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System Lab: March 2012 Performance

The system closed the month of March with a modest gain (+2.5%).  With the exception of a few days, most of the market’s movement continues to be in the gaps, with relatively narrow intraday ranges.   Again and again the market gaps up/down and then just lays there.  Everyone seems to be guarding their chips and waiting for the other guy to make the first move.

So why all the caution?  My personal view is that the ever-looming Euro debt crisis has instilled quite a bit of fear into the markets and the retail investor (after loosing all of his home equity and most of his 401K) has run screaming, fleeing equities for the foreseeable future.  Thus, what we seem to have now is a listless market comprised largely of HFT bots trading money back and forth.  A zero sum game and a difficult environment for the retail day trader, to be sure.

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A Quick Note

The site has been experiencing large amounts of comment spam in recent weeks, so I’ve been forced to disable comments on posts older than a couple of weeks.

Its an unfortunate step to have to take, but it has greatly reduced the amount of spam I have to deal with and the site is certainly better off without thousands of irrelevant comments embedded with cheerleader porn or Viagra links.  My apologies for the inconvenience (welcome to the Internet!).

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System Lab: February 2012 Performance

February saw the market continue its slow trickle up, “climbing-the-wall-of-worry” behavior.  Movement in the gaps and anemic intraday ranges were the order of the day, and unfortunately such an environment doesn’t offer intraday systems many opportunities.  The system’s equity curve saw most days coming in under +/- 0.50% and many offered no trades at all, leaving the system flat (-0.40%) for the month.  Yawn.

It seems this system is not alone, as a fellow algo trader friend of mine joked “Welcome to the $300 club!” after listening to me complain about February’s returns.  His system has been seeing anemic returns as well, yielding him pocket change of plus/minus a few hundred dollars a day (vs the thousands per day he was seeing last Fall).  I guess misery loves company, lol.

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System Lab: January 2012 Performance

January was a fairly moderate month and its limited volatility offered pretty slim pickings.  The system had some nice returns right out of the gate, but these were pared back as the month progressed and most days were under +/- 1%.  The good news is that the system was still able squeeze out a modest gain of +1.8% for the month.  Not earth shattering, but I’ll take it.

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IB Now Offers “Quote Booster Packs”

According to their post on ET, Interactive Brokers is now offering additional streaming quotes at a cost of $30/mo per pack of 100 quotes, with a a maximum of 1100 quotes total.  As before, the first 100 quotes are free (so long as you do a few trades per month).

Note that once you reach about 500 quotes, datafeed services like IQFeed become more cost effective (1000 realtime streaming quotes on IQFeed is around $140/mo, depending on the symbols you want to stream).

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Nuts & Bolts: Survivorship Bias

Survivorship Bias (SB) is a plague to most trading system developers.  Pick any basket of stocks to trade and you’ve just introduced it into your results, especially if that basket is a collection of index components (like the S&P500, Nasdaq 100, etc).

So what exactly is this bane of all algo traders?  Here’s the textbook definition:

In finance, survivorship bias is the tendency for failed companies to be excluded from performance studies because they no longer exist. It often causes the results of studies to skew higher because only companies which were successful enough to survive until the end of the period are included

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System Lab: December 2011 Performance

December yielded some nice gains for System A, but it was a bit of a strange month.  Most of the movement (if any) occurred in the gaps, and thus the intraday range/volatility was almost non-existent, leaving the system on the sidelines much of the time. But fortunately there were a few decent positive days, with one nice outlier of nearly +9% that allowed the system to finish the month with an 11% gain.

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System Lab: November 2011 System Performance

System A didn’t give me much to crow about for November;  It ended the month flat at +0.5%.  The system started the month out with some nice gains, booking over +8%, but then was spanked by the market mid month and gave them all back.  The last two weeks of the month offered the system very few trades and it sat on the sidelines for nearly seven straight trading days.

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Nuts & Bolts: The Law of Large Numbers

Trading is a stochastic process;  i.e, the outcome of each trade is not deterministic and has a distinctly random bias.  Sometimes you win, sometimes you lose.  Sometimes you win big, sometimes you take it in the pants.  Often your winning or losing trades will cluster together in a row;  Other times, they’ll alternate in a more noisy fashion.

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Nuts & Bolts: Expectation

When I first started trading nearly 100% of my focus was on the percentage of my trades that were winners (win probability).  After all, winning feels good and I wanted to maximize that much as possible.  But over time I learned that the win probability of a system is largely irrelevant (regardless of how good it makes you feel);   Instead of worrying so much about winning I really should have been focusing on my system’s expectation.

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