ROI Stats
April:  Portfolio (-1.75%) vs SP500 (-0.75%).
March:  Portfolio (+3.25%) vs SP500 (+3.13%).

Trade Stats
+---------+---------+-------+--------+------+--------+--------+---------+
| Months  | Entries | Exits | Win%   | PF   | TScore | ZScore | Optf    |
+---------+---------+-------+--------+------+--------+--------+---------+
| Apr     |       2 |     2 | 50.00% | 0.42 | - 0.41 |    inf | -70.13% |
| Mar     |       6 |     7 | 71.43% | 4.06 |   1.54 |   0.68 |  53.82% |
| Last 3  |      14 |    17 | 52.94% | 0.71 | - 0.47 | - 0.99 | -21.60% |
| Last 6  |      38 |    38 | 63.16% | 1.08 |   0.18 | - 0.42 |   4.85% |
| Last 12 |      79 |    81 | 58.02% | 0.85 | - 0.56 | - 0.22 | -10.45% |
| All     |     200 |   199 | 64.32% | 1.46 |   2.07 | - 2.30 |  20.14% |
+---------+---------+-------+--------+------+--------+--------+---------+

Notes:
* PF     - average profits expected per trade:
           >  1.0: $1 invested returns > $1 (profitable)
           =  1.0: $1 invested returns   $1 (breakeven)
           <  1.0: $1 invested returns < $1 (loss).

* TScore - observed probability due to chance at 95% CI:
           >  1.645: not just dumb luck
           <= 1.645: dumb luck.

* ZScore - duration of Win/Lose streaks:
           >=  1.645: shorter duration
           <= -1.645: longer duration.

* Optf   - optimal percent of capital to invest:
           >  0: might be worthy to invest
           <= 0: save your money.

February 2012 Stats
# of Entries...........6
# of Exits.............8

WinRatio..............37.50%

Portfolio's ROI......- 4.35%
Market's ROI.........+ 4.06%

Cumulative Stats
WinRatio..............64.21%
Profit Factor..........1.45
t-Test.................2.01
Half-Kelly............19.79%

Very poor performance for the month of February. The overall market did wonderful. The portfolio was heading in to the last week of February with great results, as well. But, 2 stocks took the portfolio out of the running: TSRA & CPHD. This hit created the worst drawdown for the portfolio since 2010.

As a result of this drawdown; I am adjusting the trading system to account for volatility impacts. This is the first adjustment to the trading system since creation back in 2010. The adjustment involves overlaying a stock & market volatility filter to the system.

On a brighter note; I am heading to Alabama for a little R&R with the family. We’ll be around Lewis Smith Lake and the Birmingham area; so if anyone has any cool restaurants or places to see…drop me a line at mike @ taylortree.com.

Later Trades,

MT

# of Entries..........10
# of Exits.............9

WinRatio..............70.00%

Portfolio's ROI......+ 3.31%
Market's ROI.........+ 4.36%

Market beat us this month. But, it was a winning month and a good start to the new year. I’ll take it.

I’m doing something different for 2012. Reading Diary of a Commercial Commodities Trader from Peter Brandt gave me the idea. Peter does a great job of analyzing his trades from a chart technician perspective in real-time through the book. I normally don’t care what the charts look like in choosing my trades. Just take the signals the system gives me.

But, the system often generates too many trades for the amount of cash I have on hand. I’ve not had a good handle on which of the few from the many I should select for that day’s cash on hand. For 2012; I’ll analyze each signal’s chart before and after the trade. See what patterns emerge from this analysis. Worst case…just a bunch of random charts with no impact to the bottom line. Best case…I find a filter or new criteria to add to my system’s signal selection process.

An example chart from January’s best trade – SCSS…

An example chart from January’s worst trade – TYPE…

Finally, want to thank my family for a wonderful visit in Texas. Great food and conversation. Awesome trip!

Later Trades,

MT

# of Entries..........10
# of Exits.............9

WinRatio..............77.78%

Portfolio's ROI......- 0.14%
Market's ROI.........+ 0.85%

I believed December was going to be a great month. You can see with a 78% win ratio…we were more right than wrong for the month. But, we took a really bad hit on one of the positions. That’s what is difficult about the market right now. Most of the trading surprises are still to the downside. Looking forward to the trend of upward surprises.

