After a good week last week, I went a little crazy today. I even bought a stock by mistake. That shows you how close to my system I was sticking. I lost 2.20% today on a day the market did OK. Stupid.
There's not much in the way of positive news out there so this might be a rocky week. I'm planning to stay in and carefully manage my trades to avoid any potential disasters. The Zweig screen didn't change much from last week. Good luck out there!
This week felt pretty good. I made 2.71%, and I followed my trading plan while hardly looking at the market while it was open.
The best performing screen was Zweig RS 5 which made 1.70%. WFR really pulled the thing down with its 13.80 loss. For some reason I avoided buying WFR all week which dramatically improved my returns. I can't even remember now why I didn't buy it. Apparently I'm a genius.
Zweig and Zacks continues to lead the pack for 2008. It lost .40% this week but still has a gain of 12.93% for the year. WFR dragged it down to while NGS at 10.01% helped even the four stocks out.
I was a bit surprised at the market's weakness Thursday and Friday. It seem like things are still being driven by bad news. I expect things to go pretty well next week but I'm an idiot, so please don't listen to me.
I'm starting to feel like I know what I'm doing again. I know it's been less than a week, but I feel a lot more confident than I did last week.
Today the market sucked again, but I managed to lose a bit over .20%. I'll take it, because I'm used to a least doubling the losses of the indexes. I don't plan on taking on any new trades tomorrow.
I steered clear of the market from open to close today. I was a bit squeamish to look things over after the close and after hearing that the indexes were down. I actually got my heart pumping a little bit because I was anticipating a loss. That's a sign that I'm still overly emotional.
Things went well today. The portfolio was up .58%. I'll take it.
I discovered that I messed up my computations for expectancy with 10% stops on my post a couple of days ago. I had put in the absolute value of the losses so they ended up being 10% GAINS instead of losses. That skewed the results a bit (OK, a lot). So the real expectancy given a 10% stop loss for the Zweig RS 5 screen over 244 trades was .27. Not quite as spectacular. That produces a 67% gain in a year with 1% of your portfolio at risk.
My goal is to create a system that produces at least 100% each year so I've still got some work to do. I can get the screen to make over 100% with 5% stops, but I think that might be a bit too tight. I'd like to be able to figure out if a 5% stop-loss would work, but I think the data-retrieval process would be too time consuming.
Finally a day when I handily beat the market averages (going up, that is!). I made a decent 1.62% on 50% invested. I can't believe that I missed the real essence of Van Tharp's book which is developing a trading system with a positive expectancy and sticking to it. I had the whole "never lose more than 1% of your portfolio" thing down, but I lost 1% nearly 20 times before realizing that I was throwing money everywhere hoping to catch a wave in a declining market.
More recently I was trying to jump on as many trades as possible hoping that if I risked less I could benefit from the sheer number of trades I made.
Today I watched the opening and then turned off my browser and did some homework. I saw that the market was down pretty big about an hour after the opening because I have a stock market widget on my desktop. I closed that too. I looked again at the close and was pleasantly surprised.
It's extremely liberating to trust my system and avoid the micromanaging that I've always done. The fear of the unknown has always influenced me to make boneheaded decisions. I've never quite believed the experts who say trading should be "boring". But I'm starting to understand what they mean by that. Boring doesn't mean "unprofitable". It means that you don't let the markets (or the news, or the blogs, or your dad) get you worked up. You stick to the system that you know works, and you ignore all the insanity.
Yeah, sure I was dragged along by the broader market, but I still feel pretty good about today. I avoided chasing any stocks, I didn't "over-think", I set my stops and stuck to them, and I used my system in the way it was designed. Up 1.72% on 50% invested.
I asked my brilliant wife to help me work out some issues I was having with calculating information for the two screens I wrote about in the previous post. She insisted that I needed a measurement of risk for each trade. I insisted that I didn't. She was right.
