Terry’s Journal

[Nick Radge]

Quote:

Nice one Terry! What is your position size ? That’s the key component of risk after all

I think this is the Balls-Deep method.

[TerryDunne]

I have 4 MOC systems operating on the R2000. I’ve allocated roughly 20% of my capital to them. I trade 10 positions on each and use the full leverage. Where the same stock comes up in more than one system, I take all of the signals. So in the ‘worst’ case, up to 2% of my total capital can be exposed to one stock.

BUT

I’m doubling up on profits/(losses) in calculating position size. An example – assume an opening portfolio of 100 and YTD profit of 10, standard position size (based on 10 positions) would be 11. I’m using double the profit in the calculation so my position size becomes 12. This sounds fine but I’ve had a good year so far, which means instead of adding 50 profit to 100 portfolio, I’m adding 100. In this example each position is 20 where it would usually be 15. This is a change I made after reading one of Nick’s articles suggesting something similar (I hope I’m not misquoting you Nick?). Obviously this can’t go on because in a few years I’d have enormous positions, but my current thinking would be to reset beach year. However, even backing the impact of that out, my profit would reduce by a quarter, so not 44% but 33%.

A couple of other points:

– I got lucky in May – I hit a pile of big movers (e.g. LMND, PLUG, SPCE) mid month. If I recall correctly, each of them made 30% ish. This is the change in their price from entry to exit, not the leveraged profit.
– I use a large stretch, so I get fewer trades,so my downside risk is reduced. As well, my upside potential is increased (I think) once I do get a trade.

So, I get that I’m running a somewhat larger position size but my balls are very small so even if they’re deep, I don’t think they’re very deep.

I’m really interested in opinions on this – as I mentioned above, I’m not sure I’m doing it right.

Best wishes,

Terry

[Howard Lask]

Terry, have I got this right? – if you are using max leverage based on account size and then increasing size by adding an additional profit component then my reading of this is that you run the risk of missing trades when your full leverage has been utilised.

Let’s take your example figures – your initial account is 100, profits are 50 and you are trading 10 positions. Based on 4 x leverage you have 600 available,

if your position sizing is based upon a calculation of 100 + 2 x 50 = 200 and you then apply 4 x leverage then you will be sizing each position at 80, 800 total. You have a shortfall of 200 and only the first 7.5 trades get filled

[TerryDunne]

Hi Howard,

I place a maximum of 10 orders (per system) into IB each night. Each trade has the larger position size, so all other things being equal, if all of my trades triggered I’d overdraw.

However, I usually don’t place orders for all of my systems each day and, even if I do, I don’t ever have all of my limit prices reached. For example, last night I placed 0 orders across my 12 MOC systems. Even when I place the entire 120 orders, I’ve never had more than (approximately) 20 trades result.

So, I’m not concerned about overdrawing, but now I’m wondering whether maybe I should be

My (niggling) concern is about the leverage.

Best wishes,

Terry

[TrentRothall]

I guess the issue could be when the market tanks once or twice a year and you do get close to max positions, what will be your max loss or potential loss on these days?

If you are position sizing based on a 800 account (as per Howards example) and your backtested worst loss is 5-10%, that is going to hit your 600 size account harder than a backtest may show; or did you backtest with this position sizing factored in?

[TerryDunne]

Hi Trent,

What I’ve told myself is that on those big down days, I’ll have a larger position size (bad) but also a larger stretch (good) so my entry price should be better than most, unless there is just a big gap of course. I’m also less likely to be fully in the market as my index filters work differently to most.

The increased position size is about 33% right now, but I’m coming to the conclusion that this is too large. I think I’ll either reduce the size of the multiplier across the board or else have some sort of scaling process. I don’t think I’ll bin the whole idea though, as it really ramps up profits when on a roll. It also reduces more quickly when there are losses, from the same mechanism.

Regards,

Terry

[JulianCohen]

I guess the thing is, as long as you are aware of what the risk is, when it does happen (note I didn’t say if) then you will be mentally prepared for it. You stand the chance of bigger than expected losses in order to make bigger gains. The Piper always gets paid

As long as the loss doesn’t wipe you out, which it shouldn’t do, then you are in the correct mental place for it…That’s the important thing to think about. You have constructed a system that will take a big hit at some point. That might not be for 5 years or it might be next week. As long as it is in your expectations then fine.

