Kates Journal

[KateMoloney]

Currently working on my 3rd MOC system, with the intention of decommissioning my first MOC system. I was never happy with the metrics, but made the decision to start trading it to get the experiencing, knowing I would get new ideas.

The metrics for system one

– 27% – 28% CAGR
– max DD of 15% – 17%
– testing period 2005 – 2022
– R1000 & R2000

System 3 has similarities to system 1, in terms of the rules, however the metrics sit at a healthier

– 34% – 37%CAGR
-11.5 % – 15% max DD
– Tested on R1000 & R2000
– Improved metrics in quieter years
– One system has more consistent returns (previous I struggled to get decent returns in 2018 & 2019)

More importantly, trade frequency has increased 35% – 40% and the win% has increased slightly. After listening to Nicks recent you tube video, trade frequency is burned into my brain.

Got some more stress testing to do, MC etc. Aim is to be trading this new system by the end of the month.

[TerryDunne]

Hi Kate,

Those metrics are great, well done. To be honest, I’d be adding the third system, rather than replacing the first one, as it’s metrics seem really quite good.

Would you mind sharing what your Ulcer Performance Index is for each system? I use UPI to compare systems, it’s similar to the Sharp Ratio but the denominator is drawdown depth and frequency which is (I suggest) what we all care about.

Also, I think Monte Carlo results for both systems might be enlightening. I copy the results to excel and calculate the averages for CAGR, MDD and UPI as my way of ranking systems.

Nice work Kate!

[KateMoloney]

Thanks Terry.

That is a valid thought about system one. The ultimate goal is to have 3x MOC systems.

Eventually I will scrap system one, but mainly because I made all the rookie errors when creating it. I optimized more than one parameter (didn’t know about this till after) and tested it at price of $5 – $5,000, which has cost more in commissions. The system has generated a tidy profit, but I think a rebuild from scratch will be wise.

At the very least I will use the same parameters and just optimize ONE parameter

What I am enjoying about having multiple MOC systems is being able to combine the systems that suit each other better.

For example, my system 2 had 10% position sizing, but the max DD combined was 35%, so I adjusted one of the systems to 5% and the max DD reduced to a more comfortable 27%.

Today I created one system that produces returns of 33% with an 11% max DD. I’ll probably tack it into system 2 and then move the pos5% system from system 2 to 3, and then change it to 10% pos sizing.

The daily equity excel spreadsheet will show how they stack up together (its going to be a wild Friday night!).

[KateMoloney]

As for UPI, Terry, can you please explain what a “good” UPI is and a “bad” UPI is?
A quick google search didn’t reveal much.

System two UPI is 8 – 12

System three UPI (draft version) is
#1 13.24
#2 6.9
#3 9.36

The Sharpe ratios are 1.5 – 2

Still learning what all these metrics mean to be honest.

When I built the second system I noticed when I focused too much on achieving certain metrics, I over perfected the system and my ideas didn’t flow. At the end of the day, the daily equity gain/loss / max DD spreadsheet is the one I use most to make a decision. I’ll scroll through 40,000 odd rows of daily data (yep, nerd) and ask myself “am I ok trading this” ……

Because of that spreadsheet, I wasn’t expecting to make any decent profit until 10 -12 months into trading the MOC systems.

[TerryDunne]

Hi Kate,

I usually look for an average UPI of over 3. I just had a quick look at my MOC systems and the worst one has an average UPI of 3.5. My best one averaged 5.8 with the absolute best MC run giving 9.6 (which makes your best of up to 12 really eye popping!

All of your metrics are great, so I think you’re off to the races – again, well done!

[KateMoloney]

Thanks Terry for the education on UPI. When I google searched it, it was mentioned as an indicator …. not a system performance metric.

In relation to your UPI, my understanding is you take up to 10 positions per system and have higher % per position ? Maybe that is the reason for the difference in UPI? I take up to 40 positions per system at 10%.

Last night worked on the daily equity spreadsheet. Combined CAGR is good, but the max DD is 34%. So this weekends task is to get the max DD down. Might end up reworking a system to get the metrics I want.

Creating the first system is easy, but the second and third is a task, because you have to look at things like trade double ups between systems and combined performance metrics. Lots of fun …

[TerryDunne]

Hi Kate,

Yes, I take up to 10 positions at 40%, which seems to suit my goals. However, many (most?) people here do it the way you’re doing it.

My aspiration is to have MCS average MDD under 20%. To aid this, I use an index filter and a big stretch. Even so, I rarely get the drawdown I’m seeking. I don’t think many use an index filter on their MOC systems, although I’m aware that some use a big stretch. By the way, all of my MCS’ are run from 2010 to 2019 (to make them comparable).

I wouldn’t trade a system with an average MDD of 34%, but that’s because I’ve been burned in the past as you might recall from our chat. No doubt there are others who simply regard drawdowns of this size as the cost of doing business. I’m viewing the world through my own lens, but I’d caution you about systems with large drawdowns (and especially slow recovery times) as I think these are easier to cope with in theory, while looking at back test results, than in practice.

Best wishes,

Terry

[KateMoloney]

Thank you for sharing Terry, appreciate it.

That is a great goal to work towards – have you achieved that MDD target of 20% or is that still in progress?
Re: your index filter, do you avoid trading during periods of low volatility?
Like you I have a larger stretch.

Re: drawdowns, it also depends on your age, goals, risk tolerance, capital etc. You might have been burned in the past, but you are also at a different life stage.

My husband & I have a 30+ year vision, the goal is to compound capital and live off earned income. So 6 – 12 month drawdowns don’t bother us as much. I’ve educated my husband on the risks of the strategies, so when we had (for example) a 20% drawdown in Trade Long Term in January, he didn’t even flinch.