So I went back and re-calculated the expectancy for each screen and edited the post with more accurate information. What I learned in trying to figure things out is that the expectancy of each screen will measure the average risk of a trading system. For example, the Zweig RS 5 screen's expectancy is .18. So, if you make 100 trades you should average about 18 times the risk that you took on each trade over those 100 trades. The system produced 244 trades over 2007, so if you risked 1% of your portfolio value on each trade you should expect about a 43.92% return over the year.
I went back and applied a 10% stop loss to all the losing trades to even out some of the larger losses that probably would have been avoided with a stop loss. I know that a few of the gainers would be stopped out as well, but I didn't take that into account. A 10% stop loss shoots the expectancy up to .79. Nice. That brings an expectation of a 193% yearly return risking 1% per trade on 244 trades.
Using expectancy and risk analysis allows you to make better decisions about your system and your stop losses, while allowing you a better way to compare systems. This is the first time since I started trading that I have analyzed things in this way and it has really helped me get a better handle on what I am doing. I think that I can get to the point where my emotions and feelings don't control my trading behavior. I no longer will need to labor over the placement of stops, or obsess over finding the "perfect" system.
I can't stand it when I get beat by the averages. I lose more than they do when they go down, and I gain less than they do when they go up. That's how this whole stupid week has been. I haven't stuck to my plan at all (yes, I've been sidetracked again).
Today I made a measly .45%--mostly because of massive selling in my account yesterday. I just haven't got the knack for balancing the downsides and the upsides. It was rare that I felt that way last year, and maybe it's the market as a whole that isn't quite right. I don't know.
I re-read Trade Your Way to Financial Freedom by Van K. Tharp over the last week. I'm surprised by the amount of information I didn't digest the first time I went through it. Both Trader Mike and Chris Perruna have excellent articles about what they learned from the book.
I really didn't understand the whole concept of risk the first time I read the book. I made sure that I didn't loose more than 1% of my portfolio on any one trade, but I had no measure of expectancy or the value of the risk that I was taking (or making) on each trade.
I went back though the Zweig Relative Strength 5 and the Zacks & Zweig #1 screens to calculate (based on weekly data) what the expectancy of each of those screens were during 2007. I calculated based on a buy on Monday and a sell everything on Friday. Here's the data:
Zack's and Zweig #1 2007
Total Trades=135
Winners=79 (59%)
Losers=56 (41%)
Average Gain=4.0%
Average Loss=3.20%
Expectancy=.32
Zweig Relative Strength 5 2007
Total Trades=244
Winners=139 (57%)
Losers=105 (43%)
Average Gain=5.33%
Average Loss=4.95%
Expectancy=.18
Just looking at those numbers would convince most people that both systems wouldn't even beat the market. Neither one produced even 60% winners. The spread between winners and losers wasn't even one percent. But both beat the market handily. ZZ#1 made 44.64% and Zweig RS 5 made 46.70 without any sort of money management.
I've been really lazy about tracking my trades and I really have no idea the risk (R) I took on each trade. I hope to change that now.
Well, I lost nearly everything from yesterday. I decided to get more aggressive today, and things seemed to be working out for about the first hour and then it all fell apart. What a downer.
I have to admit that the decline caught me a bit off guard. I was expecting maybe a half percent but nowhere near what happened.
I'd be a little upset if I didn't make money today. Holy cow. Who can figure this stuff out? I was up 3.28% today which can't match the big indexes. I guess that's OK considering that I wasn't fully invested. It sure seems that when things go down it doesn't matter if I'm fully invested or not, I usually lose more than the indexes.
Hopefully, this week will not be a repeat of last week--big move on Fed announcement and then lose it all.
I can't seem to do anything right. I lost another 1.5% today. I would have done OK, if I hadn't added more positions which I did based on some stuff I looked at over the weekend. I am such an emotional wimp.
I still can't get a read on the insanity in the broad market. Stockbee is sitting calmly on the sidelines as he watches the carnage. His market monitor seems to be quite priceless during times like these.
