Saturday, January 5, 2013

Week in Review: 30th December 2012 - 5th January 2013

I'll try starting a new format for my blog. In the past, I'd haphazardly update my blog. While this lent to some creativity, I'd lose discipline and not bother blogging about the more "mundane" topics. I will like to update my blog on a weekly basis during each weekend, kinda like a news column, summarising events and ideas for the week.


I opened two trades this week, using my Daikoku low volatility system on the weekly timechart. Both trades closed in profit.


I'm beginning to like the NZDUSD. It has proven to be consistently profitable, whether I trade it live or during backtesting. I used a 0.25:1 reward:risk as my backtest optimisation suggested.
XAUUSD (gold)

This trade closed in profit as well when my pending long was triggered. However, I had another chance to profit with my pending short when the market reversed late in Friday. Before that happened, though, I decided to cancel the pending short since I was unhappy about my position size and left it, thinking the market had little chance to fall during the last hours of Friday. How wrong was I? Lesson: don't be lazy, keep orders open according to your system.
I was reading Bloomberg and came across this startling statistic re the performance of hedge funds:

Three of the top five funds in the Bloomberg Markets list invested in mortgage securities, and two of them are run by Minnetonka, Minnesota-based Pine River Capital Management LP. Betting on mortgage securities outpaced every other strategy, with an average return of 20.2 percent, against an industry average of just 1.3 percent, according to data compiled by Bloomberg.

I used to think that the world of hedge funds was inhabited by sharp, ruthless, analytical businessmen and women with a keen eye for profit. But an industry average return of 1.3% kinda shatters that image. That's about the same as flipping a coin. I'm not an expert in hedge funds but I'm beginning to suspect that it's an easier industry to get into than I first thought.
As a retail trader, my projected annual return will be around 10-15%, based on my performance for the last four months. This bit of news has given me confidence since I'm currently doing better than most of the pros.
I'm currently formalising my Daikoku trading system. I probably won't release the full details of this system on my blog, but for any readers, you should have enough info from my last post to perform your own backtest and see whether the system (or something similar) suits you. It's been my observation that market volatlity predictably gyrates, particularly on the longer timeframes, and you want to get in just as volatility starts to increase.
I've also started backtesting on the daily timeframe with very promising results. My frequency of trades is more than double of my Hermes low volatlity trading system(which uses Average True Range (ATR) to check for volatility). Because the potential number of trades is so high, I think my backtest may take up to a month to complete.

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