August was a positive month with my trading generating a 3.1% gain.

Systematic Trader Versus Index

The markets are fairly quiet now and my trading activity has dropped off significantly.

On a different note, if you are looking for a new audio podcast to listen to I would suggest “Masters in Business” by Barry Ritholtz which you can find here. Ritholz has interviewed some interesting guests recently such as James O’Shaughnessy and Michael Mauboussin.

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When the markets closed on July 30, my Collective2 account was up 2.3% for the month so I expected to have a positive performance for July. What happened on July 31 killed my performance for the month.  US stocks fell by 2% but worse for me was that volatility shot up and I was short volatility. Fortunately, going into the open on July 31 I had a number of “Sell at Open” orders for the stocks and ETF’s I was holding but my short positions on volatility did their share of damage. My mistake, and it was the biggest one this year, was being short VXX and holding XIV (inverse VIX) at the same time. My short volatility trades had worked well for me earlier in the year and I guess I got complacent.  Lesson learned!

Systematic Trader Versus Index

If you like Dr. Howard Bandy’s work but didn’t know that he is having a free webinar presentation this week to discuss his new book, you can register for the webinar here. The webinar will be recorded and available for viewing later by those who register.

FJP

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Barry Ritholtz recently interviewed Michael Mauboussin, author of The Success Equation. Among many other topics, the two discussed the role luck plays in trading and how difficult it can be to distinguish between luck and skill when most of the participants are highly skilled. To listen to the podcast, click here and then click on the relevant “Download” link.

If you prefer video over an audio podcast or would like to hear more from Mauboussin after the interview with Ritholtz, a recent “Talks at Google”  featuring Mauboussin is available on Youtube.

 

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If you perform a Google search on the phrase “best trading advice” you will get over 200 million results.  That’s a lot of advice for a trader! I thought I would share some advice that sounds simple but is actually very comprehensive.

I believe it was Australian trader Nick Radge that I heard in a podcast say “You should do more of what you are good at and less of what you are not good at.”. Nick wasn’t the first to make this statement but I heard it at a time that was instrumental in my development as a trader so it stuck with me. That statement in conjunction with 1. the belief that if you can’t measure it then you can’t improve it and 2. a practice of continuous improvement (kaizen) are at the core of my development.

In order to determine which of your trading strategies are good and which aren’t you obviously need data and the more the better.  Herein lies a challenge for traders who have long holding periods. The longer your average holding period the less data you will have to analyze and the less opportunity to improve. Most of my stock  trading strategies fall into the mean reversion category and thus have average holding periods between two and five days. Contrast that with a trend follower whose average holding period is months. A trader with short holding periods will generate more data than one with long holding periods and will therefore have the ability to more quickly determine which strategies are working and which ones aren’t. This is crucial and leads to consideration of position sizing. As Dr. Howard Bandy has repeatedly said “The correct position size for a trading system that is broken is zero.”. A trader must have a sufficient number of closed trades in order to continuously perform statistical analysis and thereby determine if a system is worth trading.  Furthermore, following the methods outlined by Kenneth Grant one can determine if more capital should be allocated to a particular trading system.

In a spreadsheet, I record every trading signal generated by each of my various strategies. Analysis of the strategies has led me to stop trading some strategies this year. Also, I have made refinements in my position sizes for some strategies based on the analysis so I am doing more of what I am good at and less of what I am not so good at.

And for something completely different, I leave you with this incredible version of Time After Time by Eva Cassidy.


FJP

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