[KateMoloney]

Update

34% drawdown now down to -32.68% with some minor tweaking. Still want to get it lower.

Upon review, the drawdowns over 25% occurred 4x in 17 years of backtests. On two of those occasions the drawdowns recovered very quickly (eg one month) … think March 2020 – mid 2020 era.

I can either adjust one of the systems down to 5% pos size to reduce maxDD to a more comfortable spot, or see what I else I can do to get the drawdown a bit.

More research to do, lots of fun.

[TerryDunne]

The average DD from MCS is under 20% only in 3/12 systems. My worst system runs at 27%. I use UPI to allocate funds to each system (i.e. a lower UPI gets less) with the aim of keeping portfolio DD under 20%.

I do admire you young people…in thirty years I’ll be happy to just have my adult diaper changed!

[KateMoloney]

Ah – you are still young at heart Terry.

[KateMoloney]

Todays post is going to be a long and vulnerable share.

Last night was a big lesson for me. To add context, the last few days I have not been on my A game, I have been very distracted. A family friend died last night, and I’ve had challenges to sort out with two family members. Usually one issue on its own I would have coped fine, but the combination of three issues has stumbled me a bit with my mental trading game.

The last few weeks the market has been volatile, and it hasn’t bothered me one bit, but as the issues in my personal life have intensified, I was not in the best emotional state last night. I had loaded the day trade orders into TWS, but was not feeling myself and didn’t think I could cope with a financial loss on top of all the other stuff I was dealing with in my personal life. After thinking about it for 4 hours, I made the decision to take the night off trading, the first time I have ever done this. I made this decision from a place of wanting to be a trader long term, and not wanting to overload my mind with a loss and the personal issues.

So I cancelled all my trades and closed out the Trade Long Term portfolio so I could focus on my personal life.

As murphy’s law would have it, the day trade systems missed out on a record night and a very healthy profit. In the backtest this only happened 3x in 17 years.

Day trade one system would have had a 65.15% return since November inception, Day trade system two would have had an 80% return since Jan inception. Ouch ouch ouch ouch! Or should I say f*ck ! f*ck! f*ck!

My first initial reaction was to cry, I felt very ashamed of myself for missing out on such a stellar night when all I had to do was leave the trades on in TWS.

Here is what I have learned so far this morning;

1) I made a decision to put my mental health / personal life before my trading business. Trading will always be there in the future. Family and friends are more fleeting. Life happens and sometimes we have to prioritise other things outside of trading. Despite it seeming like I made the “wrong” decision to not trade, it was important for me to take responsibility for my decision to look after myself first.

2) The next thing I did was discuss it with my husband, Mum and Dad. We are very close and although they do not the push the trade buttons, they are my support network. In the future, my husband will hold me to the trading game when I say I don’t want to trade. I have been educating him on what I have learned from the chartist. When I have the big down days (which will happen) he will be there to remind me of the bigger picture. Of course, this certainty and long term focus needs to come from inside me first, but on the days where I am not on my mental A game, he will be able to remind me to stay the course.

3) After this process, I started looking for the blessings from this situation. Firstly, I find it ironic that our American friend, who was larger than life, chose to pass away on such a highly profitable night that I missed out on. It seems even in death, he is still teaching me to stay on the horse (he was a cowboy and a highly successful business man).

I also looked for where I got six figures of value. If I’m not going to bank six figures then I am certainly going to get six figures of value from this experience!!

I looked at the drawbacks had I made the money.
Main drawback is I would have ignored the family issues and used the money to cover up my emotional state. Using money to feel good, long term, is not healthy as a trader.

Another drawback is that I don’t think I was really ready to have another big win so early on in the game. I could have gotten cocky and started thinking I was a genius. 80% return in 2 months would have been amazing, but I could have come to expect high returns quickly in the future and become addicted to the quick wins, rather than focusing on the process of trading.

Then I looked at the benefits of missing out on the profits. I found many, but main benefit is the knowing my family has my back unconditionally.

I still have more work to do to process, integrate and appreciate what happened today. And I will get there.
To be stupidly honest, I still feel a bit vulnerable about this whole experience, but mainly because of the other things that are going on as well.

As for tonight, I am back in the court and putting on the trades and leaving it alone.

[KateMoloney]

Update on trading.

Trades are in TWS for tonight. More work to do on my mindset around the lost profits. So grateful this happened early in my career, it will not happen again and I am already thinking of potential solutions.

Goal for tomorrow is to talk to Craig and keep working on my third day trade system.

As my late friend Randy Clare Hall would say, “get back on the horse and don’t mope around too much”.

The man was worth USD$20M in the late 90’s. He sold his company for $1M in cash and $19M in shares that he could cash in 12 months. He said when you have $19M coming in 12 months, you live like a king. Then the 2000 tech wreck happened and his shares were worthless.

He went bankrupt, moped around for a bit and then started a new business in his backyard. The new business had a better bottom line than his original company that turned over $100M pa. He revolutionised his industry in so many ways. His past failure didn’t stop him from succeeding and living very a full life.

Tonight, he is my inspiration to keep going.

[Nick Radge]

Next 1000 trades.

fuck. fuck. fuck. fuck

[TerryDunne]

Hi Kate,

I wasn’t going to reply, because I couldn’t think what to say, but I’ll go with…

You are in my thoughts and I wish good things for you moving forward. If ever Nick’s ‘next thousand trades’ was appropriate, it’s now. I hope that when we all have a face to face at some point in the future, you’ll be laughing about what a great lesson this was.

Best wishes,

Terry

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