Two Portfolios - One Mechanical System - A Trend-following Diary

Hi Trendnomics,
I have been enjoying your contributions greatly as I am interested in longer term momentum system trading.
In particular, your ability to steadfastly follow your system through good and bad times is very impressive.
How long did it take you to master the skill to sit tight despite rising draw downs, yet trust your system to produce a good CAGR over time or did you just do it straight up?

I have a few questions if I may, how did you end up with 16 positions?
How do you select your new positions from the many trending stocks at a given time?
What about position sizing, do you use equal fractions or a different concept?
Do you scale your exposure up and down or stay fully invested all the time?
Did you post any Monte Carlo results for your backtesting somewhere. I think if anyone here can reverse engineer your system, then they probably have many of their own.

If you are able to provide a few more insights into your trading world, you would no doubt get more feedback.

Many people are watching and appreciate your contributions.

Cheers,
Wyatt

I was initially very interested in your thread when it first started but found that I struggled to process the large amount of information in your tables in a meaningful and timely way.

Is it possible to post the data in your tables in charts instead (echoing minwa's comments)? That would make it much easier to interpret and may make it easier for people to understand the content of the thread and provide positive/constructive feedback.

Wyatt said:

Hi Trendnomics,
I have been enjoying your contributions greatly as I am interested in longer term momentum system trading.
In particular, your ability to steadfastly follow your system through good and bad times is very impressive.
How long did it take you to master the skill to sit tight despite rising draw downs, yet trust your system to produce a good CAGR over time or did you just do it straight up?

Click to expand...

Hey Wyatt,

Thanks for making your first ever ASF post on my thread .

Good to hear that you are interested in "longer term momentum system trading" - in my opinion it is the ideal trading environment for a retail trader (i.e. low commission drag, dividends, CGT discount, EOD trading, large market inefficiencies, etc.).

My strong system trading conviction, relies heavily on my theoretical understanding of systematic trend-follow trading - conviction comes easy/easier with understanding. I've spent numerous hours on back-tests, studying economic theories, analysing other people's trading systems and actual trading, in order to obtain what I consider, a strong theoretical trading background.

My theoretical trading background lead me to the conclusion that long term, long only, systematic trend-follow trading, is the most efficient trading environment for a retail trader. Furthermore, my theoretical trading background assisted with the development of my unique trading system. Strong theoretical knowledge and trading your own system, assists greatly with commitment and discipline.

Inclusively, strong emotional intelligence and trading psychology is vital, to long term systematic trading (prone to long deep draw-downs). I've always been a little different to everyone else (psychologically/mentally) and particularly over the last decade, I have changed my emotional relationship with money completely. Trading theory is a crucial part of trading success and serves as an excellent emotional crutch - but ultimately long term success is dependent on trading psychology. Everyday I condition myself emotionally for the inevitable future draw-down.

My current success and conviction is also related to the fact that long term, long only, systematic trend-follow trading is the ONLY option I have permitted myself to pursue. I'm a property bear, hence will never invest in property (don't own any property), to me starting a business carries too many risks, hence I will never invest in a business and I don't believe any other form of trading is efficient/suitable for a retail trader. Hence, I'm a 100% locked onto one form of "investment", to grow my wealth for the future. I see far too many people, giving themselves far too many "options" - this leads to low conviction.

Wyatt said:

I have a few questions if I may, how did you end up with 16 positions?

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My system has a fixed stop-loss of 30% on each position. Concurrently, I have a maximum of 16 positions in my SMSF and private portfolio, due to the fact that I'm willing to risk ~2% of each portfolio per position - i.e. 1/16 = 6.25% -> 30% of 6.25% = 1.875%.

Wyatt said:

How do you select your new positions from the many trending stocks at a given time?

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There have been numerous occasions, where multiple entries existed and the number of available entries exceeded the available open positions (i.e. number of entries exceed available trading capital). On these occasions I've selected entries that would lead to a more diversified portfolio.

To understand this scenario better, a random trade path simulator with a Monte Carlo analysis feature, is extremely useful (my Monte Carlo results posted in this thread, are for random trade paths - i.e. when number of entries exceed available trading capital, then select random entries).

Wyatt said:

What about position sizing, do you use equal fractions or a different concept?

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My position sizing is based on equal fractions (1/16 of current portfolio value - including open profits) - maintaining equal fractions is a challenge with the monthly savings contributions I make to my private portfolio and the constant contributions to the SMSF.

Wyatt said:

Do you scale your exposure up and down or stay fully invested all the time?

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I'm committed to maintaining maximum exposure (based on trading position availability) - I don't use index filters.

When you are trading a system with a proven mathematical positive expectancy, then it's in your best interest to execute trades as often as possibly permitted (think about it in terms of casino roulette - the casino spins the wheel as often as permitted to maximise profits).

