LONG VZ @ 40.59 - oversold

11月7日

I'll let my track record on my trades since July I've posted as ideas here replace any fancy charts. 89% win rate since July - and that's slightly under performing compared to normal. Trust me, it's short term oversold based on my algo.

I'll add any time it's oversold and there's two ways to play the exit, but in the interests of consistency, I'll keep using my original method - sell any lot when it becomes both overbought AND profitable. Plus I have to update less often that way.

Sell any lot on the first profitable close for that lot, regardless of whether it's overbought, is something that I've been tinkering with. That exit strategy produces lower overall profits per lot, but less capital outlay during downtrends (often 50-60% less) and quicker recycling of capital. It also is often proving to produce a greater gain per lot per day held annualized return than my original exit strategy - I've been using it privately for a while now to test it out.

The original strategy produces greater average gains per lot traded but at the expense of greater total capital outlay and more exposure during downtrends and longer average holding periods. They are similar enough in terms of returns per lot per day held that it's a preference thing, but anything that reduces unnecessary exposure risk is something I gravitate to.

It may not be sexy in raging bullish upswings, but it is tremendously beneficial when sentiment is negative, either in the individual stock I'm trading or in the markets in general. Anyone who follows me knows I like to minimize risk and maximize gain per lot per day held any time I can.

Not for nothing, VZ also pays a fat dividend, which boosts returns if you're stuck holding a while. It's not a major factor, since of the 150 or so trades I've posted here since July, the average holding period has been just over 16 trading days with a median length of 10 and the most common holding period has been 6 trading days. But a few have been long enough to benefit from dividend payments, so I always like to have that cushion just in case.

So the usual disclaimer, this is not investment advice, just a log of my trades and thought processes. DYOR and enjoy the show.

11月8日

注释

OK so I did a quick 12 month backtest on VZ to illustrate the difference between the 2 exit strategies. They both use the same entry signals, so it's just exit timing and price that are different. I'll post the original method (sell each lot when it is both overbought AND profitable) first with its relevant statistics, and the new one (sell each lot as soon as it becomes profitable) second. I'll discuss pertinent differences afterward.

ORIGINAL METHOD

29 trades
24 wins 5* losses (all losses are still open trades and include the trade taken at the close today)

Avg gain per lot traded: +1.48%
Avg holding period per lot: 13.5 trading days
Avg gain per lot per day held: +.11%
Annualized return per lot (.11% x 252 trading days): +27.7%

Median gain per lot traded: +2.14%
Median holding period per lot: 9.5 days
Median gain per lot per day held: +.225%
Annualized return per lot (.225% x 252 trading days): +56.7%

Max number of lots held = 5 Average # of lots held = 2.66
Most common hold length = 7 trading days (4 of 29 trades)
__________________________________________________________________________________

FIRST PROFIT SELL METHOD

29 trades
27 wins 2* losses (all losses still open trades and include the trade taken at the close today)

Avg gain per lot traded: +0.62%
Avg holding period per lot: 6.5 trading days
Avg gain per lot per day held: +.095%
Annualized return per lot (.095% x 252 trading days): +24.3%

Median gain per lot traded: +.76%
Median holding period per lot: 1 day
Median gain per lot per day held: +.76%
Annualized return per lot (.76% x 252 trading days): +191.5%

Max number of lots held = 5 Average # of lots held = 2.17
Most common trade length = 1 day (15 of 29 trades)
______________________________________________________________________________________

ANALYSIS:

First of all, these are small sample sizes so the variance in results can magnify some differences and minimize others. Using a larger sample size - a backtest of my system on AA going back to the late 1960s and covering almost 2000 trades, as well as a bunch of other backtests, this general pattern emerges:

-original method gains are larger on average
-return per day is similar, but marginally favors the original method (not always true in larger samples)
-holding period is significantly shorter with the first profit sell method
-average and max capital outlay are both larger with the original (not well illustrated with VZ)

I want to mention a few stats from the 2000 trade Alcoa backtest because they illustrate the last 2 ideas better. In the AA backtest, the average holding period was over twice as long with the original vs. first profit methods. With the first profit method, 45% of the 2000 trades would have closed profitably in 1 trading day. My system benefits from recycling capital back into new trades as fast as possible. Being able to re-use capital twice as fast (all other variables being equal) means an annualized return that's twice as good. That's a BIG deal.

Secondly, the peak capital outlay in the AA test was 60% larger for the original exit strategy than for the first profit strategy and the average capital commitment was almost double (12.7 lots) for the original vs. the first profit (6.8 lots). What that means is that with the 2 exit strategies producing similar profit per lot per day, the original strategy required 60% more capital committed for twice as long to get those similar results. That capital sitting around waiting to become profitable in the original strategy could have been being used to generate profits in other trades at higher rates if it had been freed up sooner using the first profit method. It also makes drawdowns larger when twice as much capital is committed.

You can see some of the same trends, just not quite as clearly, in the shorter VZ backtest. I wouldn't read too much into the dramatically higher median annualized return for the first profit method, though. It's too small a sample size for the median to be indicative of a typical trade in either method. I also wouldn't distinguish between the win rates of the two methods. Over the course of the AA backtest for example, both methods produced win rates over 99% (99.8% vs. 99.6%), making the 0.2% difference negligible over the long term.

Bottom line, I will be using the first profit method much more going forward, particularly in macro environments that are bearish, because that's where the difference really shows up dramatically. In down trending markets, it SIGNIFICANTLY outperforms the original method.

11月8日

交易开始

Added another lot at 40.505 at the close.

Currently held lots:

40.59
40.505

11月11日

注释

Added another lot at 40.4364 - still oversold.

Currently held lots:

40.59
40.505
40.4364

11月12日

注释

Added another lot at the close for 40.40. Still oversold.

Currently held lots in price order:

40.59
40.505
40.4364
40.40

11月13日

注释

OK full disclosure, in my real account I sold all 4 lots for around a 1.6% average profit at the close today. I am using all FPC exits there right now. But I said in my original idea that I'd play it out here using ORIG exit strategy so I'll keep updating this as if I were still holding it. Given that the FPC close would have already produced a gain greater than the average gain for ORIG, though, in real life there was just no justification for holding it longer. But we'll see how it would have turned out with using ORIG just for comparison purposes, I guess.

5天前

交易结束：到达目标

OK so if I had traded this using the ORIG exit, I'd have closed the entire position today.

Lot 1 = +4.2% in 7 trading days
Lot 2 = +4.4% in 6 trading days
Lot 3 = +4.6% in 5 trading days
Lot 4 = +4.7% in 4 trading days

Better in terms of absolute return than FPC, but it usually is. These returns were over 2x better than a typical ORIG exit trade. Also, the funds from the FPC went into other trades while this one was finishing, so comparing the two straight up isn't really accurate. Bottom line, they both made money and made money quickly and those are the kinds of trades I like. I'll post a summary of the ORIG stats below for my records, since in my initial post I said I'd use that for this trade. By the way, FPC is now 29-0 on VZ while an earlier lot besides these 4 closed today so ORIG is now 26-3* over the last 12 months on VZ.

5天前

注释

Trade summary for my records:

(ORIG exit strategy)
Wins - 4
Losses - 0

Average gain per lot = +4.5%
Average holding period per lot = 5.5 trading days
Average gain per lot per day held = .819%
Annualized per lot per day held return = .819% x 252 trading days = +206%