Objectives - August 2010 - Review

In this post I will review my performance from the past month, determining what was accomplished, what was not accomplished and why. Below is a summary of the objectives I set for myself during the month of August:

• Document daily study activities on blog (pages read, blogs read, trades, tasks, etc.)
• Post 1 Lessons Learned per week
• Continue backtesting and researching trading strategy
• Read 40 pages per week - One Good Trade - Mike Bellafiore
• Simulate trading strategy and record daily trade results in journal
• Update market breadth indicators spreadsheet daily
• Monitor intraday performance of SPY and IWM daily
• Archive blog posts daily
• Work on on monitoring sector performance
• Complete Chicago Rock N' Roll Half-Marathon
• Compete in first Savate match for benefit fundraiser
• Add interviewer/interviewee questions to sidebar
• Complete 20 questions - Heard on the Street
• Post 1 trading strategy development post this month

The items in green are the objectives that I completed during the month. The items in yellow are objectives that were partially completed during the month. The items in red are objectives that were not completed during the month. Below is the list of items that I accomplished in August:

• Read 1220 trading blog posts
• Archived 216 blog posts in email
• Posted 4 Lessons Learned
• Completed 7 backtest research studies
• Developed Market Report to track sector behavior
• Read 239 pages – One Good Trade – Bellafiore (completed book)
• 59.0 hours of backtesting with StockFinder 5.0
• Updated market breadth indicators spreadsheet on 22 days
• Monitored intraday SPY and IWM activity for 21 days
• Recorded simulated trades in journal on 22 days
• Paper trading 9 short-term strategies
• Evaluating multiple position sizing and portfolio allocation algorithms
• Updated LinkedIn account information
• Morning cardio on 19 days
• Ran 25.0 miles
• 18.0 hours of martial arts

Here is a quick reminder of my short-term trading goals:

• Backtesting and researching my first trading strategy in order to go live
• Expanding my domain knowledge of trading through blogs and reading
• Preparing for the demanding interview process associated with trading careers

These three objectives have helped me streamline my efforts to improve my focus and time management.  One of the difficulties in learning to trade privately (instead of at a firm/institution) is developing a structure to improve.  I recently wrote about this in one of my lessons learned and in my post on a framework for improvement.  When you are beginning as a trader, you have no structure or systems for improving.  I can spend my time backtesting, but if I dont have a system for documenting and tracking the results, the work will be wasted and offer to future development.  Most likely you end of repeating activities or bouncing from one topic to another with no real organization or progress.  From what I have read, it seems that most new novice traders get stuck in this rut, which leads to their failure.  I feel I have made huge advancements in creating a structure that is allowing me to develop my trading skill, although the development is a slow process.  It is difficult to create proper structure, but it is critical for success.  I will continue to create and adapt methods to improve my process development.

I read through 1220 trading blog posts last month and I archived 216 blog posts in my email account this month. Due to the lack of good posts to archive, I went through 4 years of posts from StockBee to find good information on short/intermediate term strategies for trading earnings and news. There was a wealth of information on momentum trading, post earnings announcement drift anomalies, sector strength, and market breadth.  This helped add a significant amount of posts to my archive.  I have collected over 950 blog posts. This is a great way to search any type of information such as systems, indicators, strategies, etc. If I ever need any new ideas I can quickly do a search in the archive for stops, mean reversion, exits, volatility, psychology, etc.

I continued to do an excellent job recording the performance of my trading strategies on a daily basis. Currently, I am tracking the performance of 9 different strategies. They are all short-term, swing trading strategies focusing on the mean reversion of stocks. In addition to the 9 strategies, I am also evaluating position sizing algorithms and experimenting with the number of positions to hold at once (ex. 1, 5, 10, 20, 40 stocks) to try and reduce the equity curve drawdowns and portfolio heat/risk. Paper trading can be useful, but you have to understand the best ways to use it to develop trading tools. Paper trading has helped me acclimate to the risk characteristics of each trading strategy. It has also helped temper my enthusiasm for the results of each trading day, whether good or bad. Paper trading has become part of my daily routine and the emotional aspects have dimmed, so the process-oriented discipline has allowed me to focus on developing my strategy.

