2010 in Review

2010 was a fairly difficult year for trend following strategies on Australian equities. The first six months was characterized by uncertainty in the world economy and this was reflected in the way markets behaved with no clear direction and a number of short and sharp reversals. However, eventually some trends developed on the back of improving economic fundamentals.
With mechanical systems trading, you grade yourself not on the analysis of each trade but on how well you executed your trading system. So on this basis I feel I have been successful.

October 2010 Performance

It is quite nice to be in the black for the YTD, when the All Ords Index is still negative for the year. It has only been the last couple of months that some trends have developed and these have been mainly in the small resources and companies servicing this sector. This does re-inforce the 2 speed economy that is the new catch phrase in the press. I'm also holding FLT & WEB - both travel and undoubtedly helped by the soaring AUD making overseas holidays very attractive. Graincorp(GNC) also is looking promising - I'm guessing on the back of all of the rain we have had.

I will also explain my performance table. VAMI is an acronym for 'value added monthly index'. Basically it records the movement in the account from the change in value of investment. In trading terms this means total equity, both open and closed trades. VAMI is the accepted method used by hedge funds for recording performance.

September 2010 Performance

It is surprising how fast things can turnaround when the market starts to move - both up and down. These results are my SMSF which trades 100% Australian equities.

IAU Trade - Still Open

The IAU trade contibuted most of August's performance. The coloured band along the bottom of the chart is a graphical view showing whether the market is bullish (green) or bearish (red). Note the surge in volume which occurred before and after good news about their gold reserves. IAU is yet to make a profit.

August Performance

Thought I would update the performance figures, now that I have a few open trades. However, July and August performance was driven by a couple of gold stocks (IAU & LYC). The market is at a key inflection point at the moment. Hopefully we have a break above resistance levels and move higher into Xmas. For me, it is quite postive that indexes have pushed higher the first half of September with so much talk of bearish sentiment, head shoulder bearish patterns, European economic woes, double dips and anything else people can dream up. Another positive is the large number of buy signals my systems have generated over the last few weeks. There is a chance though that I could get chewed up and spat out by the bears who are still lurking - we are a long way off a bull market yet. I think I will just keep tagging along .......

June/July

Not much to report as results are basically flat and mostly in cash. Market still really crappy for trend following and looks set to continue a while yet. Perhaps a little rally into Xmas.

That said, I like this quote from Ray Dalio, founder of Bridgewater, the world's largest hedge fund in 2009($40billion) .."I never know anything really - everything is a pobability". They have a 20 year track record of 15% pa in the pure Alpha fund.

May Performance Update

I thought I would start to post my performance figures in a format similar to Nick Radge. Nick's Growth Portfolio system trades the same market using a trend following philospophy. You can subscribe to Nick's system at www.thechartist.com.au .

The market over the last 9 months has been the worst conditions for my systems - lots of whipsaw type trades i.e the market takes off and triggers trades and then just as quickly reverses. It looks like to XJO may be finding a bit of support around current levels, with a long kangaroo tail on tthe 21/5 with huge volume. If 2300 holds over the next few weeks we may see a bit of a rally. But, again every time I give a prediction it seems to fail - the exact reason I trade systems with a postive edge.

I've been busy

It has been a very busy time for me - but not with the trading. The last 4 months has seen the end of a project I have been working on for 7 years! I can finally see my way clear to increase the size of my two portfolios and use fixed size accounts. I have added funds to the SMSF portfolio and have started up a second portfolio in a family trust. Impeccable timing - just in time for another market meltdown! Although I am very lightly invested and so the start drawdown will be very small in percentage terms. The market filter has turned off and so I will not being placing any new trades for a while, by the look of it.
I have received emails from a couple of market gurus over the past year or two with their view of the market. The first one (surname begins with H) has advised his readers/clients to totally keep out of the market until just recently, based on his view of the world economy - and I know he normally just uses technicals and has actually written a book on his system/s. He advised to start buying when the market broke 5000 a few weeks ago.
The other guru 'L'(although at least he has stuck to his very good system, and not guessed) advised his clients to be basically all cash from Nov 07 to Nov 09.
I ran my system over this period to see if I would have been better just collecting 3% interest. You needed a lot of patience and the ability withstand a start drawdown of over 10%, but it certainly was better to just follow the signals, as can be seen from the equity graph. This is actually a walk forward test, as the system was designed prior to this period

STAR backtest Nov 07 to Nov 09

The green areas indicate the amount of cash held, with red being drawdown.

February 2010

Not much happening in February - results are basically flat again. I have been holding only 2 positions as the market tracked sideways. These are RPX and RMS.
Typical long term systems can spend a lot of time in drawdowns from equity highs. In 2008/2009 this period was over a year. This was an extreme market environment, so I am looking for a faster climb this time.

January

Just a quick update on January performance, as I have been on holidays at the moment. Wouldn't even bother, but weather has been awful. The SMSF portfolio was heavily weighted in resource stocks, and the materials sector reversed sharply. Overall -9.2% Ouch! only 4 positions still open.

2010

The new decade! Well, of course, one could argue that the old decade won't be finished until the end of this year and you would be strictly correct. I think that is pedantic and to me this is the start of the tennies(?) or whatever it gets eventually called.

The last part of November and first part of December were a pain for me. I decided to move the SMSF to a new broker(Minc Financial) and felt the best way was to sell all of my positions and then shift the cash across. I didn't realise that AJADA was a deferred share, and so I had to wait a few weeks for the cash to settle. Also, I needed a new CMA. So effectively I was out of the market for over a month and had to start to build a new portfolio.

In any case, over the next 2 months I will be funding both the SMSF portfolio with extra cash and starting the Trust portfolio. The funds are from the proceeds of a business venture that has been a lot years in the planning. Position sizing is going to be a challenge while the accounts keep changing in size.

Both of the portfolios will be using Minc Financial as the broker, Macquarie CMT for cash and My PA Services for administration and portfolio management. Rosemary from My PAS looks after all the paperwork and I never see those bits of paper or do any trade or dividend entries - fantastic service. And at the end of the year, everything is completed for the accountants and it saves costs. The portfolio is available online 24/7 and you can trade from anywhere in the world and all of the admin is done for you.

I won't worry about the performance graph for December - it was basically flat.

Happy New Year to anyone following my blog!