That’s actually a study I might explore – tracking the surprise factor. Is the market showing a trend of upside surprises or downside surprises? Or is the market caught in a surprise stasis? How do each of these scenarios effect the system?

For the year of 2011 – the portfolio eaked out a +4.00% return. Given the volatility of the market; that’s a whole lot of work for very little gain. But, we survived. Lived to play another year. In the end, glad to put 2011 to rest and start 2012.

On a personal note…really excited about taking a trip back home to Texas later this month. I’ll be visiting Dallas (Grapevine area), followed by Houston, and finally home sweet Texas home. Excited about visiting with family, eating great Texas food, and hopefully warmer temperatures.

Later Trades,

MT

November 2011

# of Entries...........5
# of Exits.............2

WinRatio..............50.00%

Portfolio's ROI......+ 0.66%
Market's ROI.........- 0.51%

Another less than stellar month for the portfolio. Even though we sneaked in a win over the market…it was not enough to write home about.

What this portfolio needs more than anything is a big winner to close out the year. But, time is definitely running out on that option.

That’s probably the most difficult part of trading the system in the back half of 2011 – the lack of big winners. The long-only system had the uncanny ability to miss almost all of the huge upside moves and catch most of the downside ones. Despite its penchant for missing the upside – the portfolio has hung in there and weathered a very volatile market environment.

I will add the following goals for 2012:

• Explore a market direction filter for the system. I’ve exhausted many of the common ones already. But, believe there may be some value in a breadth reading of all market instruments. Possibly like the Breadth Ratio but instead of volume using ATR. Similar to the Vortex Ratio. Another idea is to utilize the correlation reading of all market instruments to ascertain the investing environment.
• Determine if certain sectors are good or bad for the system. Over the past year I have observed the Pharmaceuticals and Oil & Gas sectors have not faired so well with the system.
• I still have not analyzed earning announcements and their possible impact on the system. This is a must to-do for 2012.

That’s it from the cold Midwest – where I’ll spend the day smoking 2 Texas Dr. Pepper briskets. We’ll use one of them for Tex-Mex tonight and the other for BBQ sandwiches tomorrow. Can’t wait.

I wish everyone a very Merry Christmas and a Happy New Year!

Later Trades,

MT

October 2011

# of Entries...........1
# of Exits.............5
WinRatio..............20.00%
Portfolio's ROI......+ 0.27%
Market's ROI.........+10.77%

October was just plain ugly for the portfolio. Didn’t participate any in the market’s advance. When the system did try to jump in…it got punished…as you can see from the 20% win ratio. Really frustrating.

I’m afraid November so far is much the same. As you will see when those numbers are reported.

Times like these are the most difficult for a system trader. You’re following all your rules. You’re doing all you’re supposed to do. But, your portfolio is not showing any results. That’s what tough about this game. It reminds me of the following quote…

“It’s not the first guy out of the water, or the first one done with the run or the obstacle course. It’s the guys who wants it bad enough and have the mental toughness to simply make it through. The ones who never give up.” — What it takes to be a Navy Seal by a retired Navy Seal.

No, not comparing system traders to Navy Seals. But, I do think a lot of what makes system traders successful is never giving up. Having the mental toughness to simply make it through times like this.

Speaking of trading in tough times…I found the paper shared by Mebane Faber to be fascinating. Basically, investing in low-beta stocks are similar in profile to selling puts. Earn a premium for taking all of the downside risk while not participating fully in market rallies. Lots of trading gems in that paper.

Okay, on to other things. I have been busy lately with releasing a few Python modules over on GitHub. The first one covers some basic statistical functions. Useful when you want a series of 50-day simple moving averages or the Welles Wilder moving averages to chart. Check it out here:

• statio - http://github.com/TaylorTree/statio

The other one covers pretty formatting of data. This package is very alpha – so could change at any time. But, this one is useful when you want to print a list of Python lists or dictionaries based on various formatting options. Check it out here:

• printio - http://github.com/TaylorTree/printio

Finally, hope everyone enjoyed a very Happy Thanksgiving. Mine was good but do miss home.

