This week was much more quiet than the last two weeks. I had one remaining position which was closed out for a loss on Monday. I wasn’t able to do any trading this week because I was in a class all week and I didn’t have access to a computer during trading hours. It was actually good timing to get away from the market for a week after the big losses I took recently.
This week my account went down $25.80 to a total of $11,516.23.
Only one word to describe this week: Ouch! Most of my positions closed for a loss, including a new one that I opened this week on MER. Since last Wednesday when my account peaked at over $12,700, I’ve lost about $1200.
This week, my account went down $625.03 to a new total of $11,542.03. This was by far my worst week ever. I also had my worst ever day with a $494 loss on Thursday.
Other than the mistake I made in not getting out of TRN when I saw the new support level, I don’t think I made any bad trades. I just got hurt by the sudden upsurge in the market when I was holding all puts.
It is rather disappointing to lose 2-3 months of profits in one and half weeks. On the other hand, it’s good to know that with all of my trades going against me, I still only took less than a 10% hit on my portfolio. So at the very least, my risk management and money management rules are working for me.
This week, I entered two new positions, a put on WSM and another put on ADI. I also had a few trades that I wasn’t able to take due to earnings, but I am now keeping track of those so that I can later analyze what would have happened if I had taken the trades.
I also have a tentative plan for trading around earnings time that I am going to test out with my call on ADM. It has earnings coming out on 4/29, and doesn’t look like it will have completed its move before then. The day before the earnings release, assuming I’m still in the position, I will sell the at-the-money front month call to protect me if the price drops suddenly. Then I will buy it back the day after, hopefully after it has lost most of its remaining value due to the drop in implied volatility. Of course, this strategy also means that if the stock jumps up on the news, my returns will be limited.
This week my account went up $299.49 to a total of $12,467.58.
As promised, this post contains more detailed results from my post-mortem analysis of all trades over the past 6 months.
First off, I started by seeing what would have happened if I had used all the same entry and exit dates, but traded stocks instead of options. I did this both so I could compare the performance of the two, and also to make it easier to analyse alternative exit strategies, since it’s easier to get past stock data than option data.
My actual total return on the trades I analyzed was $1770.00. If I had trade stocks using the same entry and exits, as well as the same dollar amounts that I traded on the options, I would have made $519.8. If I had always used $1000 for each trade, my return would have been $684.57. I have used the latter result as my benchmark.
I first wanted to see if I could have gotten better exits by using a change in slope in the MACD as my exit signal. Using that approach, my total returns would have been $500.35, which is 27% less than my current approach. This does not seem like a good exit indicator for a trending stock, as I had heard before.
The next thing I looked at was an entry based the (impossible to achieve) best possible price after my entry date. Using this ideal exit, my total returns were $4025.73. Then I looked at the biggest drawdown between my entry date and this ideal exit date, and the total returns if I had gotten out on those days is -$1128.15, with no stock losing more than 15% of its initial investment. This seems to suggest that I could have held all of my stocks for much longer than I did, using a sell stop that is 15% below the entry price. However, it still doesn’t help me achieve the maximum returns of the ideal strategy.
Finally, I looked at my returns if I always waited for the stock to exactly reach the trendline I was using as my profit target (rather than my current approach of getting within 3%), along with using a break of the 200-day moving average as the exit signal for a loss. With this approach, my total return was $980.79, or a 43% improvement over the baseline, but still nowhere near the ideal.
Unfortunately, I don’t think that last strategy is practical for options trades, because it required me to stay in my trades much longer, and would have resulted in a lot more time decay and a couple of expired options.
I plan to spend some more time analysing these results and trying different exit conditions, but so far I haven’t seen an objective exit criteria that would do consistently better than what I have already achieved.
Results
Raw numbers: I started the quarter with $10,769.55 on 1/1/2008 and ended with $11,981.74 on 3/31/2008, for a gain of 11.3%, compared to a gain of 7.7% in Q1. I gained $764.55 in January, $259.52 in February, and $188.12 in March. My profits dwindled at the end of the quarter, but it was nice to see all months end with positive results.
