Showing posts with label Trading. Show all posts
Showing posts with label Trading. Show all posts

Monday, March 27, 2023

Yield Curve Trade

 I entered a new yield curve trade - betting on a reduction in the inversion:

This executed by buying a spread that is long two year treasuries futures and short ten year treasuries futures. If we have a repeat of the late 1970s and early 1980s it will lose but inflation was much higher than now then. Last time I tried this in late 2019 to early 2020 I lost about USD 1,500. I was right but too early.

31 March

The trade went badly right from the start and it started making me more and more anxious. I didn't sleep last night and couldn't get to sleep tonight, so I closed the trade. But I still can't sleep yet. So, thought writing this update might help. I would have thought that I had learnt my lesson that I can't cope with overnight futures trades where I could decide to change the trade. It's just not something I can do. I had planned to do some more work on trading in the next few months, but now think I shouldn't do it.

Tuesday, April 05, 2022

New Trade: Pendal


I bought a position in Pendal (PDL.AX). Yesterday, they announced that they got a takeover offer from Perpetual (PPT.AX) for the equivalent of AUD 6.23 per share. The price isn't a constant as it is about 2/3 in terms of Perpetual shares. The stock was trading around AUD 5.25 after being higher yesterday, but PPT was trading up on yesterday. Analysts say the stock is undervalued and a strong buy after falling a lot in the last year, prior to the bid. So, I didn't see  lot of downside in this. 

In other news, URF.AX is now up to AUD 0.24, 10% above the AUD 0.22 that investors are supposed to eventually receive. I can't sell as my shares are in transit from Interactive Brokers to Commonwealth Securities. They have now left Interactive Brokers, but haven't shown up yet at CommSec...

Wednesday, July 28, 2021

Next Steps

We have now executed a major part of the financial plans I developed in 2018. We deployed almost all the inherited capital - we still have some Ford bonds, which were intended as a short term investment, we have completed the initial set up of the SMSF and set up accounts for our two children. We have a much more diversified portfolio. So, on the investment front it will now be more business as usual going forward. I explored trading and made a little money but haven't got to the stage of setting up a proper system. This is something I will need to revisit very soon. To decide once and for all if that is a direction I want to take. If I do it, it would be in collaboration with some other people I know. The other major thing we haven't done is estate planning. I wanted to get the SMSF done first. So, we should really look at that seriously soon too.

Friday, May 21, 2021

Career Update etc.

About a month ago I posted about my career decision-making. So, because I ummed and ahhed, the incoming director found someone else for the leadership position for a year with a view to me doing it after that. On the other hand, she was happy for me to get a teaching reduction when I am in that leadership position.

I talked with HR and my immediate department head about long service leave. He was happy for me to get a reduction in teaching next year but not the course I wanted to drop. Instead, he suggested I drop both courses that are supposed to run in the first half of the year and do another course instead in the second half of the year. This is somewhat appealing as after a few year I get bored of teaching a course even though preparing a new course is a lot of work. So, then I would have a year out of teaching, then teach the new course, and then take on the leadership position while still teaching this course. 

That takes us to the end of 2024 when I will be 60 years old. So, my thinking is to then drop to a 50% position rather than retire outright and teach one course a year. 

On another front, a former student who I am collaborating with on research and maybe on another fintech business venture (at the moment I am on the informal "advisory board") is interested in trying to implement automatic systematic trading with my methods. He already has 2-3 other collaborators on the other (research intensive) business development. These guys are pretty expert in Python etc while I am relatively expert in markets. But he wants me to pay for their time up front for development. So, I really need to make sure I have something profitable before paying for this. So, I am going to do more extensive backtesting of my soybeans model, which is the easier one to backtest using my existing software. Most of the work is in compiling futures data together into a continuous series. I will go back at least to the Great Recession and maybe further. Currently I've tested about 6 years. If that works out (I am skeptical actually) they would then do more testing of other markets once we are trading the first market.

