Davo's hedge fund

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dydavo

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Post Number: 148
Registered: 12-2002

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Saturday, March 08, 2008 - 06:18 pm:

Hi all,
This must be my first post for over a year, and my first post that will not mention any tech. indicator!
I am sharing the following because I have learnt a lot from various folk in this forum, and just maybe something in this post helps someone else and/or helps me again.

5-6 weeks ago I got bored being in cash, and either in a 4 am flash or at the traffic lights, decided to see if it was possible to do all of the following in a trading system:
1. Make a decent living with CFDs (as against my usual form of losing money trying to get rich quickly) starting with $8500 (the balance in the CFD acct at the time
2. Take out almost all the fear associated with the CFD leverage
3. Make money regardless of whether the market is bearish or bullish or whatever
4. Reduce the likelihood of a very nasty morning on the back of a terrorist attack or other calamity in NY!

I decided to:
1. keep position size small and constant.
2. Stick to the australian market
3. be short and long in approximately equal $ amounts all the time
4. Use the technicals to get me into and out of trend following positions in a robotic, emotion free fashion
5. Not put stop orders in the market. Rather, check each position at end of day to see if a new stop loss order was due. This might be at 3.30 pm, or after market close.

Result.
After 6 weeks I now have 42 $3000 positions, with slight lean to the longs - maybe 22/42. I have always been a bit biassed to the long side - it seems to be difficult to stop myself thinking as a trader for upside profit!

Account balance has doubled as of Friday (on unrealised profits).
I am astounded at how this is going. I expect it to kick me, but I have only had 1 bad day, and no bad weeks.

Would love to here if there is a basic flaw here, or how more experienced CFD traders would improve the system.

Aim number 4 has yet to be tested. I guess there could be an overnight disaster where the market sells my longs and buys my shorts ferociously. Am thinking about that possibility, and how to be ready for a 5% fall in leveraged account balance (ie, at the moment a capital loss of 5% of $128,000. However, even that result would leave me with a $2000 gain (about 20%) for the 6 weeks or so.

I intend continuing reinvesting profits. Am making about $1500-2000 per week now.

Some might think that having to check the charts on 42 stocks every day was a bit tedious. However, the decision as to whether a trend has stopped takes about a 3 seconds look for most of the positions, and a maybe 20 seconds if there is a bit of doubt. I will check 200 stocks in an hour every night if I have to, if the $ is still flowing in the right direction!

A disadvantage will be coming up next week if I cannot get on IC while overseas for a few days. However, the indicator used to alert me to put on a very tight stop loss or a sell order is available in the CFD provider and on yahoo charts.

Look forward to any comments and helpful advice.

Cheers

dydavo

adetsec

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Post Number: 29
Registered: 10-2002

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Saturday, March 08, 2008 - 07:17 pm:

That's a very encouraging post dydavo. What are your trading strategy rules? If we knew the rules we could comment with more conviction.

Comments for discussion only. Not to be construed as advice.

dydavo

Member

Post Number: 149
Registered: 12-2002

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Saturday, March 08, 2008 - 08:18 pm:

Thanks adetsec. Do you mean my entry and exit rules?

My alert to put in the stop loss order is an RSI that has clearly crossed to the alternate side of 50. I tolerate the consolidation (ie, do not put in the stop order) if the RSI moves into contact with the 50 RSI, and going sideways on about a 50 RSI at support (for longs) or resistance for shorts. However, if it crosses over, then the stop loss order is entered, jammed up tight below or above the previous close.

Entries. Never trade against the 20 or 100 day ema

Longs. 20 day average Force Index has just crossed from below zero to above, and the RSI has also crossed to above 50, has paused, and then "respected" (ie, bounced up off) the 50 (or a bit more) RSI. If the signal is supported by good volume on the crossover I might just jump in without waiting for the RSI pause, but the 20 day average FI must be above 0. Am trying to get in at the start of trends. This signal would be a similar entry point for many people I suspect.

Shorts entry. Check the 20 and 100 day ema. 20 day average Force index is below zero, and the RSI has also crossed to below 50, has paused, and then "respected" the 50 RSI (ie, bounced down off the 50 (or less). I don't stick to religiously getting the first signal in the new downtrend - taking later signals has been profitable. I try to get them a day or so after they have hit resistance (ie, they have bounced down again after heading up towards the 50 RSI. I also like the 15 day average positive volume index heading south.

Hope this helps , and is what you were referring to by "rules". I have much greater respect for money management rules in this approach - eg, position size.

