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2008 Results

2008 Year in Review: Part 2

After finishing my accounting for 2008, I will have to amend my numbers a tad from where I reported them in Part 1.  Take the report for what it is: not audited. The results include all commissions, charges, and platform fees. 

In May, I split my account in half, using one-half for only system trades and the other half to trade as I see fit. In 2009, these accounts will again be combined to only trade mechanical systems.

What Worked in 2008

  • I will always remember 2008 as the year of Reversion to the Mean. The system that I traded almost exclusively (except for 3 trades) in my system account is a mean reversion system. The metrics posted in Part 1 are a testament to how well these types of systems performed.
  • Strategy Development: With a lot of my own work and the help of other bloggers such as Damian, Michael, Brandon, and Rob, I was able to develop 6 mechanical systems. These systems are all due to be deployed in 2009.
  • Covestor: Registering with Covestor was an important development as it allowed me to demonstrate (we’ll call it auditing-lite) the performance of one of the systems as well as increase public interest in my blog and the systems.
  • Rhythm: In 2008 I finally hit a nice rhythm where I was able to balance the demands of working full time, blogging, trading and developing systems, and having a family. Credit to that goes to trading mechanically for most of the year as it required less time and emotional input than a discretionary approach.
  • Volatility Stops: I’m not going to expound on them right now, but these are the ultimate survival tool in markets like those we saw in the first three and last three months of 2008.
  • Position-Sizing: Again, no need to expound here, but effective position-sizing was the other key to surviving (and profiting) from 2008.

What I Could Have Done Better in 2008

  • More Risk!!! I should have taken on twice as much risk per trade. Almost all trades in 2008 were sized to lose .5% of total capital. In hindsight, it seems ridiculous, with a system that was right more than 75% of the time, that I didn’t risk more in each trade.
  • More Opportunity: As the indexes dislocated themselves daily, the systems began providing fewer and fewer opportunities. As Opportunity x Expectancy = Profit, fewer opportunities, coupled with too little risk, resulted in performance that was 1/3rd of what it could have been. In hindsight, I should have loosened the parameters of some the systems. This would have theoretically lowered expectancy. However, expectancy would still have been positive, and more opportunities in the volatile environment would likely have made up for the decrease in performance.
  • Lower Commissions: Unless you are trading a size that benefits from a flat fee per trade, per share commissions are the only way to go. I will not go through 2009 paying a flat fee per trade. Per trade commissions alone subtracted better than 2% from my total return.
  • Stupid Discretionary Trades: Even as I realized that I was failing as a discretionary trader, I continued to make some discretionary trades. This was not healthy for the account and has been discontinued for the foreseeable future.

New for 2009

  • Full 3rd Party Auditing on all master accounts and likely on individual strategies.
  • Better and more comprehensivetesting of ideas on the blog. I’m looking forward to having more time to spend looking at the strategies that other bloggers such as RipeTrade and BZB write about.
  • More live system tracking, similar to what I’m doing with The Big Bamboo.
  • Developments in scalability on some of the strategies.
  • A formal partnership and trading business, Algorithmic Capital, LLC. (More on this in the near future).

I have a distinct feeling that 2009 is going to be a very good year. To all the iBC bloggers and everyone else, I wish you the best and most prosperous year yet.

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