Freebie: Without a Strategy, No Profit

I'll give you a quick freebie. It's something you typically won't find on trading sites across the net--something you likely won't hear but small echoes of here to there. It's because it's something that works.

Sites will tell you that the reason you are losing money is because you're either:

1) Not disciplined.

2) Trading a strategy that doesn't fit your personality.

3) Have a poor strategy.

Many, actually don't seem to mention number three much. The first two don't matter nearly as much as number three. If you have a strategy that has proven to be effective time and time again, you don't have to be terribly disciplined and it doesn't matter exactly what type of personality you have. I mean, if it works, it works.

The problem is finding that strategy. And, unfortunately I'm not going to be of much help in that area within this post. I think this is where number one and number two come in. Put them in subcategories under number three.

Let's look at them as subcategories:

If you are not disciplined in finding a strategy, you will not find one. In this market, there's so much competition that high alpha-positive strategies aren't just going to fall out of the sky. And, if you think you can purchase one at the book store for $20, you're being mislead. Yes, those books can provide ideas, but you still have to put in a tremendous amount of work to determine whether the ideas will ultimately prove profitable (especially after commissions and slippage) and which strategies you can use. You'll need a disciplined approach to strategy creation and execution.

Next, number two as a subcategory sorta mixes with number three and number one. However you're going about your strategy must mix with your personality. If you absolutely hate doing complex calculations, you're going to probably hate going the quant route. If you dislike programming, algorithmic trading is going to be a struggle. If you dislike reading and/or talking to people, you'll probably hate following press conferences and calling up investor relations.

In fact, check up on Jack Schwager's Market Wizards. The interview he does shows a wide range of different strategies and shows the personalities and talents that are best suited to each. Furthermore, he shows what it took for each of the traders to achieve their strategies. At least that's what I noticed when reading it.

Really, it all comes down to strategy. You have a solid one and you're much, much less likely to falter. If you have a poor strategy, well, that's why you're losing money. It's not because you're not following your strategy hard enough. It's because you have a bad strategy.

Off Topic, Tiny Project

I created a site over at http://pythonanywhere.com; I wanted something that utilized python to generate the pages, with a mysql backend. It's just a simple link blog, what I call a blink (instead of a blog, haha). The blurbs after the links are limited to 256 characters. I'm going to update the style a little bit more and tweak the site. But, basically, I'm pretty happy with it.

It's at http://ryanh61.pythonanywhere.com. I used python, flask and mysql to build it. Along with pythonanywhere's awesome free hosting.

Quote on Discovery

"The true voyage of discovery consists not of going to new places, but of having a new pair of eyes."
—Marcel Proust (1871–1922)

PS: Longer entries soon.

Weekly Single-Stock Update

Two trades, both losses. (.22%) on the first, (1.2%) on the second. Brings the P/L down to +0.18%.

I like the strategy, but there are factors I didn't completely take into account when crafting it, things that improve performance and reduce variance. Still going to keep track of it, but the system I posted yesterday is really 10x more durable.

Performance on Multi-Stock Strategy

I developed a multi-stock strategy a month and a half ago, and added up the results of the "risky", "medium-risk" and "low-risk" counterpart strategies.

The risky strategy lost 1.8% before accounting for transaction costs and spreads.

The medium-risk gained 3.36% and the low-risk strategy gained 3.1% before accounting for transaction costs and spreads.

Transaction costs on the risky strategy greatly exceed the medium and low risk strategies and, thus, it will be cut from the race. The transaction costs on the medium and low risk strategies are very, very low relative to returns and the spreads should be nearly negligible, given the liquidity of the stocks chosen.

I'm seriously thinking about implementing the low-risk strategy in my account. It has a little more than one trade on average per week, with limited drawdown and a nice upward slope.

I'd like to put in a little more work into it, such as making a program that lets me know when a trade is in my favor, but I'm keeping it in mind every single day the market runs.