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Hello Readers.
Some of this is a repeat of the review I did 4 months ago, but bear with me, it's worth it.
At my courses and lectures I am always talking about keeping good records and then reviewing performance, not just the systems performance but your own personal performance. A very common mistake traders make is they do not test and measure. Employing a well tested method is one step, sticking to it another, but then there is the review of how IT and YOU have performed. The measuring part of the process. This is impossible without good records, so if you are not keeping good records of your trades I strongly recommend it, in fact it's imperative.
Every profession has theory and practice. Developing and testing and even employing a method is all theoretical until you have some runs on the board to determine how well you are playing the game. Arguably one of the most powerful tools you have is the collection of real results data to review your method and see where the strengths and weaknesses are, not just with the system but with your practice. It has been 12 months since the live and real money Peters Portfolio has been fully invested, as it took a few months to do so, so lets do some disecting of the method and operators performance.
Results are:
28% p.a. total return, including dividends since fully invested March 2014
Compared to
All Ords return last 12 months. 8%
Adding in 4% in dividends = a possible 12% total return
The last review I did was 4months ago, and I posted the chart below showing how the dark green (representing cash) slowly went down as the portfolio became fully loaded or "all in" by March 2014, 12 months ago.
If you are the analytical type you can re read that review from November 2014 here
http://www.easysharetradingsystems.com.au/Newsletter-Archive/archive/view/1-mailinglist/67-performance-review/24.html
This chart shows the portfolio from a fully loaded start and what happened over the last 12 months, and since the portfolio was fully exposed to the market. It shows capital gain only, not dividends or the buyback offer profits. Actually you could argue and say the performance was another 5% for the year, because at one stage it dipped to 95K, but let's keep it real.
What worked well.
While reading this part you may like to refer to the trades list in the portfolio, or check the breakdown of profits in detail, so click here if you wish to.
http://www.easysharetradingsystems.com.au/peters-portfolio.html
Taking stops! nearly all the trades I sold are now lower then they were when I sold them, which of course is the whole idea of stops. Some rebounded after selling, particularly through that sideways period we had for a lot of 2014, but over time many fell away to make new lows, particularly resource stocks.
Position sizing was good, most stocks were stopped out within my nominated risk.
2/3 winners
The previous reviews win rate of 50% improved to around 65-70% more in line with the long term testing. Admittedly that figure may change when the market pulls back, however I was a little more diligent with my selection of stocks and their fundamental quality, so it seems to be a positive move, validating the fundamental research I have done.
Holding the winners has paid well. As I have said before, weekly trend trading works on the 80/20 rule. 20 to 30 % of your trades give you most of the profit, so you need to HOLD the trades that have not signalled a sell, (because you thought you knew better) because the one you sell could be the outstanding trender that makes 100% profit or more. And the one you don't sell continues to fall and turns out to be the one really damaging the years performance. Best performers have been IFM MNF RFG and HSN. Worst were SND PBP MGX.
Pyramiding (adding more money to winning trades) has paid handsome profits on closed trades and the open trades I am holding. It remains to be seen if that performance continues, so far so good. Some pyramid trades do not work, that strategy is a personal choice, you don't have to use it to have a easy simple winning system. In fact I may stop that strategy myself to create even more simplicity. I like it.
Taking the 52 week high buy signals. It is difficult at times to buy high, I recognise and acknowledge it, however the fact remains that often the best trades, the big winners, never give you a second chance to buy lower. Good position sizing takes a little fear out of buying the initial entry by knowing your expected risk of loss if things dont work out.
Dividend paying stocks contributed well to the overall profit. Also tax benefits are realised by holding stocks that pay a fully franked dividend. The portfolio will pay another 2.5K in dividends by the end of March and early April this year.
The one off discount share offer on MNY paid a quick bonus, I included that in the profits column because it's one of the advantages of medium term systems as opposed to shorter term systems, you get special buy offers to participate in. You can choose not to, but this time I did and took the quick sale ASAP.
Staying in the market! During that sideways period we had in 2014 did you notice something? The method kept you In! If the system was failing or the market inherently weak it would have stopped you out and put you in cash again, as it started to around October before it stabilised and started to rise again. Too many traders and investors panic or over analyse, are in and out all the time, the end result being over trading and under performance.
What did not work well
During the sideways period I mentioned in 2014 some stocks got whipped in and out. It's frustrating but if a stock falls you dont know how far it will fall, so best to stick to the method......look at those resource stocks, ouch. Slower exits would have worked better last year, but we were not to know that.
Some of the pyramided positions turned into losers, although overall the method of adding to rising stocks is working ok, and it worked very well when the market took off a few months ago. Pyramiding does assist the strategy of buying strength and selling weakness model, which is what trend trading and buying new highs is based on. Again as I have taught and said before, if employing a pyramiding method, position sizing IS PARAMOUNT. Don't pyramid if you dont completely understand the method or the consequences, and what the objective is, you can always keep it simple by just having single position trades.
Focus on controlling losses. The wins will come.
The idea of trading is to keep your money employed in the best place for the majority of time. Lot's of trading is not the aswer. You achieve good results by selling losers and holding winners. When you control losses that money is free to move to a more productive home. This methodology is backed by the above results. The portfolio produced the results it has with the XAO making 8% capital gain in the same time, because it buys strength and sells weakness.
Psychology
Have you noticed in this review I have not focused on being "right" or "wrong" ? I hope you have because trading is not about being right or wrong, but trading the probabilities, taking signals to buy and sell, position sizing risk, and having some trust in your self that you can trade successfully. As traders and investors we operate in an uncertain environment. Dedicating enormous amounts of mental energy into attaining certainty is an exercise in futility, as not even the most seasoned trader knows the future or the outcome. For example NO ONE would have predicted the long sideways period we had in 2014 then a massive rally. Like me you may have been confident the market would rise, but the exact way it happens is out of our control, or prediction!! I did not know the market would track sideways so long and then go nuts, but I was positioned well in case it did.
What does help enormously is knowing the probabilities of YOUR method, developing an appropiate mindset and having support from other traders, groups, clubs and/or trading education.
The next 12 months
The 2 reasons why most people fail to make money from the market is:
They do not have a method.
If they do.....they do not stick to it.
The best way to improve your results from trading is to adopt a method and stick to it. Keep good records so you can review, trade with an amount of money that you will not stress you and make you panic in and out.
A personal note
I am pleased the way this years portfolio performed, obviously from a results position but more from an accountability and credibility position, as many trainers and coaches do not display their results but ask you to pay big $$ for their courses! I know many traders get frustrated with their own results, many giving trading away with the attitude "it can't be done". Hopefully you can see now it can be done, and you have learnt some things that will help in the future. The last 3 years I have taught these methods in every capital city in Australia, (mainly at ATAA) I will be teaching again later this year, keep an eye out for it.
That's it for this time. Drop me an email for any enquiries.
Peter Castle
"Good luck is when preparation meets opportunity"
The Roman philosopher, Seneca.
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