I had a couple of friends ask me if this was a good time to get into the market. That concerns me. People should be terrified to put money to work right now. Maybe I should be terrified to be in the market too. Time will tell.
What in the world is going on? Today was just nuts. I can't remember a time when I felt this confused during the day.
I lost .01% this week. I'll take it, but I got beat by all my screens except the MACD. My best performing screen was To The Moon at 5.41%. BVN was the best performer with a 10.74% return this week.
I don't like To The Moon because it forces me to rely on data from Zacks Research Wizard. I'm not planning on renewing (unless the offer me a better deal) so come summer I won't have access to the screens I've created with it. I almost wish that it sucked all the time. It still is lagging YTD so I guess that helps.
The screen that continues to rock in this nasty market is the Zweig and Zacks #1. Remember, it didn't pick any stocks during January. I would love to have even a piece of its performance for this year. WFR was the best performer at 9.36%.
I have even less a feel for the market this now than I did at the beginning of the week. I'm at 75% cash now, and plan to much more patient in these coming weeks for a genuine change for the better in this market.
I've gotten several questions about my Retrospect post. I'll try to answer them here.
Here is the chart that I used. It is one of the charts that Henry Ford at Pitbull Investor taught me about during our one-on-one tutoring session. This chart covers the year 2004 (used for example). I've shared it before, but basically it looks at the percentage of stocks above their 200 day moving average on the NY stock exchange.
When the blue histogram peaks above the red it is a sign that the market is healthy and you should be fully invested. It's just the opposite when the blue is under the red (these are just simple 20 and 50 day moving averages).
I went back through my data and compiled percentage gains and losses during the blue periods since the beginning of 2003. I did not do any compounding so the results are better than I posted. I used week to week data meaning that I took data from the Friday of each week.
Another interesting market timing site that Matt at Crush the Market told me about is Mojena Market Timing. I haven't really looked over the site too much but the concept looks interesting. It's a much longer-term timing model and there is a ton of free information on the site. Check it out.
I spent a lot of time today going back through old post to try and figure out where I went wrong recently. I was a bit surprised by some of the things I wrote only a month or two ago. I seemed to be on the market timing bandwagon nearly all the way through January and despite the huge swings in the market I stayed pretty much in cash.
Toward the end of the month, I started sensing a bottom and put some money to work resulting in additional losses. I was down 8.25% at the end of January.
I noticed that toward the end of the month I was getting tired of market timing and getting antsy to get back in. I went back through 2007 to find out if I had timed the market what would have happened. It seemed that market timing my mechanical screens really didn't help my portfolio at all and I came to the conclusion that being fully invested was the best strategy for me.
My returns for February reflect that strategy in conjunction with about four other unproven strategies that I latched on to out of desperation as I watched my portfolio dwindle.
I decided to do some research (research is my thing when I'm losing) and find out if there was a way to secure decent gains while avoiding huge losses. I combined my own weekly data (going back to 2005) with Keelix's backtester (going back to 2003 for weekly data) to test my hypothesis.
If you're interested in the backtested data for the Zweig RS 5 screen you can look at my backtesting job at Keelix's backtesting site. The job # is 207890. I used a simple moving average chart ($NY200R in stockcharts) that I've shown before to judge whether I am in the market or out. Here are the results.
2003--153.51%
2004--35.03%
2005--39.45%
2006--53.90%
2007--37.41%
Those results look really good right now especially when you consider that big market drops were essentially avoided (especially this latest one). There was only one period where the screen lost money and that was in Summer of 2004 where it lost 2.99%.
Food for thought.
Today was bittersweet for me. The market took off like a rocket and it appears to be more than short covering. I benefited a bit from the rally. My portfolio was up 2.20% about half of the major indexes.. However, I made the mistake of selling some of my most beaten up stocks yesterday when I was pulling my hair out feeling sorry for myself.
I feel like I just recovered from the flu. I'm a bit shaky and not sure the worst is over. I feel better, but things were awful for a long time. It will take time to see if we've got a new trend forming.