Wyatt said:

Did you post any Monte Carlo results for your backtesting somewhere. I think if anyone here can reverse engineer your system, then they probably have many of their own.

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I have posted Monte Carlo results on two occasions in this thread (one overall historic set of results and one set of results over the live trading period).

Long term long only trend following systems, share similar characteristics and there are numerous systems freely available on the net.

My system is unique in the fact that I have completely programmed it from scratch, to ensure that it is extremely simplistic for future robustness.

Wyatt said:

If you are able to provide a few more insights into your trading world, you would no doubt get more feedback.

Many people are watching and appreciate your contributions.

Click to expand...

Thanks for your interest in my thread.

get better said:

I was initially very interested in your thread when it first started but found that I struggled to process the large amount of information in your tables in a meaningful and timely way.

Is it possible to post the data in your tables in charts instead (echoing minwa's comments)? That would make it much easier to interpret and may make it easier for people to understand the content of the thread and provide positive/constructive feedback.

Click to expand...

Thanks for your interest.

I'm currently considering the viability of this thread and alternative trading data representation(s).

Just a quick update - after a volatile period and some draw-downs, both my accounts have made new equity highs today:

Private Portfolio: +36.41% (Since 07-2013)

SMSF Portfolio: +39.22% (Since 07-2013)

There has been a massive flow of money into my accounts in the last 7 trading days (large 5 figure sum ).

Reflecting on the top 4 closed trades across my portfolio's - the ones that pay for all the losers and put profits in your pocket:






Not bad, given the volatile and poor performance of the ASX over the past three years .

My portfolio's are maintaining their new highs:

Private Portfolio: +36.35 % (Since 07-2013)

SMSF Portfolio: +39.73 % (Since 07-2013)

Mining related stocks contributing excellently - guess after such a long period of under-performance, it is about time that the worm turns.

The good times keep rolling - portfolio returns at close today:

Private Portfolio: +38.38 % (Since 07-2013)

SMSF Portfolio: +41.9 % (Since 07-2013)

Trendnomics said:

The good times keep rolling - portfolio returns at close today:

Private Portfolio: +38.38 % (Since 07-2013)

SMSF Portfolio: +41.9 % (Since 07-2013)

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Hi Trend

Since 1/7/13 XAO accumulation has returned 28.7% or 9.2% pa compounded - so you are a few % points pa in front of that at the moment- well done. Do you have an equity curve? it would be interesting to see if you are achieving your outperformance consistently and with lower volatility than the index.

Cheers

craft said:

Hi Trend

Since 1/7/13 XAO accumulation has returned 28.7% or 9.2% pa compounded - so you are a few % points pa in front of that at the moment- well done. Do you have an equity curve? it would be interesting to see if you are achieving your outperformance consistently and with lower volatility than the index.

Cheers

Click to expand...

Hey Craft,

As per your request see below (at close today):

Trendnomics said:

Hey Craft,

As per your request see below (at close today):

View attachment 66546
View attachment 66547

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Hi Trend

Looking at those two equity curves and comparing to previous tables I would guess the private portfolio is based on closed trades whilst the SMSF includes open trades. Any chance of having them both prepared on the same mark to market (include open trades) basis? Interesting to see how much variability there is between the two outcomes when the input system is the same.

Also any chance of overlaying the XAO accumulation index - so you can get a feel for consistency and volatility against the do nothing alternative.

Cheers

craft said:

Hi Trend

Looking at those two equity curves and comparing to previous tables I would guess the private portfolio is based on closed trades whilst the SMSF includes open trades. Any chance of having them both prepared on the same mark to market (include open trades) basis? Interesting to see how much variability there is between the two outcomes when the input system is the same.

Also any chance of overlaying the XAO accumulation index - so you can get a feel for consistency and volatility against the do nothing alternative.

Cheers

Click to expand...

Hey Craft,

Both curves include closed and open trades (open trade values recorded on same close date) - difference in curves is due to the different trade paths.

I will see if I can do a XAOAI (or equivalent) overlay, and post it once completed.

An Accumulation Index has been added to each of the separate equity curves:




Note the following:

• The Accumulation Index added is: S&P/ASX 200 Net Total Rtn: INDEX (ASX:XNT - LINK) - XAOAI data not easily available;
• The index return data-points coincide with closed trade dates;
• The flat part (at right side) of the index, is the region of current open trades.

Trendnomics said:

- XAOAI data not easily available;

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The Total Return (reinvested dividends) Index for ASX200 and All Ords. is similar obviously due to the stock weighting of the 200 in the 500. Green - ASX200, Red - All Ords. since 2013

p.s. Might add that if you don't close the open profit/loss positions then return to track (mean?) of the Index is probable and thus showing the correlation.

