Algorithm And Portfolio Stats: 05/06/2024 - 05/10/2024
Our algorithm is on another bad week. If you took every position, allocating 15.79% per position (since the system trades an average of 6.33 tickers per day), you’d be down 1.01%. We’ll see in a bit that most of the losing trades have been easy to mitigate by human traders, but regardless, this performance is disappointing.
I mentioned last week that we had 5 other systems in a closed beta. Of these 5, 3 are fundamentally similar to the public algorithm - all 4 are based on a TK-cross trend-following strategy. The other 2 are based on a different trading strategy, focusing on mean reversion. We aren’t ready to report hard numbers on these - most of them only have a week of data - but so far we have an interesting finding. Of our 3 experimental systems using TK-crosses, all 3 are negative. On the contrary, both of our non-TK algorithms are positive.
Additionally, I’ve had a meeting with one of our team members who specialized in TK-cross trading: Fred, you’ve probably met him in our daily trading call. We went through the algorithm’s biggest losing trades by hand, and he agreed that, while the re-entries were often avoidable, the initial entries all looked appealing from their entry conditions.
Based on these inputs, I suspect that conditions have been poor for our style of TK-cross trading overall. This implies that, in the long run, our system still has the opportunity to live up to its backtest results, and that this recent poor performance isn’t indicative of its expected long term performance.
Regardless, we stand by our decision to prepare back-up systems in our closed betas. If this continues, we’ll move this system to a closed beta of its own and replace it with one of our experimental systems. This may be a permanent change, or we could revert it if this does turn out to be temporary.
Now then, let’s examine some of our winning and losing trades this week.
Our best trade of the week was a long on CVX from Thursday, consisting of 2 entries and winning us 0.65%. I analyzed this one in our Thursday review, but if you missed that one, you can still recognize immediately that this trade was a beauty. Our entry conditions were terrific, and the movement after our entry is, for the most part, a smooth climb until EOD. There’s only one speed bump - around where we got stopped out. It’s significant that I agree with the stop signal; I don’t think our system was necessarily being overly cautious there. But at the same time, it’s small enough and the bounce back is strong enough that I agree with our re-entry as well. You theoretically could have made a larger return here by ignoring the stop loss, but you would have needed to know that; I don’t think an average trader would have been able to make that call. Overall, this trade was the ideal of what we’re looking for.
Our worst trade of the week was this short on MDLZ, losing 0.34% across 6 entries. Right away, I’m going to say that no one actually lost that full 6%. I went more in-depth on this during our Thursday analysis, but to summarize: aside from our first entry, all of these were highly unappealing for their own reasons. Entries #2 and #6 have nearly flat MACD’s, both having just been positive for several candles. Entries 3-5 are moments of rapid entry and exit, further signalling fake-outs. It’s unfortunate that these were signaled at all, but if you were following our system that day and looking at these trades, you almost definitely found them unappealing.
Lastly, I’d like to highlight this long on XYL from Monday. I think this works as a good companion to our analysis on CVX, since it’s almost as textbook. We made 0.29% here, and barring 1 bad stop-out and re-entry, I think our system played this fairly well. The only other exception is that, had we held until EOD, we could have made some more return. But similar to our trade on CVX, that stop-out is the result of a large enough speed bump that I agree with it. If I traded this one live, I definitely would have taken that exit.
Now then, let’s examine our portfolio.
We exceeded SPY’s performance this week, bringing in 1.54% versus SPY’s 1.38%. This was largely due to our major tech holdings, since big tech had a great week. I mentioned last week that this was the most aggressive our portfolio had been, with the biggest tech allocation so far. On this occasion, we bet correctly!
We’re keeping things mostly consistent going forward, with the slightest pullback. Our tech allocation is 38.1%, compared to 39.6% last week. Our general allocation strategy is remaining consistent: high market beta, high exposures to tech, healthcare, industrials, and consumer discretionary, and low exposure to everything else. We’re the slightest bit less aggressive going into this week, but we’ve firmly got our foot on the gas here.
As always, our holdings for this week are listed below. All tickers with allocations below 0.5% are excluded, for brevity.
That’s all I have for you tonight. Thank you for reading, and happy trading!
