Saturday, January 2, 2021

Retrospection of Trading in 2020

 This is what I aimed at start of 2020.

Now what is Plan for 2020.

  1. Increasing Base Capital to 20L and complete focus on following process. Targeting 5% avg ROI for first 3 months. This will be taken care by my Wife.
  2. I do spend 2 hours per day on Back testing setups and designing a mechanical system with target of Average 1200 point per year with Max Historical DD of 15% . 
Will have to see how things shape out in 2020. Either we cross Scaling Hurdle by scoring 5% ROI on average with 20L capital or we shift to mechanical system (provided getting the system designed and having it automated fully if possible).



By February end, I have completed System and started running Algo. more here 

System performed beyond my expectation, due to strong down trends during months of March, April, May.

June month ended a big negative, in absolute money terms it was sharp down move.

From July, few people joined me. July month was littlie positive.

But August, September months ended big negative.

By end of September, I have implemented Early exit n Reentry for BO trades & BOF trade order's before swing pivots to form. (to exit failed BO's quickly and to enter sharp BOF reversal trades which happen with out forming swing pivot)

Along with these, capital got reduced 2 times and risk per trade as well reduced to 0.50% after 15% DD from base capital of 5L for Algo accounts. Hence recovery has been very slow. 

Nov and Dec months ended positive.

Algo accounts ended in DD by end of 2020. 

I am closing 2020 with 45 % ROI.





Now, listing good and bad of 2020.

Good

1. Fully Functional Algo.

2. Finally crossed Psychological barrier of trading comfortably with increased capital.

3. Closing year with decent ROI


Bad


1. 2020 ROI is least from 2015 (considering back test results from 2015-17 & real time of 2018-19)

2. Almost reached Max DD of back test. (After 20% DD, I have reduced risk per trade to avoid 30% DD, which is my  Risk of Ruin)

3. Expectancy has been least after 2017 back test result.

4. Time DD been highest, exceeding back test time DD period (in days)




Why 2020 ended as disappointing year despite big run in first 5 month ?

Short answer for this is, 2020 has been never before volatile year. As i follow dynamic position sizing, strong down trending days during covid fall helped to score good monthly ROI despite position size reduced drastically for majority of trades. Also i scaled quickly and back to back Green months raised equity high.

From June, nifty started moving upside (on higher time frame), though uptrend from there is strong on HTF, in intra day it was not good. Majority of moves happened through gap, huge first bar's, no much follow-up later, deep retracements to first hour rise, in Aug, sep months,, this trend caused nearly 8 ISL's in a row and almost 15 losing trades in a row. These series of losses alone caused sharp 16% DD in matter of 2 weeks.

I have analyzed what's going wrong, only fix i could identify is.. i am initiating BO of PDH long in first bar... but taking ISL even if NF moved 5-10 points after my entry and hitting 40-50 point ISL later. Similarly there were few BOF trades missed as they happened with out forming any swing pivot to enter. 

I have implemented both of these setup's after having backtested. What i found is, even after adding these changes,, almost it is similar to old system. but i still chose to follow later approach as i could lower down maximum DD to 22% (in 2015 again). 


From Oct month, recovery started.. but its been slow with reduced capital and reduced risk per trade while DD is above 15%. 

Basically my system consider uptrend above PDH, down below PDL, range trade with in PDR.

but majority days after June month, didn't respected range extremes very often. many trades i see moved 40-50 points in favor and retraced almost 80% hitting TSL and closing at day's high. 

Almost Pyramiding didn't exist after June. we used to have series of range formation on up trend days earlier. Such moves were not there during upmove in second half of 2020.

My edge of Pyramiding not played out because of these reasons & along with it dynamic position sizing based on ISL caused less trade quantity. Adding to these, less RR on winning trades also didn't help much during August and sep months.


What is my expectation for 2021 ?

Frankly no expectation, as i don't know what kind of year it will be.

If we have good years where up/down trend days move in series of ranges... 2021 can be good as 2015 and 2016.

If trend days happen often 4-5 days in a month and if i able to catch 1-2 per month, i can expect 2018 and 2019 kind of returns.

Or if we going to see 2017 kind of year, with less intraday range majority of days, no much follow up from PDH/PDL levels.. i can expect another 2017.

If 2020 kind of volatility going to continue, depend on how many trend days allow Pyramiding trades to play out, i can expect 2020 returns or little better.

What ever kind of year, i will let Algo to take care of execution and pre defined risk management measures.


With current system, can i expect to generate wealth in long run ?

No.

Forget about 2019 and 2020, if i watch back test results from 2015, month on month results are depending on kind of moves happening. Trend days with series of ranges, Trend days retracing 70-80% of what ever move happened by then and continuing after TSL, Trend days where it shaken out morning moves by hitting DL and again closing at high's, range days also few months it respects range extremes well and there will be days where channeled moves happen.

So, i am going with no expectation as such. will accept what ever market gives!

with all these limitations in trading single instrument, with win rate less than 45 and RR less than 1:2.5... (its average again, there will be phases win rate go down 30 for few months), its not practical for me to maintain consistency year by year.

Also i have seen worst phase already in 2nd half of 2020 & 2017 is another tough phase.

What if 2020 or 2017 repeat for next 2-3 years ??? 

My avg net year ROI will come down, there by wealth generation will be out of question right.

Also i have to see if i can trade bigger quantity going forward, with many trades in volatile period.

Practically speaking, i have my own doubts if i can scale more than 1 crore with current system
given high number of trades, my SL-M entry exits, etc..



Can i do any better or find a better system than current one ?

I have tried to make out one to trade only PDH/PDL BO's or PDH/PDL BO's & BOF's only... that's not good even.
Only after combining range trades also, current system i am following.

But, i will explore further if i can come up with new system with less number of trades per month, but scoring equal or better than current one. I need to find out what filters to use.


I will think about dividing trades into BNF as well, if i can cut down number of trades less as mentioned above. 
once system qualified initial screen test (positive expectancy) will do rest of checks.


Another way i thought is, starting day with straddles and managing as day progress in any trend.
My initial analysis discouraged after considering huge margin amount needed post sep 2021.

I will think of this how it works with OTM buy (reducing margin),, need to explore in deep.



Summarizing in short ....


Will continue ALGO to do its job of execution,  while i explore further to filter trend days, avoiding range days altogether... trade frequency may become lower.. will see if i can combine BNF along with NF.

Plan B -- Starting day with straddles based on opening, managing it as trend maturing in any direction.

Plan C -- Exploring stocks universe.


Lets see how 2021 going to be ✌