Later Trades,

MT

July 2011

# of Entries...........6
# of Exits.............9
WinRatio..............66.67%
Portfolio's ROI.......+0.76%
Market's ROI..........-2.15%

August 2011

# of Entries...........0
# of Exits.............1
WinRatio...............0.00%
Portfolio's ROI.......-3.40%
Market's ROI..........-5.68%

September 2011

# of Entries..........14
# of Exits.............9
WinRatio..............66.67%
Portfolio's ROI.......-2.13%
Market's ROI..........-7.18%

What a crazy 3 months this has been in the market. Despite the crazy market; the system performed better than I expected. I’ve only interceded once in the past 3 months. Going to cash just prior to August 2nd’s debt ceiling deadline. The reason for interceding? I knew the system had never been tested over such an event and was not willing to risk real money on an event as crazy as that one.

In hindsight, interceding was a bad decision. August would have been a profitable month for the system. But, August would also have been an extremely volatile month for the portfolio. So, I lost money in order to sleep better. That’s the difficulty in trading systems. We feel the fear…they do not.

Later Trades,

MT

# of Entries..........12
# of Exits............10
WinRatio..............30.00%
Portfolio's ROI.......-7.72%
Market's ROI..........-1.83%

June felt like a death by a thousand paper cuts. The month of June stands as the highest system entries, lowest win ratio, and largest monthly drawdown. It’s always difficult to continue taking trades when your system is performing badly. Especially, when you can clearly see why the market is a mess for your system.

The slippery slope is to stop trading until the traffic clears. Do that and sure enough you will miss the turn. I have entertained in the past a more systematic trading halt. Stop taking trades for the month when some trading metric hits a filter. The trading metric could be a win ratio, profit factor, expectancy, drawdown, and a host of others.

Problem is: I have never found a way to improve systems by trading the equity curve outside of Anti-martingale fixed-fractional position-sizing. Even when the system exhibits a high trade dependency. That’s not to say it isn’t something to explore for your systems. Especially, since improving a system is dependent upon your own definition of improvement.

No, experiencing a big drawdown is the toughest thing a system trader will encounter. Mostly because there’s nothing you can do about it but sit on your programming hands, continue taking entries despite how you feel, and patiently wait it out.

Later Trades,

MT

What struck a chord was the author’s take on system traders. Now, I understand who Martin was really writing about. He was referring to the traders who take the easy way out. Those traders who build Rube Goldberg machines rather than a trading system.

But, there are system traders out there who spent time in the trenches learning as much as they could about the markets they trade. Only to give up that knowledge in order to trade the systems they build.

I had to give these trading monks a plug…and comment on Martin’s post.

Martin edited my comment; making me sound smarter than I am. Thanks. Below is the unedited but less eloquent version:

You’re likely right…the title/moniker of the “expert” systematized trend follower could be their way to mask insecurity about their ignorance of fundamentals. But, let me present another side…

I agree with your point that understanding fundamentals are important; even for a systematic trader. But, believe there are levels of system trading that have to be considered.

If a person wants to become a non-system trader; then yes…long years of study of both technical and fundamental.

If a person wants to become a system trader; then yes…long years of study of both technical and fundamental.

Both sets will need to trade and gain experience putting their knowledge to use and more importantly the timing of that knowledge. The system trader is really an automator in this case. Taking intuitive rules the non-system trader has and standardizing them into something the computer can understand and spit out. From there, the system trader can evaluate the results and as you mention review the fundamentals. Trade based on the combination. Many system traders fall into this category.

There is another level of system trading. Requiring an additional set of skills in addition to the technical and fundamental.

These system traders must forego all their hard-earned knowledge and allow the system to work as designed once placed into production. They cannot care that Sugar fundamentals are aligning with price. They are indeed working on the average expectation of all their trades. And cannot get caught on the slippery slope of asking “why” they’ve lost money on the trade.

So, there is a remote chance you were talking with this level of system trader. Whose title/moniker wasn’t created to mask insecurity. But, to shield themselves from things which make trading the system hard. In some ways, these system traders are monks. Having to purge all trading belongings and follow only the rules given by their system.

But, I did mention it being a remote chance you were talking with this level of system trader. Anyone in this category would not use the word “expert” in their title. The longer I trade this way the less of an expert I become.

Look forward to your book. Of course, only in designing my systems.

Later Trades,

MT

# of Entries...........8
# of Exits.............9
WinRatio..............77.78%
Portfolio's ROI.......+3.44%
Market's ROI..........-1.35%

Later Trades,

MT