The worst thing would be to take that loss and not know why. You will know why, you just have to decide if you want to or not.

Edit: sorry just reread that and it seemed a bit brutal…didn’t mean to be…just being straight with you as I see it.

The fact that you are thinking about it suggests you should change it. I wouldn’t bin the idea at all, just temper it. Remember the “ability to sleep at night” is the best stop loss.

[TerryDunne]

Thanks Julian, can’t argue with anything you said.

[TerryDunne]

June 2021

MOC 1000 0.66%
MOC 2000 0.19%
MR 2000 (4.09%)
MOC Short (6.70%)
Momentum 16.11%
Total 1.74%

A fairly quiet month, particularly after last month. Just need to remind myself that 12 x 1.74% would exceed my profit goal.

I finally closed my short systems, it just wasn’t for me. Unfortunately, that means I now have less diversification, but at least I’m now avoiding the (real or perceived) infinite price risk. I’ve also toned down my position sizing, still aggressive just not as aggressive as it was. Both of these steps are about preserving capital – I want to do this for a long time so there’s no hurry.

Best wishes and good luck for the month ahead.

[TerryDunne]

July 2021

MOC 1000 1.12%
MOC 2000 8.87%
MR 2000 (2.29%)
Momentum (6.31%)
Total 3.19%

Another relatively quiet month, so I was surprised to be up over 3%, especially as I have been a bit frustrated. I’m working on coming to terms with the fact that I have emotions – I’m not a robot and that’s OK – but I just need to stick to my systems, no matter how I feel about that. The frustration has arisen from setting inappropriate goals – profit based to a large extent instead of process based.

The system culling continues, this month I am closing my momentum system and one of my mean reversion systems. At least I am replacing the mean reversion system with one I’m happier with, so I feel OK about that, but now I don’t have any longer term systems that I’m happy to run with. Coincidentally, the momentum system balance and my expected tax bill are about the same, so…

Best of luck to all for the coming month,

Terry

[Nick Radge]

Trading is certainly a journey in self-discovery.

[TerryDunne]

Yes, it is…bit of a problem though if you don’t like what you discover

[TerryDunne]

August 2021

MOC1000 13.90%
MOC2000 0.47%
MR2000 1.60%

TOTAL 6.01%

A pleasing month, very happy with how things are going.

It feels a little ‘insufficient’ running only very short term systems. But I’m not going to trade longer term systems until I’m happy with their metrics. The question I need to answer is whether my goal metrics are too aspirational, whether the systems I’m running are just better than anything I’m likely to achieve longer term, so I’m looking for something that doesn’t exist.

But aren’t we all

Best wishes to all for the month ahead!

[MichaelRodwell]

I think I have come to the position that Im happy trading the longer term systems and at the moment will no push myself on the shorter term ones. My thinking on this will probably develop over time but its interesting that Im almost the complete opposite of you.

Terry Dunne wrote:

August 2021

MOC1000 13.90%
MOC2000 0.47%
MR2000 1.60%

TOTAL 6.01%

A pleasing month, very happy with how things are going.

It feels a little ‘insufficient’ running only very short term systems. But I’m not going to trade longer term systems until I’m happy with their metrics. The question I need to answer is whether my goal metrics are too aspirational, whether the systems I’m running are just better than anything I’m likely to achieve longer term, so I’m looking for something that doesn’t exist.

But aren’t we all

Best wishes to all for the month ahead!

[TerryDunne]

Hi Michael,

Yes, it makes tangible that whole idea that you need to find methodologies that suit your personality. When I first read this I thought “blah blah blah, I need to maximise return within drawdown constraints and that’s it”. To some extent I still think this way, but I wonder whether my inability to find longer term systems I’m happy with is a psychological issue.

When my fund went broke back in 2010/11, I was pedal to the metal, no filters, 100% trend following and I know I’ve been scarred by my experience back then.

Do you find that the results of back testing shorter term systems aren’t appealing to you? Or is it having to place trades each day/night? What makes longer term more attractive to you do you think?

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