MRM Trade

I will describe my systems a little more as the blog matures. However, this is my first live trade for the blog. As I mentioned these are weekly charts, so the signals are only acted on once per week - I am not interested in being glued to a screen and having to make ad hoc decisions every day. I simply follow my rules and let each trade take it's course.

PS Nothing discussed on this blog is to be construed as financial advice. DYOR.

The trade is still open.

Why Trade?

The performance of managed funds is abysmal over the last 5 years( or even 10, but I am only going to look at the last 5). From the Colonial First State website, I have found a representative sample of funds performance.

452 Capital Australian Shares 3.46%pa

Blackrock Australian Shares 7.01%pa

BT Core Australian Shares 6.07%pa

Can we easily beat these professionals? I ran two tests. Both randomly selected a portfolio of 20 shares. One simply held the portfolio for the whole 5 years. The other used some simple market timing to decide whether to be in the market or not. If we weren't invested in the market, excess funds were deemed to earn 4% cash interest.This filter is based on a simple 34 week moving average. I ran 100 monte carlo simulations of each and ran the results through an excel spreadsheet which was kindly given to me by another very successful trader ( who I won't name so he doesn't get flooded with requests) .

You can see that the first result gave about an average 1%pa. But if we added some dividends of maybe 3-4% we are getting very close to the performance of the managers.

The second result is much better with an average of about 12%pa. Because it was invested for only about 70% of the time, let's add just 1%pa for dividends. THIS IS TWICE THE PERFORMANCE OF THE FUNDS.

Before anyone mentions the tax effects of selling your portfolio a few times, it should be noted that the funds do this internally and you will always get a CGT bill at the end of the year(and you actually may have had a negative return for that year).

Note also, the draw down for the straight buy and hold system and the funds is atrocious - up to 50%

So, my goal is to better 13% pa - in fact my goal is 20% pa over any 3 year period. I wouldn't consider my self a success at this business if I couldn't value add at least a 50% better return than the most basic system I have just described.

Is 20% a lot for a trader? This depends on a myriad of factors - especially the size of your trading accounte and how much leverage you are using. During 2003 - 2007 this was very easy for my style of trading to achieve - maybe not so easy in the coming few years.

My first post ...............

The purpose of my blog is firstly to create a record of my trading history. I have spent many years and countless hours studying and researching the markets. I have viewed the industry from the perspective of a trustee of a public Superannuation Fund, sitting around a board room in suit and tie. I have geared 100% into the market using managed funds at the top of the market in 2000. I have tried separately managed futures accounts, options trading, trading newsletter recommendations, buy and hold newsletters , quant stock investing and managed day trading accounts on the US markets. There is virtually nothing I haven't tried.

Through all of this I have survived because I have focused on risk management.

What I have found to be extremely risky is buy and hold(hope) investing. How do you know the value of a company? Even if you think you know, how does the market value the company? I have found the answer to these questions in price charts. But for me it is not in 10min charts or daily charts - usually these are affected by noise. Weekly charts reflect the footprints of the investors and institutions and this is where I have found my edge. It hasn't been a fast journey though and has taken 8 years get to this point. I want to document my thoughts and results as I go forward from here.

I also want this blog to help me be accountable to myself. The absolute hardest part of trading is the psychological aspect. You have to learn to think in a way that is not intuitive to most investors by recognizing when you are wrong and immediately move to limit your losses. You need to have the conviction that your systems work, when it doesn't feel like they should. I believe this is the main reason why 90% of traders are not successful.

I am looking forward to creating a record of my trading journey from here....