[TerryDunne]

November 2020

MOC R1000 1.08%
MOC R2000 2.64%
MR R2000 3.89%
Total 2.20%

I’m very comfortable now with my long MOC/MR systems and I now have enough of them – 4 each on both R1000 and R2000 for MOC and 2 MR systems on R2000.

I’m still unhappy with the metrics on WTT/Rotational systems, but right now I have about 30% of my funds sitting idle while waiting for me to get this done. I haven’t done very much with this over the last month, except read quite a bit and collect articles with interesting ideas that I need to test.

I’ve spent time attempting to develop short MOC systems, which went well…until I back tested on the current year and my systems lost 50% of their value in a couple of trades through June and July. For anybody who remembers my concerns about shorting from another post I made, this is my worst nightmare. The main reason I am persevering with short MOC systems is I have formed the (tentative) conclusion that they are ‘free’ – I believe that I can run them without allocating any of my capital to them, given that they are unlikely to trade at the same time as any ‘linked’ long MOC system trades. I’d be interested in people’s thoughts on this.

Good luck to everybody for the month ahead,

Terry

[TerryDunne]

Can I ask a really dumb question? Wait…I just did!

When I back test a short system, are the results presented as positive or negative? For example, if the back test report says I made negative CAGR, is that good or bad?

Told you it was a dumb question

[TerryDunne]

Nick, is there is a chance with this order type that you miss the open, the order is cancelled and when you wake up you still hold a position you thought you’d exited?

If this can’t happen, I think all of my exits will be ‘OPG’ from now on

[TerryDunne]

Thanks Trent, I really appreciate it.

[TerryDunne]

Hi Trent,

Maybe? I just have them all saved to my desktop. However, that was working fine until late last week, so I think I might have screwed up something specific to that day. I guess I’ll find out tomorrow morning. I might have to stay up and see if the first trade generates the MOC exit.

[TerryDunne]

Thanks Nick.

It’s much more likely that I have done something stupid, just wanted to cross that off the list.

[TerryDunne]

Hi everyone,

Quite a bit of action this month for not much result. Having to deal with my first down month, although only in one of my systems thankfully.

R1000 MOC 0.11%
R2000 MOC 5.70%
R2000 MR -1.44%
Total 0.55%

Very close now to having three longer term systems ready to go…just trying to break them. I’m likely to go with 2 momentum systems and one WTT initially and would like to make another WTT system work sufficiently well to trade I was hoping for a beginning of November start but not quite there.

I got side tracked by some difficulty with my MOC orders not automatically closing – was wondering whether it could have anything to do with the API software update. Has anybody else had this problem since updating?

I hope everybody had a great month.

Terry

[TerryDunne]

Hi Julian,

I probably didn’t express myself too well, so I’ll have another go…

If you go long on a stock that’s ‘oversold’ however you measure that, and it drops hugely in price intraday, the most you can lose is the amount that you have invested (in your case 7.5% of your portfolio) if the price goes to zero. Upsetting but not the end of the world.

But shorting is different..

A made up example…Stock XYZ has made your top 40 potential shorts. You set your short limit price above the close by whatever your stretch is and that is triggered at the open. So now you are short XYZ 7.5% of the value of your portfolio. In my made up disaster scenario there is a reason why XYZ has moved up as the company announces something incredibly good – lets say a cure for all forms of cancer. The price of XYZ moves up 10 fold (but why couldn’t it be 100 fold) on the news and you have lost 75% of the value of your portfolio.

I know this is extreme but extreme things happen all the time. At least when something extreme happens on your long trade your loss is limited…but not on the short side.

You can probably tell that I’m not likely to be shorting any time soon

[TerryDunne]

Hi Nick,

Nice results! Looks fantastic and really supports the idea of the benefits of diversification.

In real life, would you be concerned that some of the best shorts can’t be traded because the stock was unavailable to borrow? I can’t remember who, but one of the group had exactly that happen last week – a big winning short that wasn’t filled due to unavailability?

Or the example you often give of being legally prevented from shorting during the GFC?

To me, this also complicates the reliability/usefulness of back testing results.

The other concern I have with shorting is that when you are long, price can only go to zero, so if you have a $10k position you lose $10K. But when you’re short, price could go to $1,000.000,000,000. I know that this is impossible but take a few zeros off and it seems to me that the likelihood moves from impossible to improbable.

Imagine shorting a stock with a high RSI (or whatever your measure of choice) that stretches higher the next day so your limit is hit. Of course, the reason the RSI is high and the stretch has been met is that people are buying. In this particular instance, there is good reason why people are buying as the company you’ve just shorted announces a cure for epilepsy/Covid19/cancer/erectile disfunction. I would expect that the $100k/$200k I could lose in one day would cause me permanent erectile disfunction.

I understand that this might be paranoia, but just because I’m paranoid doesn’t make me wrong.

I’m really interested in opinions on this, both from those who are shorting and those who aren’t…

Kind regards,

Terry

[TerryDunne]

Thanks Nick, I will arrange an appointment with you.

[TerryDunne]

Hi Said,

I’m curious that you are using open and close rather than high and low to calculate gaps…you’re not bothered that an opening gap can be filled during the day?

I’m struggling to make use of the gap filter on any of my draft momentum systems, although it did help on one of my mean reversion systems. In fact, I’m struggling with momentum systems no matter what I try.

[TerryDunne]

MOC Russell 1000 3.87%
MOC Russell 2000 8.79%
MR Russell 2000 (1.72%)

Overall 3.24%

[TerryDunne]

Thanks Nick – benchmarks I can use, will review tonight!

[TerryDunne]

Hi Glen,

I have four longer term systems in prototype mode at the moment, two using the the WTT structure and two using monthly momentum.

All four systems have CAGR in the high teens (on average via Monte Carlo) with draw downs in the 20%-30% range. Sharpe ratios are around 0.3.

[TerryDunne]

Hi Omar,

Your experience with higher stretch is what most people experience I think. My focus is on absolute maximum drawdown as well as CAGR /DD, so I favour big stretches. Others who don’t have my ‘issues’ focus more on CAGR.

I discovered in the GFC that seeing at a 30% drawdown in back testing is very different to experiencing it IRL.

Good luck with the course, looking forward to seeing your results!

Terry

[Author]

Posts