Each trading strategy I have been working on seems to require at least 15 positions each day to reduce the risk to the portfolio to reasonable levels.  I am still developing my mean reversion strategy, but these strategies will require more equity than I currently have in my account.  Additionally, it may be difficult to trade this strategy while working full time because it does require market analysis and order entry during the last hour of the market day.  I realize the need to develop another strategy to compliment my mean reversion strategy so that I can build my account to a more reasonable size.  I believe that a short/intermediate term momentum strategy would be a better fit for my current situation.  A strategy like this would allow me to perform my market analysis and place my orders each evening, while the trade duration would last from 1 day to 2 months and requires less monitoring.  I want to focus on earnings/news breakouts that could generate momentum.  I would also think that this would help with my mean reversion strategy because depending on the reason for the short term momentum, it could allow me to avoid shorting or buying the wrong stock based on news breakouts.

I read 239 pages of "On Good Trade" to learn about the recruitment process, work ethic, and demands of working for a proprietary trading firm.  I completed the book and it was and incredible read. Not only does the book explain what it takes to get hired at a prop firm, it is also very enlightening by describing what it truly takes to be a consistently profitable trader.  I completed the book and look forward to reading it again to help prepare for interviews.

I spent 59.0 hours backtesting and 7 research studies during August.  I have come to realize that it is more important for me to identify a trading edge than it is to read because I need to develop my trading strategy with virtual trading and journaling.  I have created a list of backtesting topics to investigate various aspects of the trading strategy such as entries, exits, position sizing, market timing, long/short allocation, etc. I will continue making backtesting a top priority next month.

I failed to create a single post on trading strategy development. Currently, I have a list of about 15 topics on strategy development I would like to discuss on the blog. I need to begin making short general posts on the many aspects of trading strategy development. These posts wont give the exact details of the trading strategy, but will address major issues and ideas that I have come across along the way. Each post will include an example with some simple results to prove my point.

I also wanted to complete 20 questions from "Heard on the Street: Quantitative Questions from Wall Street Job Interviews" to help me prepare for upcoming interviews.  The month was very busy, but I still need to find a better way to incorporate these questions into my daily activity. The questions themselves range in difficulty, but I feel the are excellent preparation for future interviews. I think a more reasonable goal is to answer 10 questions a month.

I wanted to make some additions to the blog this month, but I wasn't able to accomplish this task.  First, I wanted to begin documenting questions on this blog I would ask the interviewer and questions I would expect the interviewer to ask me. I did begin documenting questions, but I have not posted them on the blog yet.  I will add two links to the sidebar for each question category during this month.

For the second addition to the blog, I wanted to begin tracking sector strength.  I performed some research and developed the Market Report, which tracks sector trends and market behavior. This will be a daily addition to the blog and it should help me identify which sectors are performing best, which trends have emerging strength, and which sectors are weakening. This should help with my current trading strategies because it is often a poor decision to short a stock in a strong sector or buy a stock in a weak sector.

This was a big month for my extracurricular activities.  I completed the Chicago Half-Marathon in 1:56:32 and placed 3190 out of 18555 finishers.  It was a fantastic race.  I developed a race strategy and stuck to my gameplan.  I ended up slow pacing the first half of the race, then I began picking up the pace the second half.  I literally passed 1000's of runners the second half of the race, which gave me a psychological advantage to negative split and beat my goal time of 2 hours.

I also completed in my first Savate competition.  It was an incredible experience which is documented in the following article:

http://www.examiner.com/martial-arts-in-chicago/what-to-expect-for-your-first-fight

Here are the YouTube links to my fight:

Round 1:  http://www.youtube.com/watch?v=8APoH95RUhY
Round 2:  http://www.youtube.com/watch?v=bgI54aJAZSQ&feature=related
Round 3:  http://www.youtube.com/watch?v=Df_i739I8DE&feature=related
Results:  http://www.youtube.com/watch?v=sFAnoRiVDn8&feature=related

The fight was challenging, but very rewarding.  I did lose the fight in a split decision, but I am looking forward to training for the next one.  The competition showed me what it takes to compete, and I have a list of things to work on and improve in the future.

For the month, I ran 25.0 miles, 18.0 hour of martial arts, and had 19 days of morning cardio.  The morning cardio is part of my daily routine and it starts my day off on the right note.  I notice a difference in my energy levels and performance when I am unable to workout in the mornings.  It was a productive month, but there is still a lot of work to be done.