My thinking is to pay for development by being issued shares in return for cash in their (to be founded) company. After that when trading is up and running there would be profit sharing with the management company of which I would also be then a shareholder. One of the team is an accountant who would set all this up. They already have an IP agreement in place.

This actually all seems pretty crazy to me but you won't succeed if you don't try.

Tuesday, May 11, 2021

Two More New Investments

We're still in the process of reinvesting after the most recent reorganization, which centred on rolling over my Colonial First State superannuation fund into the SMSF. I bought the first "tranche" of a position in Fortescue Metals (FMG.AX) replacing the just closed Treasury Wines position. By the way that position made around AUD 15k in profit with an internal rate of return of around 90%. Fortescue is expected to pay out an enormous franked dividend very soon. The interim dividend was AUD 1.47, which was double that in the previous year. Brokers expect the final dividend to be around AUD 2.50 per share plus franking. This is around a 16% annual yield. The reason the share price isn't higher is that brokers also expect profits to fall in the following years. The thinking is that the iron ore price can't remain this high for long. My thesis is that retail investors will continue to buy the stock to get the dividend and that maybe future profits won't fall as much as expected. In the last 90 days they have increased their forecasts of 2022 profits but the share price is below where it was a the beginning of the year.

The second investment is in Contango Income Generator (CIE.AX). This is a listed investment company (closed end fund). It has been a failure, losing money since inception. Wilson Asset Management got involved, buying up shares and agitating for change. The company switched to a new strategy managed by WCM Investment Management who are based in California. This is a global long-short equity strategy, which supposedly has performed extremely well:

Of course, it is trading below net asset value. It's not that liquid, and so getting a full position will take a little while.

We now have 40 different investments not including cash in various currencies, our house etc. And that's counting the eight paintings at Masterworks as one investment. I still have a couple more investments in mind.

Monday, May 10, 2021

Got Out of Treasury Wine

Was getting bored of Treasury Wine (TWE.AX) so I exited the position. Probably now there will be a takeover announced :) Previous rumours about takeovers didn't eventuate so far.

Thursday, April 08, 2021

Stopping Systematic Trading Again...

Of course, bitcoin went straight down after I got in and I have now closed that trade. There was no real basis to that trade. I just went in because Oscar Carboni was getting bullish on bitcoin again. But I have also decided to stop my attempts at systematic trading. I thought I could come up with something which my personality could handle. But it's not the case. I just can't get detached when there is an order out there that may or may not trigger, needs attention to close etc. My anxiety and lack of sleep has been getting worse again this week, despite not actually trading and last night I decided to pull the plug. I still have a soybean calendar spread trade open, which maybe I was most anxious about. But it is actually making money now. I had increased the size of the trade. That was a bad idea. I have now gone back down to two contracts instead of three. These moves should reduce the overall cognitive load. If this still doesn't work, I'll have to close that trade too.

This seems to have happened every time I really get into trading, but each time I think it will be different. Moominmama was concerned when I said I was trading again, saying that I always end up stressed as a result. She was right.

P.S. 9 April

I still had difficulty sleeping, so I closed the soybean calendar spread too. At least that one made some money.

Tuesday, April 06, 2021

Bitcoin

 I'm finally back into Bitcoin. The position I could get was tiny. Margin requirements are crazy. On IB they are something like twice the actual BTC position. I took a small position on Plus500.

Thursday, March 11, 2021

Trading Not Going Well

Last three ASX200 trades were stopped out, which is very unusual. The worst in the backtest was two stop outs in a row. Each day the market goes up at the open and puts me into a long position. Then it falls and stops out. Five of the last six trades were losses. I suspect that isn't so unusual. I've done two soybeans trend-following trades and both (long) were losers too. I'm also doing a calendar spread soybean trade which is about a breakeven at this point. On the other hand, we have been doing well in some stocks like Treasury Wine and Domacom.