I executed well on my trades during this quarter. I did not take any trades that did not fit the criteria laid out in my trading plan. My exits, on the other hand, weren’t always perfect as I would occasionally get nervous and get out of a profitable position too soon. I need to focus on letting my predefined exits do their job and not get out too early.
My biggest mistake was again missing some trades that I should have taken. This was usually a result of not checking my watchlist carefully enough on days that I was busy, but there is really no good reason to miss a trade that is on my watchlist and shows all the right buy signals. One of my goals for this quarter was to take every trade that fits my criteria, so I still need to work on that goal.
One of my goals this quarter was to evaluate all of my past trades and see if I could have used a different exit strategy for more profit. One of the things that really struck me as interesting during that analysis is that I almost always got out of my positions too soon. I also noticed that I took a few trades where the stock started on the wrong side of its 200-day moving average (e.g. below the 200 DMA for a call), and every one of those trades went on to close for a loss. I think I will add a condition to my entry signal that the stock must be above the 200 DMA for a call and below the 200 DMA for a put. I will make another post soon with more detailed results from my post-mortem analysis.
Finally, I had another goal of finding a strategy to use during earnings season. I have made partial progress on this goal. First of all, I have been able to expand my watchlists by making better use of my search tools, so I have more stocks available to trade and usually don’t end up in a situation where they are all reporting earnings around the same time. This is not really a solution, but it does help me avoid periods where I can’t make any trades. Secondly, I have started tracking all of the buy signals that I see but can’t take due to earnings, so that I can later analyze whether I really need to avoid them, or if there are other strategies I could have used to take advantage of those buy signals. I will continue tracking these trades through the next quarter and analyze the results at that time.
Goals
These were my 90-day goals when I started this quarter:
As I already mentioned, I still need to work on the first goal. I have made partial progress on the second goal, and have a plan for continued analysis in the next quarter. I have completed my analysis of my trades, and will continue to do this every 1 or 2 quarters. Finally, I have done a good job of keeping this website up-to-date.
These are my goals for the coming quarter:
Graph
Finally, here’s the graph of my portfolio value over this quarter. The graph actually ends on 3/28, which is a Friday, so that’s why it shows a higher value than I reported for the end of the quarter.
This was a pretty exciting week, though you wouldn’t know it to look at my gain of $1.35, bringing my portfolio to $12,168.09.
I started the week with some big losses, going down as low as $11,600 on Tuesday, but the rest of the week was strong. I gained back almost $400 today, bringing it back to break even for the week.
As part of my review of the past quarter, I am analyzing all of my trades over the past 6 months to compare my actual results with “what would have happened” had I done some things differently. I’m hoping to finish that analysis this weekend and will post the results then.
Well this was a pretty busy week. I exited one position and entered five new ones, four of which are currently up. It’s interesting how I can go 2-3 weeks without seeing any buy signals, then all of a sudden they just start piling on. I actually saw many more buy signals that I wasn’t able to act on for two main reasons - either upcoming earnings release, or the options were too expensive. It’s quite unfortunate because one of those trades would have already closed out for max profit and another would be well on its way. I think I’m going to start keeping track of these buy signals so that I can later analyze whether it was a good idea to avoid these trades.
Monday is the last day of the second quarter, so I will be posting a quarterly analysis report soon. Barring a huge collapse on Monday, this has been an excellent quarter, despite some mistakes that cost me quite a bit of money. It’s actually kind of nice to know that I missed out on some big trade opportunities and still improved on last quarter’s performance.
This week my portfolio went up $191.99 to a total of $12,166.74.
Not much to report this week since I didn’t have any trades again. My trade on XLNX is down a bit, so my portfolio went down $100.02 to $11,974.75. I’m travelling this weekend so this is a very quick post.
Week ending 5/9/2008
May 9, 2008 — SaeedNothing interesting to report this week since I didn’t open any positions. It’s actually kind of nice to take a bit of a breather after the losses I took in the last couple of weeks.
My portfolio had no change and stayed at $11,516.23.