My losses have been about 5-8% of the position size (ie, about $200 (of $3000) on average). A $200 loss was 200/8500 % (about 2.3%) of cash balance initially. That is now more like $200/16600 (1.2%). Any stock showing a 5% loss gets my attention on the chart!

Probably a bit early for win/loss ratios - I am still in many stocks that I traded a month ago. At the moment there are 12 stocks out of 42 with small losses showing, but many of these are very recent entries. None of these unrealised losses exceed $200. I have several unrealised gains in several stocks of over $800 (poor Eddy G!)- I guess the average might be about $500. Will do the maths to confirm the numbers if you like, but these numbers do bounce a bit day to day.

Cheers

dydavo

coyotte

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Post Number: 488
Registered: 12-2002

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Votes: 0


Saturday, March 08, 2008 - 08:35 pm:

have been trading CFDs since CMC started in Ozz -- changed over to IG early 2007.

If what your doing is working then great , but from my own trading -- Longs/Shorts/Hedges, Aust Stocks only .

1: with 42 positions I think your leverage is WAY to high .
i now go in on the basis of a total of all positions not to exceed 3 times the Account size , hence your $8,500 would mean a Max of $25,000 total for all open positions .

2: NEVER EVER have a " AUTOMATIC STOP " - this is the biggest trap with CFDs in my opinion , far better the way your doing it with EoD -- maybe closer to around 3.50/3.55 pm though if you can otherwise next day around 11.30 am.

3: I,ve found sticking with XJO stocks only to be O/K as you can Short most of these or use them as a short term Hedge.

4: If you can handle all those positions at once then good , i prefer a max of 5 open at any one time over a max 20 day trading period.

5: remember , you are paying interest on the total position size for a Long .

good thread though -- hope we see some positive input , instead of all the bagging by those who do not understand CFDs.

cheers

The "Sea of Uncertainty" is defeated by the nimble vessel "Probability", not the unwieldy vessel "Prediction".

philr

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Post Number: 376
Registered: 04-2004

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Saturday, March 08, 2008 - 09:00 pm:

dydavo

Excellent post thanks for sharing your system with us.

I guess you are basically following a Weinstein type entry system. I have been doing some day trades with CFD's for a while now but may give something like your system a try in the near future.

Not sure that I would have as much exposure as you though. I tend to like Coyotte's suggestion for limiting risk.

Phil

** Let blockheads read what blockheads wrote.
Warren Buffett

adetsec

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Post Number: 30
Registered: 10-2002

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Saturday, March 08, 2008 - 09:24 pm:

dydavo. thanks for the info. i'm going to do some testing of your ideas and will send you the results in a private message. might take me a couple of weeks as i'm really busy at the moment. if you then wish to share it with the group that'd be good and i would encourage that. Please take on board comments by cototte and philr as i agree with their sentiments.

Comments for discussion only. Not to be construed as advice.

dydavo

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Post Number: 150
Registered: 12-2002

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Sunday, March 09, 2008 - 11:40 am:

coyotte, philr, adetsec,

Thank you for the feedback - much appreciated.

adetsec - of course I would share your analysis of the system if you were happy with that.

Yes, I guess it is a Weinstein type of entry - I do have a look for stong candles with good volume on long entries, The new 20 day average zero crossover of FI seems to correspond pretty well with the new trend commencing (no guarantees of course!)

I appreciate and understand the comments re risk.

re coyotte's comment; repasted,
1: with 42 positions I think your leverage is WAY to high . I now go in on the basis of a total of all positions not to exceed 3 times the Account size , hence your $8,500 would mean a Max of $25,000 total for all open positions .

I do agree that I am pushing the leverage, and of course there is potential for associated higher risk. Maybe time for me to resist the urge to spend every increase in the account balance!
I have thought about the need to avoid a margin call if there was an overnight nastiness. Lets assume that I had 100k exposure, and the asx200 drops 10% on the open. $50K of longs is now worth 45k, and my hope would be, of course that my $50k of shorts are now worth 55k. It might not work out like that, but I would hope that I would not have a gut wrenching day. On recent 3% falls in the asx 200, I have either not lost money, or made some. On last Friday's 3% fall I made about 0.8% on the leveraged amount. Hard to predict what would happen each time, but I do sleep well, and don't give a rats what the Dow, or gold, or oil, or... has done overnight!

