 which led the rally has sold off significantly while the S&P 500 has held up.
This could make the S&P the better play to the downside if we do pullback as it would have more to fall. I am personally still skewed bearish at the moment on the S&P. Even though there is generally a bearish tone to the market this time of year I feel like some of numbers we have seen lately could become less rosey. My macro view is we see the end of the real estate season which will slow down the entire ripple effect it lends to all sectors. The stimulus injected into the economy has helped sustain it to this point and I understand it is like they are trying to push start a car where the stimulus gets us through until we actually get going on our own. However, it can only do so much. From my own metrics employment may improve over the short term as more jobs seem to be getting posted even in the finance areas even though still limited. I still think we hit 10% measured unemployment in the long run and don't recover for a while. Eventually the lack of ability to spend will catch up with companies even with their cost cutting measures to help numbers last quarter.
TREASURIES
We have a divergence again in terms of equities and treasuries. I am kicking myself that I did not buy /ZN after it collapsed on friday. It pulled back to an area of support and I missed a decent snap back rally that would have been a very nice gain but since buying /ZN is essentially bearish on stocks I didn't want more risk to the downside. I find it curious /ZN sold off so much if we are planning an extended pullback, however it could still be feasible we get a pullback and people are just starting to demand higher rates. I was looking to buy at 116.035, it is currently 116.305. 270 ticks could have made my month, but oh well that happens. This was a perfect retest of the flag breakout so we should continue higher from here pointing to downside in stocks. Until we get evidence of real inflation rates are likely to stay at the lower end of the range.
FOREX
Most major currencies were unable to make new respective highs and lows on the latest rally attempt, which is another bearish divergence. Even though places like Australia remain relatively strong they will not be immune to another downturn if it comes. Although AUD does remain in its uptrend it could be starting to signal a consolidation or reversal. It could be a good pair trade to go long AUD/USD and Short EUR/USD as the hedge.
COMMODITIES
After testing 75 like I assumed would happen oil was rejected fairly quickly back down and has yet to make any significant rally since. The other materials have also sold off recently as the prospect of no real demand or inflation coming on for some time likely took a bit of wind out of the recent rally. I am still a long term bull on commodities overall but think we could pull back here along with the rest of the market. Many people seem to like gold however I really think another metal would be a better choice because it really has no industrial demand. Sure people may want to own it for an inflation hedge or an end of world type scenario but I'd rather have something that is both physically needed for a use and affected by inflation such as silver or platinum or copper. The soft commodities have somewhat lagged. Corn tested 320 again but did not successfully break back above 330. We could stay in this range for the time being but it may be difficult for it to sustain a sell off in equities and if we see a breach of 320 again it could woosh to 300. I doubt it stays there for long though and I would be a buyer at that level. Again long term how can you argue with a growing population and decreasing land and resources with increasing demand?
OPTIONS
With the indecisiveness of stocks my account has made minimal fluctuations but also minimal progress. Overall I made a 1% gain on the week but that basically came on friday when a majority of my longs and shorts were working nicely. Again, a push is a win but I'd like to be more efficient with my time in market. In my recent article on position sizing, I talked about buying puts on IBM. This is currently one of my short positions and I like the setup a lot. It is rolling off 120 nicely, my OTM puts have suffered a contraction in volatility but my target is 112 with an exit on a close above 120.
Visa is one of my long candidates and the chart looks nice as well. It is nearly at a new 9 month high. If it can take out the previous high we could see some good upside. If it gets over its longer term resistance at the IPO price of 75 things could really take off however I suspect that won't happen until we see a more substantial recovery at the same time. I am targeting 75 in the short term with an exit below 68.
I still have long calls on LVS with a far OTM strike short call hedge. For my other bearish positions I am long SDS and SRS calls. If we get a decent pull back in stocks I wll look to lighten my bearish positions. With 18 days left till expiration I may start looking at good stocks to sell premium on into next week in both directions.
I know I have slacked in my posting lately due to being busy with some other projects and travel but I will be more active again next week once I get back into town. As I write this futures are selling off a decent amount down 6 points. We'll see how Monday shapes up as there isn't a ton of economic data coming out in the US.
Total Return for 2009: 139%
The past 5 trading days we have seen almost a perfect flag. Nearly identical ranges and finishes generally means we are setting up for a large move once we break one way or the other. Depending on who is looking at this chart depends on their opinion on direction. Bulls will assume this is a continuation pattern getting ready to move higher and the bears will take this as a sign the market is starting to top out unable to move beyond 1035. In reality, no one knows the future so it is best to wait until it confirms one way or the other.
