moneyOn occasions, a couple of hours after Europe opens, when markets are done with the initial move and wait for news or other spur, I tend to take a break.
If weather is nice I take a walk. That tends to be 2-4 in the morning local time. The dead of night. Three nights ago, as things were really slow, I took a stroll, made a few circles around the complex. Our office is located in a little isolated, mixed use, residential-commercial complex. Condos above few offices and small stores. There are always cars parked in a parking lot and streets. Very quiet neighborhood, except that night I stumbled onto a car prowler. Guy jumped out of the car maybe 15 feet ahead of me, his hands full of loot. I thought of giving a chase but it wasn’t needed. After a few steps guy tripped and went down. Very dedicated, he protected his score, didn’t drop anything but landed on his head as hands were busy. That was it, some blood and whining until cops arrived, they in turn got paramedics. My dose of excitement for that day and the whole week really.
Very slow period for me otherwise. I took few trades, most of them last Sunday right after markets opened. After that I mostly set on my hands when it came to important, large trades. That’s what I tend to do when things don’t go very well. Highlight of the week came very early on.
This sums up my discretionary trading of any meaningful size. I sit on some open positions, but I think there will be more movement and my involvement over next couple weeks. And I’m thinking of my vacation in 3 weeks. Yes!
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I received a couple of emails about the mechanical system I posted a snapshot of last week. Mechanical systems, while easy to use, are not necessarily any “holy grail”. Even well researched and back tested systems can and will surprise us from time to time. Here is an example. About 4 years ago I started trading EUR-JPY using fairly simple set up. At specific time of day I place a straddle order and next day I close any open position always at the same time. Then repeat it over and over, exactly the same thing every day.
Very boring, no decision making involved.
Before I started trading, it was back tested for 8 years before and with 4 more years of live trading I have a lot valid data for this system. Through this period, the worst draw down experienced was about 900 pips, but every year was positive. When account makes new high, position size is raised, but it stays the same after loosing trades. Size of trades are set, that a loss of about 1400 pips breaks the account. I was hoping to never see this kind of loss. With compounding, anywhere from 800-1000 pips gain doubles the account. That depends on distribution and size of gains. Paradoxically, smaller but more frequent winning trades speed up equity build up.
Well, last year, 2006, this account was making really nice steady, gains until May. Then loosing period came. From May to October, system lost about 1250 pips. About 7 moths of nothing but losses. Something like 150-200 more pips in losses and this account would have been wiped out.
Then daily behavior of EUR-JPY returned to pattern in which system was productive. From October through December system recovered all losses and ended the year on almost the high(just 10 pips off0. What a torrid run it was! The graph above shows results in pips. Money wise that translated to about 175% for the year. However the run from low in October to December high was about 1400%.
Bottom line is, that no matter what system and how much back testing it had, it is very likely that sometimes in the future it will experienced a period that is worse that anything previously encountered. There is no sure thing.
For this year I made adjustments that this account can go through 1600 pips draw down and still survive, but I need to gain more pips in order to double the account. Of course, for what I know, something like that will not happen for 10 years. So far this year system is ahead about 580 pips, and account gained just under 75%.
Lot’s of typing, time to rest.
Husar