On a stock by stock basis, lets say I lose 10% (and no way will this be the average loss!). I am down $300. At the moment that is only a 300/16000 (1.9%) loss, tolerable, and if my number of small positions increased, this % decreases.
I guess it is a balance between total borrowings and number of positions. van Tharp in one of his books reckoned 30-50 positions was ideal in an all long portfolio). I need to think about it more for sure.

thanks all

davo

coyotte

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Post Number: 492
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Sunday, March 09, 2008 - 01:40 pm:

dydavo:

might be a idea to clear a few things up , mainly in the risk factor side

1: you said you where using a one position size suits all -- what is that size and it's % of the cash bank

2: are you staying within a specific margin area ? ie : 3% or are you going higher

3: are your "HEDGES" against specific stocks, or Sectors or a Mix ?
ie: in the gold sector SBM Vs LGL or Sectors such as Trans Vs Energy -- QAN Vs STO or just a Mix -- ANZ Vs BHP.

the above stocks are just picked as a example :

cheers

The "Sea of Uncertainty" is defeated by the nimble vessel "Probability", not the unwieldy vessel "Prediction".

captain_chaza

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Post Number: 3062
Registered: 02-2003

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Sunday, March 09, 2008 - 06:14 pm:

Ahoy DyDavo

Do you have any objection to disclosing your
42 open positions as they stand ATM?
Without the number of dollars attached of course!

As you know
This Greatest of All Sports is for both Participants and Spectators alike

This could be a lot of fun?

Salute and Gods' speed

(Message edited by Captain_Chaza on March 09, 2008)

"While we stop and think, we often miss our opportunity." Publilius Syrus, 1st century B.C.

"I believe the future is only the past again, entered through another gate."
Sir Arthur Wing Pinero 1893

"There are two times in a man's life when he should not speculate: When he can't afford it, and when he can." Mark Twain, 1897

dydavo

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Post Number: 151
Registered: 12-2002

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Sunday, March 09, 2008 - 06:54 pm:

Captain Chazza,
Not a problem. Positions to follow in a follow up post - the 4 yo is desperate for the internet!

coyotte
One position size, but it is a fixed dollar amount. I started with about $8500, and a position size of $3000. Margin to spend $3000 varies from 5-50% with IG. Position size is still $3000, so the % of the real cash balance is falling as the account size grows.
Not sure what your 2nd question means. Maybe give me an example with the numbers.
No, I am not trying to offset longs in one stock with shorts in another from the same sector. ie, the process has been essentially random, with some recognition as I scroll through my watch list that the financials, consumer discr, house building bits of the economic landscape are rubbish at the moment, and the materials are in better shape. I do look at the sector charts to see where the main strength and weakness is, but how I deal with that info is not something I could not describe (or even repeat reliably!). I guess I do try in a fairly unstructured way so far, for eg, to short stocks from different sectors so my exposure is diversified a bit. Maybe I could try to structure this some more.

Seems to me that hedge funds go broke when they try to predict the market direction, or take huge positions in a small number of investments. Comments anyone?

Cheers

davo

dydavo

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Post Number: 152
Registered: 12-2002

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Sunday, March 09, 2008 - 08:40 pm:

Current positions. 23 long, 20 short
Of course this list is not any sort of financial advice or recommendation. It is part of a short term experiment that has not been backtested, and should be treated with the utmost skepticism by the reader!

Davo

long short
AWC ABS
AQP AUW
BHP BOL
CEY BKN
CSL CGF
CSR CEU
ERA FXJ
EQI FKP
FMG FGL
MCC JST
MGX LLC
MMX MQG
MYO PBG
NCM SEK
OXR SEV
PLA SHL
RIO SUN
SBM JHX
WPL MTS
IPL MOC
LGL
FLX
GNC

captain_chaza

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Post Number: 3064
Registered: 02-2003

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Sunday, March 09, 2008 - 09:20 pm:

Thankyou Officer DyDavo

You are both an Officer and a Gentleman

I for one at IC will respect you for a very long time no matter how those trades go

It takes too much time to do exits on each stock in public and together with that it's not a bad Idea to catch the odd Nazi out
If you know what I mean?

As you can clearly see We don't agree on a few sails but Who on earth can tell us at this moment in time
"Who is right?"
"Who is wrong"

Hopefully our averages will do better than most others' averages in these chaotic sea and weather conditions?

Salute and Gods' speed

PS Always remember my Dad's Rule #1
"The Only Good Nazi is a Dead Nazi!"

coyotte

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