July 24, 2011

This new test is based on the Momentum Trader script on the old WL4 site. I did modify it extensively as you would expect, not only in its trading philosophy but also in its trading procedures. My primary orientation was to add more pressure to the accumulative functions (go to level 2) and thereby increase overall performance. Naturally, this would require higher accumulative holding functions; pushing the decision surrogate to trade more often and with a higher trade basis subject to available excess equity.

The following graph is taken on the same basis as in the modified version of the Myst’s XDev script:

Modified Momentum Trader sorted losses

(click to enlarge) 

The above graph again shows that losses are highly concentrated in just a few issues. In most cases, the underwater stock holdings are still active positions being part of unrealized losses. Almost all holdings in this portfolio have seen red at one time or other. Managing drawdowns is also part of portfolio management.

This time, the average holding period was 589 trading days with a maximum average of 814 and a minimum average of 208. In 11 cases the stop losses were taken in less than 10 trading days. The profit to loss ratio was 14.99:1, which in itself is more than outstanding for this level of trade (over 200,000 positions taken over the portfolio’s life, talk about a need for automation).

The table below summarizes the performance metrics and show a 91% hit rate which is also remarkable. The sum of all losses, realized as well as unrealized, amount to less than 1.7% of the total generated profits: an outstanding performance as well. To achieve this level of performance, it was required to almost double the volume of trades compared to the Myst’s XDev modified trading script. But overall, it does appear to be worthwhile.

Modified Momentum Trader model 0.7 Level 2

(click to enlarge)

As you push for higher performance, you observe that trading volume increases, average profit per trade declines slightly on this increased volume while the sum of all losses represents less and less, percentage-wise, of the total profits generated. It is not that you lose on some trades; it is that you win so much more on the added trade volume.

Mind you, all this is done without predicting future price movements, but nonetheless taking advantage of any price swing no matter how it develops. The above table does demonstrate that my trading methods as elaborated in my first paper in 2007 are more than just an interesting concept; they are worthwhile trading methods that can help you gain alpha points that in turn will help you outperform the Buy & Hold strategy and by a really wide margin.

I hesitated a while before deciding to show the above performance results and finally decided to put them up. I’m promoting a concept, a different trading methodology that has great potential as can be seen by the various simulation results presented. Basically, I’m promoting a single equation: equation 16 of my first paper. Therefore I should let others see what it can do.

 

AAPL ADM AGQ AMZN
BHH BIDU CCK CF
CMG CRDN CSX DBS
DDS DIT ERX GLD
GTLS IBM IMAX IPGP
JNPR NFLX NTES PAAS
PANL PCLN SCCO SINA
SLV SLW SOHU SRZ
TBL TDSC TRMB TRN
TSCO TZOO ULTA URI
WLK WTW XOP  

( click to enlarge)


Created on ... July 24, 2011,    © Guy R. Fleury. All rights reserved.