Sunday, March 07, 2021

February SPI Trading Performance

I made AUD 589 trading ASX 200 futures and CFDs in February. I have now compared my trades to the trades the algorithm specifies. If I had traded one whole SPI contract (rather than varying numbers of Plus500 contracts I would have made AUD 770. But the algorithm just daytrading would have made AUD 4,275. Overnight trading as well had a very negative return for the month (AUD -3,125 if you took an overnight trade every time you were up for the day). So, when I started doing overnight trades, it detracted from my performance. I can also calculate the "slippage". I lost an average of AUD 57 per day due to the spread between buy and sell and inaccuracy in getting in and out of trades at exactly the right time. This is actually less than the spread between buy and sell prices on Plus500 of 3 points or AUD 75. After accounting for slippage, the daytrading only algorithm would have gained AUD 3,062.

Sunday, February 21, 2021

Trading Update

I've now been trading the ASX200 systematically, mostly on Plus500, for two weeks. I'm only ahead by about AUD 500, but that's not surprising. Actually, it's a good result given the small position size so far, and the potential for drawdowns. I've done more backtesting and improved the algorithm. About half of total returns would come from holding winning positions (during the day) overnight and I haven't done that yet. I also updated my soybean trading model with the last year or so of data and the algorithm I was using would continue to be profitable, so I am adding that. By contrast with the ASX200 model, this is a trend following model that doesn't trade very often. Finally, during the past week I did some trading of Treasury Wine around the high volatility in the stock with the earnings release and broker upgrades and downgrades. This involved far larger fluctuations in value than the systematic trading.

Sunday, February 07, 2021

Plus500 Update

I got a statement from the new HSBC account and submitted it to Plus500 and it was approved! So, now I tried to withdraw $1,000. They at least allowed me to submit the request now. However, there was a statement that they will refund the original source of the money.... Which would mean they will send it back to the credit card we used to fund the account, even though that is a joint account. Let's see what happens. 

P.S. 8 February 

The money showed up in the new HSBC account! So we successfully withdrew money from Plus 500.

Saturday, February 06, 2021

Finished First Week of Trading

I traded each day according to the rules and had 3 wins and 2 losses and ended up AUD 219 for the week. If that is a typical week then I would need to trade ten times bigger to make a decent "wage" from this. That would be 4 full futures contracts (AUD 670k notional value). But that would expose the account to a possible daily loss of AUD 50k during a market crisis like the March crash last year. I would feel that is just too much for even a AUD 1 million SMSF, though for our full portfolio it is reasonable theoretically. So, we would need to use a constant risk strategy to reduce the risk to AUD 10k every day. That also feels like a big risk in trading if it is a daily thing. So, I doubt we get up to that size of trading any time soon. 

If this is a successful strategy I will likely pursue trying to build an automated system later this year. I previously explored Capitalise, but found they couldn't implement a system like this with variable position size based on risk. So, unless they have improved it'd probably mean learning Python, but that isn't a bad thing...

Wednesday, February 03, 2021

Why a Constant Risk Trading Strategy Works

A constant risk trading strategy in the day-trading context is where your maximum loss possible is a constant. There are other definitions in trend-following etc contexts where you choose a position size so that the typical or expected daily movement up or down is a constant over time and markets.

Using the first definition, once you choose a stop loss, you compute the loss per contract or share if the stop was triggered and divide the fixed maximum loss figure by that to find out how many contracts or shares to buy. For example, if you are willing to risk $2000 on a trade and a contract will lose $1000 in the worst case, you buy (or sell) two contracts. 

The reason this works is the maximum downside loss is capped but by trading more contracts when possible the upside is increased. This helps create asymmetry. 

This graph shows possible loss on the x-axis and trading results (in backtest) on the y-axis, when trading one SPI contract over the last 13 months:

And this is what happens to the returns when the maximum loss is set at the average $2,300 (yes the stop loss can occasionally be exceeded when the opening price of the day is above the entry stop):

 

This has a lower information ratio (similar to Sharpe ratio but without deducting the risk free rate) than the one contract strategy though. It misses out on really big gains when volatility is high. But if you combine the two and set a minimum maximum loss at $2,300 you get better results than either strategy alone. Below $2,300 potential loss you trade a variable number of contracts and above it one contract only:

This has a higher information ratio than either simple strategy but it does take on a lot more risk at times than the constant risk strategy, which for a small account trading full size futures contracts could mean just not trading when volatility is high.