I'm not sure what I can learn from these past few months. I do know that losing so much so quickly really threw my whole trading plan for a loop. I threw my strategy, my money management, and my unemotional take on the market out the window and acted like a desperate newbie at times.
In retrospect, I should have stayed in cash for the last two months. Nothing was telling me that it was time to buy. I just expected the bottom to form along the way and it didn't. But as a mechanical trader I'm supposed to ignore the swings of the market and stay fully invested. I feel like that guy with a devil on one shoulder and an angel on the other whispering in my ear telling me how to invest.
This downturn has been the worst (on many different levels) since 2002. Today's surge was the largest since 2002. Hopefully the rest of the year won't resemble 2002 and I can get on with my trading. Right now, I'd be happy to be even at the end of the year. Maybe that's aiming too low, but I have to admit that this downturn has put a serious chink in my trading armor.
I continue to suffer--down another 1.81%. I feel like giving up. I know that as soon as I do, we'll see a powerful rally.
I've tried to pick a bottom about three times during this decline. I haven't done so well. I'm not about to pick one now.
This is my favorite tool when I judging the overall health of the market. Simply put, if the line is above the blue, things are OK. If not, it's going to be tough. It doesn't give a bearish signal very often, but when it does, watch out!
I kind of ignored this chart during the last couple of months but it has been to my peril so far.
I'm going to keep on doing what I do, but if I continue to struggle, I may sit on the sidelines for a while and re-evaluate my strategy and how to handle things during a struggling market.
Whenever thing are going well for me I make a beeline for my trading journals. I am amazed at how easy it is to forget what happened even a few months ago. I was really surprised to see some really awful months in years that ended up going very well.
These last couple of months are in no way the worst months I've had. Not even close. During 2006 I lost 31.03% from the beginning of May to the end of January. I was much better then at staying the course and not letting the market's swings depress me. In fact just a few months before that gigantic drop, in February 2006, I lost 14.73%. Somehow I managed to end the year up over 60%, so I really don't know what I'm freaking out about.
Part of my problem is that I too often look at the money I've lost rather than the percent. I have a lot more money now than I did in 2005, so losses hurt much more.
As you can see from my returns, I haven't stuck to any of my plans and it has hurt me. I've got to get back on track and stop this silliness.
Only 3 stock qualified using MACD this week. I don't know if I should consider that bullish or bearish. Five stocks earned Zacks #1 rating. The highest relative strength stocks all got pretty beaten up last week.
Stick to the plan.
Thanks for everybody who wrote words of advice and encouragement recently. I'm amazed by the intelligent people that read this dumb blog. Please keep up the brilliant discussions!
Ouch. My gains from last year are quickly evaporating. I don't like it.
I lost 3.67% this week. It could have been worse--the Zweig RS 5 lost 5.75%. Yikes.
Zweig RS 5 was the worst performing screen this week. WATG performed terribly losing 16.59%. WSCI (which I didn't buy, of course) was the only stock that made money--3.78%.
The best performing screen was To the Moon which only lost .60%. Of course, I owned nothing on that screen.
ZZ #1 is still holding out as the screen to beat this year.
I'll be honest and admit that I feel a bit beaten up. I genuinely felt that we had reached a bottom a couple of weeks ago. I'm not sure what to think now. I know if I decide to pull all of my money out, that's when everybody should buy because the market will surely rocket up.
I plan to stick to my guns next week. Maybe what I do doesn't work in markets like these. I've never been through anything like this. But I think the best lesson I can learn is to trade a struggling market so I have a better plan when I face it again.
Right now 82% of NASD stocks are below their 200 day moving average. The last time we had a number that low was mid-2002 when 91% of stocks we're below--that's nutty.
Tomorrow will be interesting.
Losing money isn't fun. I lost nearly 2% of my portfolio today. I'm hoping this ends soon. My 40% gain from last year is now sitting at 18%. Yeowzza! I guess I'll take it considering what's going on everywhere.
At least the market isn't rocketing up as I loose my shirt. That would be a bit disconcerting.