Wysiwyg said:

The Total Return (reinvested dividends) Index for ASX200 and All Ords. is similar obviously due to the stock weighting of the 200 in the 500. Green - ASX200, Red - All Ords. since 2013

View attachment 66560

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I agree. And the top 200 equities are more likely to pay dividends (or higher yielding dividends).

Trendnomics said:

I agree. And the top 200 equities are more likely to pay dividends (or higher yielding dividends).

Click to expand...

What are your thoughts on my p.s. view?

Wysiwyg said:

What are your thoughts on my p.s. view?

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The Private Portfolio is very close to the index return, when open positions are excluded (can be observed on graph - see before flat index part on right).

The SMSF Portfolio outperforms the index return, even when the open positions are excluded (can be observed on graph - see before flat index part on right).

Trendnomics said:

An Accumulation Index has been added to each of the separate equity curves:

View attachment 66559
View attachment 66558

Note the following:

• The Accumulation Index added is: S&P/ASX 200 Net Total Rtn: INDEX (ASX:XNT - LINK) - XAOAI data not easily available;
• The index return data-points coincide with closed trade dates;
• The flat part (at right side) of the index, is the region of current open trades.

Click to expand...

Hi trend

Thanks for putting the chart together. Just a little confused, as it's not what I normally expect as a daily mark to market equity curve, I think what you are doing is plotting your closed trades on the x axis and then added the open trades at the end, added the index for the same closed dates with today's index the flat line against the open positions - am I understanding it correctly?

If I,m right with the above, the SMSF still throws me because the X axis is real funky and the chart doesn't match the tables you put up earlier. You had closed equity at 8% on last table in Feb, but chart seems to be a fair bit different. A guess but maybe you have the SMSF data sorted on buy date.

I think once the charts are sorted they are still going to show a fair bit of difference between outcomes, what do you think about the divergence of the outcomes given the name of this thread indicates the input system is the same? How wide is the return distribution you expected from the system?

craft said:

Hi trend

Thanks for putting the chart together. Just a little confused, as it's not what I normally expect as a daily mark to market equity curve, I think what you are doing is plotting your closed trades on the x axis and then added the open trades at the end, added the index for the same closed dates with today's index the flat line against the open positions - am I understanding it correctly?

If I,m right with the above, the SMSF still throws me because the X axis is real funky and the chart doesn't match the tables you put up earlier. You had closed equity at 8% on last table in Feb, but chart seems to be a fair bit different. A guess but maybe you have the SMSF data sorted on buy date.

I think once the charts are sorted they are still going to show a fair bit of difference between outcomes, what do you think about the divergence of the outcomes given the name of this thread indicates the input system is the same? How wide is the return distribution you expected from the system?

Click to expand...

Each graph's data points consist of trade-close-dates (x-values) and trade-close-returns (y-values). Open trades are 'closed' on last reporting day (05/05/16).

Trades with the same trade-close-dates (x-values) are not stacked - hence the reason for duplicate dates on the x-axis - provides more detail on current open trade returns.

To ensure the synchronization of data-points, the XNT index is overlayed on matching x-value data-points - hence at the end of each graph it appears flat due to the repeated 05/05/16 dates.

I have not posted updated return-tables, due to the lack of interest on this thread - current graphs provided are the most up to date information (as of 05/05/16).

The current return distribution falls within my back-test results - have a look at my previous posted back-test results.

Trendnomics said:

Each graph's data points consist of trade-close-dates (x-values) and trade-close-returns (y-values). Open trades are 'closed' on last reporting day (05/05/16).

Trades with the same trade-close-dates (x-values) are not stacked - hence the reason for duplicate dates on the x-axis - provides more detail on current open trade returns.

To ensure the synchronization of data-points, the XNT index is overlayed on matching x-value data-points - hence at the end of each graph it appears flat due to the repeated 05/05/16 dates.

Click to expand...

Hi Trend

Take a look at your X axis on the SMSF graph.
At one point it goes 10/12/14 - 15/5/15 - 28/5/15 and then back to 16/6/14
At another point it goes 1/7/15 - 1/10/15 - 8/1/16 and then back to 3/8/15

Trendnomics said:

I have not posted updated return-tables, due to the lack of interest on this thread - current graphs provided are the most up to date information (as of 05/05/16).

The current return distribution falls within my back-test results - have a look at my previous posted back-test results.

Click to expand...

The graph doesn't match the closed trade flow in the tables you did provide. Again I'll speculate you may have sorted by buy date. (which is actually not bad information because it highlights the periods of good and bad entries) - but its not what you have described as your chart construction and it doesn't appear to be consistent with the private portfolio construction. To evaluate performance management data you have collect, collate and understand it accurately.

I'm not trying to have a go - its good to see somebody trying to monitor their performance. Just trying to point out something that looks confused to me. But I'm happy to do lack of interest if you prefer.