Tuesday, February 02, 2021

2nd Day of Trading

Today's trade was a winner, recovering a bit more than half of yesterday's loss. This is going to need a lot more research. Especially around the relationship between volatility and returns. I suspect that it's not worth trading when volatility is low and maybe there is an upside limit to how much volatility to tolerate. Now I have 13 months of data (from Barchart) nicely organized. Just need to merge all the spreadsheets together and test hypotheses.

Monday, February 01, 2021

Trading Once Again

Just over a year ago, I decided to stop systematic trading. This wasn't the first time. The problem with my trading systems was that they were overfitted to the data. They worked well for a while but then didn't. I did try one similar approach that is not tuned to the data. Yes, I said that this wasn't for me. But then over this weekend, I thought: "Maybe it is?" :) So, I downloaded a bunch more data and did backtests. It would have done especially well during the COVID-19 crash and OK in other months in the last year. So, I decided to try it today again. I used the Plus500 account, which I had decided to shutdown but hadn't managed to do yet. At least this allowed me to trade a smaller position - only AUD 10 per SPI point. The full size futures contract is AUD 25 per point. Well, I was stopped out for a AUD 960 loss... In the backtesting, getting stopped out is fairly unusual. Initially, the market fell and the short trade was profitable. Then it reversed and had a steep rally. 

 

Most losing trades have to be manually closed at the end of the day. So bad luck on my first trade. I'll try a few more and see how I go...

Thursday, January 28, 2021

Treasury Wine Estates Rises Sharply on No News

Treasury (TWE.AX) rose sharply today with no announcement from the company or news in the media. At one point it was up 9%. This was on a day when the market was sharply down. It closed up 5.92%. I added to my position on the basis that my thesis was working out and that this spike would be continued.



Tuesday, January 05, 2021

Closing Plus 500 Account

 

 

I opened a CFD trading account with Plus 500 in Moominmama's name in order to hedge Bitcoin trades over the weekend and do other trading experiments with small position sizes. I no longer need the account and they are charging monthly inactivity fees. So, I tried to withdraw the cash in the account. But they wouldn't transfer the money to our joint Commonwealth Bank account. They also refused to transfer the money to Moominmama's Interactive Brokers account, even though it has a BSB and bank account number. So, I opened a new bank account in her name at HSBC. But now we have to wait a month to get a statement that would be acceptable to Plus 500... To be continued

Tuesday, December 01, 2020

New Investment or Trade? Treasury Wine Estates

 

Today, I bought 5,000 shares of Treasury Wine @ AUD 8.42 a share. The stock has traded as high as AUD 20.20 in the last three years. The price has fallen since China put a huge tariff on Australian wine. The company's announcement seemed positive to me. This stock was also recommended at the recent Sohn Investment Conference by Jun Bei Liu of Tribeca Investment Partners. I don't think she was betting on such a high tariff.

Thursday, December 12, 2019

Pulling the Plug on Short-Term Trading



I've decided to stop short-term trading. In recent months it hasn't made any money, it takes up a lot of time, and it gives me a lot of anxiety. Even though I am doing systematic trading I find myself looking at the market a lot and worrying about my positions. I can't seem to stop it. And my current position sizes are quite small. After a sleepless night, I've had enough. I already cancelled my orders that were waiting to execute. I will keep the existing Bitcoin and palladium positions until they exit naturally

Going forward, I will need to think about our overall financial plan again. Trend following funds aren't doing well in recent years, so we won't want to allocate that much to them compared to the current target allocation to "futures". What should we invest in instead? Should I still plan to set up an SMSF? I delayed that while I waited to see if trading was going to be a big part of it.

I've been here a couple of times before.