I plan to continue plugging away until things get better. I've spent too much time missing out on good days because of my fear of losing. It's just a bit ironic that I picked a pretty nasty time to decide to stick to my trading plan.
This market continues to flail about like an injured bug. There seems to be no predicting which way it is headed. It's providing lots of opportunity for learning (and pain).
For some reason, yesterday was the best day ever for StockPunk. I started posting on a daily basis about this time last year. Readership has blown past what I ever expected during the past year. Thanks to all StockPunk readers. I've learned a ton over the last year! I hope I've been able to provide some tidbits of useful information.
My friend Sean continues to hold on to his "holy grail" stock IESV. He bought it at 5.5 cents and over the last year it dropped to a penny. He called me yesterday to tell me to look it up and it was up over 100%. It ended up 46% by the end of the day. Sean seems to think I wish the worst for him and his penny stock, but that is not true. I hope it goes to 10 bucks today. Good luck, Sean.
I just renewed my subscription to The Kirk Report's members only site. Charles' site just gets better and better each year and I learn something new every day. Lately, he's been sharing what he looks for when picking a stock. It's awesome stuff that very few books or web sites can offer.
It's times like these that shake out the wimpy traders. I'd be wimpy too if I was just starting out. I'm down over 15% now. That hurts. It's the most I've ever been down.
But if I go back in time, I can see that since I started trading in March of 2003 (blue arrow) this is the most that the market has struggled (indicated by the percent of stocks above their 200 day moving average). So I should expect to be down (and so should you unless you're some sort of genius).
Looking back, it would have been nice to be able to predict this decline. I should have stayed in cash. Maybe someday I'll be knowledgeable enough to time the market correctly. Right now, I don't have a clue.
The key (for me at least) is to remain committed to a trading plan that I know blows away every mutual fund and index out there. It's easy for me to question my sanity when things aren't going my way. The best thing I can do is to put things into perspective and avoid the emotional turmoil that rough times in the market create.
Here's some perspective:
1) I'm still performing better than the NASDAQ which is down 15.77% YTD.
2) The indexes have given up most (NASDAQ) or all (S&P 500) of their gains from last year. I've given up half of mine so far.
3) I'm young and relatively inexperienced when it comes to the stock market. I have a lot to learn and a long time to do it.
4) I've never lost money over a year's time.
5) According to AAII, the Zweig screen held month to month since 1997 has NEVER lost money in a year's time. In 2002 it still managed to gain 16.9%. The average yearly gain since 1998 for the Zweig screen is 42%!
So, don't get all bummed out about a couple of lousy months! (I need this kind of perspective more than anyone!)
Since my 5 to 10 year plan is to eventually be able to trade for a living, I have designated a year to spending time and money learning all I can about trading. I started last summer and I budgeted about $5,000 toward the task. My car has 130,000 miles on it so I figure that if I can keep driving it and figure out how to make a buck, I'm way ahead of my neighbor who trades his cars in every 3 years.
I have already spent most of the money. So far, I am very unimpressed with most of the information I've spent money to acquire.
I just finished watching the Optionetics DVDs tonight. To be honest, I really don't know how somebody can feel good about spending $3,000 to attend one of these trading seminars. There is very little actionable information that is given out in these seminars. The information that is shared is often so technical that I doubt if 10% of the folks in the audience have any idea what the guys are talking about.
The same thing goes for the Trend Trading To Win video and lecture series. I watched all of those DVDs as well and felt there was very little to use successfully.
I'll probably post a series this summer about the money I spent, and what I learned over the year. There are some services that I feel were worth the money, but I'd like to give it a few more months before I share what I've learned.
I'm a bit apprehensive to put some money to work after Friday's sell off. I'm such a wimp.
The Zacks and Zweig screen has 5 stocks that qualified this week which is the most since mid-December. I don't know if that is a good sign or not, but I'll be sure to keep an eye on things.
I plan to focus on the ZZ screen this week and put about half of my money to work.
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