METEORITE Simulated Trades

The image shows three trades in ABY. The first two are winning trades and the last is a losing trade. The system wins about 50% of the time over the long run. Notice in the last trade how the exit was signalled before the price closed below the trailing stop, due to a loss of price momentum.

What to do about this Market?

Anyone remotely interested in the Australian share market will know that 2011 has been a very difficult period. In terms of 'trading strategies' , it is perhaps equally as difficult as 2008. The reasons for this are the lack of direction, high volatility and high correlation of stocks. Currently, for example, the correlation of all US stocks is over 0.8. This means that most stocks move up and down together. This makes it hard to add alpha (value) with most strategies.

I would describe the market is particularly manic, obsessed with dire predictions for Europe. Consequently, trends don't tend to persist. Many stocks are valued at very low levels. However, the markets are no different than they always are, in the sense that the markets always change. The fact is periods like this have existed before and will exist again.

Does this suit my medium term trend following strategies? Obviously not. But I do have a market timing mechanism to keep me out of most of it. Being impatient ( huge understatement according to my family), I decided to break out Amibroker and see if I could invent a system that was a bit shorter term and more reactive to these shorter trends.

The result is a new system - METEORITE. It is a weekly system ( based on weekly price bars). I didn't attempt to look at daily bars. I am busy and travel travel a lot and I am just not interested in having signals to act on everyday. Entry is on confirmed minimum 12 week highs with a couple of other rules. Quite simple and non- optimized. In fact, I didn't use the power of Amibroker to optimize any rules. Exit is a trailing chandelier type ATR stop plus another exit ( which is the magic ingredient). The system also has a simple market filter based on the index being above a moving average.

How did it perform in 2011 so far? See results below, from a single backtest run.

And the results for the last 4 years are shown below . This period from October 2007 to now represents a loss for the general market of 37% excluding dividends, as measured by the XAO index.

Performance Update

It has been a difficult year to date, but not a great deal of damage done to the account. Until a few weeks ago I still had a couple of open positions ( RRL and CFU). Both were stopped out for losses. The system is not broken - it is just a period where trend following doesn't work that well.