Saturday, September 01, 2007

Trading Report for August

I gained $1028 in trading in my US accounts. That's 5.6% of the capital allocated to trading. The month started well and then things got worse and worse. By last Friday I was down $1900 for the month. Then on Monday and Tuesday I gained $3400 to be up $1500. Since then the market rallied again and the gains have been gradually bleeding away. I'm sure you can imagine how demoralizing this chart would be:

Obviously, one reason I feel more comfortable trading on the short side is that I am long my investment portfolio. When I trade on the long side I am adding to my risk. When I trade on the short side I am hedging my risk. The latter feels more comfortable. Many of the more bullish people on the internet only invest or only have a small trading account. The former have to feel bullish and the latter don't have as much on the line when they go long. Many famous investors like Buffett or Soros usually sound bearish. A lot of people online who do both investing and trading also tend to sound bearish. I need to be able to separate the activities better in my mind. My trading has a beta of -0.61 to the NASDAQ 100 index. Objective evidence of bearishness. Of course I have an alpha of 5.0% per month or I would have lost money in the last year. The model I am trying to follow is market neutral.

The theoretical model gained an amazing 22.5% this month. The NASDAQ 100 index rose 2.9% in August.

On my annual goal of breaking even on my US trading accounts I am now at $55,972 and have contributed $64,000. US trading has gained $14,839 so far for the year. With this month's data my alpha relative to the model is now -2.1% per month, which is a big improvement. My beta is 0.79, which is lower, showing I am reducing my risk. I think it is good to reduce risk and focus on increasing alpha at the moment.

My overall investment return will be negative for the month in US Dollar terms but probably positive in Australian Dollar terms reported net worth will probably rise in Australian Dollar terms and fall in US Dollar terms. This is because of the steep fall in the Australian Dollar this month. At the worst point, my net worth was down around $US50,000 on last month. The quant fund meltdown also had a very negative effect on underlying returns this month. I'll post a full report in a few days time.

Even though my trading gains were rather meagre this month, the fact that I was in the black gives me a nice psychological boost. Two negative months in a row would have been rather depressing at this point.

3 comments: said...

While I monitor my overall investment account valuations daily, I'm not sure monitoring trading performance each month is helpful psychologically. I know that when I'm target shooting I can perform better if I just concentrate on the execution of each shot - if I start to mentally track my overall score I can get distracted. Either I'm doing well and start trying to 'force' good shots to acheive a PB score, or if I'm doing badly in a match knowing the score gives me added mental pressure to improve the next shot - which generally makes the execution of the next shot worse, not better.

It might be better to just sit back and analyse your overall results when you're taking a break on your annual holiday, rather than checking trading performance each month. They'd be one less distraction pulling away from your executing trading according to plan.

Of course this would also mean one less thing to blog about ;)

mOOm said...

Oh, I know where I'm at pretty much daily :) When the results are good it is good reinforcement and when they are bad I know I need to work on improving things. Most serious traders seem to be looking at daily numbers on their performance. I know what you mean though. There can be a tendency for example to hang onto a trade longer to improve the stats (getting the win/loss ratio higher).

fin_indie said...

Goodness, that chart looks horrible!

(Of course, I mean that in the kindest, gentlest way :)