The McClellan Oscillator is also not really helping us as it is in the middle of its range so risk is equally skewed both ways in the short term. Most Bullish percentages are still at very high levels however oddly enough we can see that the Nasdaq 100 which led the rally has sold off significantly while the S&P 500 has held up.
This could make the S&P the better play to the downside if we do pullback as it would have more to fall. I am personally still skewed bearish at the moment on the S&P. Even though there is generally a bearish tone to the market this time of year I feel like some of numbers we have seen lately could become less rosey. My macro view is we see the end of the real estate season which will slow down the entire ripple effect it lends to all sectors. The stimulus injected into the economy has helped sustain it to this point and I understand it is like they are trying to push start a car where the stimulus gets us through until we actually get going on our own. However, it can only do so much. From my own metrics employment may improve over the short term as more jobs seem to be getting posted even in the finance areas even though still limited. I still think we hit 10% measured unemployment in the long run and don't recover for a while. Eventually the lack of ability to spend will catch up with companies even with their cost cutting measures to help numbers last quarter.
TREASURIES
We have a divergence again in terms of equities and treasuries. I am kicking myself that I did not buy /ZN after it collapsed on friday. It pulled back to an area of support and I missed a decent snap back rally that would have been a very nice gain but since buying /ZN is essentially bearish on stocks I didn't want more risk to the downside. I find it curious /ZN sold off so much if we are planning an extended pullback, however it could still be feasible we get a pullback and people are just starting to demand higher rates. I was looking to buy at 116.035, it is currently 116.305. 270 ticks could have made my month, but oh well that happens. This was a perfect retest of the flag breakout so we should continue higher from here pointing to downside in stocks. Until we get evidence of real inflation rates are likely to stay at the lower end of the range.
FOREX
Most major currencies were unable to make new respective highs and lows on the latest rally attempt, which is another bearish divergence. Even though places like Australia remain relatively strong they will not be immune to another downturn if it comes. Although AUD does remain in its uptrend it could be starting to signal a consolidation or reversal. It could be a good pair trade to go long AUD/USD and Short EUR/USD as the hedge.
COMMODITIES
After testing 75 like I assumed would happen oil was rejected fairly quickly back down and has yet to make any significant rally since. The other materials have also sold off recently as the prospect of no real demand or inflation coming on for some time likely took a bit of wind out of the recent rally. I am still a long term bull on commodities overall but think we could pull back here along with the rest of the market. Many people seem to like gold however I really think another metal would be a better choice because it really has no industrial demand. Sure people may want to own it for an inflation hedge or an end of world type scenario but I'd rather have something that is both physically needed for a use and affected by inflation such as silver or platinum or copper. The soft commodities have somewhat lagged. Corn tested 320 again but did not successfully break back above 330. We could stay in this range for the time being but it may be difficult for it to sustain a sell off in equities and if we see a breach of 320 again it could woosh to 300. I doubt it stays there for long though and I would be a buyer at that level. Again long term how can you argue with a growing population and decreasing land and resources with increasing demand?
OPTIONS
With the indecisiveness of stocks my account has made minimal fluctuations but also minimal progress. Overall I made a 1% gain on the week but that basically came on friday when a majority of my longs and shorts were working nicely. Again, a push is a win but I'd like to be more efficient with my time in market. In my recent article on position sizing, I talked about buying puts on IBM. This is currently one of my short positions and I like the setup a lot. It is rolling off 120 nicely, my OTM puts have suffered a contraction in volatility but my target is 112 with an exit on a close above 120.
Visa is one of my long candidates and the chart looks nice as well. It is nearly at a new 9 month high. If it can take out the previous high we could see some good upside. If it gets over its longer term resistance at the IPO price of 75 things could really take off however I suspect that won't happen until we see a more substantial recovery at the same time. I am targeting 75 in the short term with an exit below 68.
I still have long calls on LVS with a far OTM strike short call hedge. For my other bearish positions I am long SDS and SRS calls. If we get a decent pull back in stocks I wll look to lighten my bearish positions. With 18 days left till expiration I may start looking at good stocks to sell premium on into next week in both directions.
I know I have slacked in my posting lately due to being busy with some other projects and travel but I will be more active again next week once I get back into town. As I write this futures are selling off a decent amount down 6 points. We'll see how Monday shapes up as there isn't a ton of economic data coming out in the US.
Total Return for 2009: 139%
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