We performed 83 trades, resulting in a return higher than 23%, which is about twice the S&P500 return over the same period. The profit ratio was 2.37, which means that every dollar invested produced 2.37 more profit than losses. However, only 35% of the funds were on average invested during that period, which is still a low level and mostly reflects market uncertainty.
On the surface, these numbers look good. However, if we dig below the surface we will see that everything is not as rosy as it seems.
I've broken it down into three different periods:
A. A steady uptrend from September 2013 to the end of December 2013
B. A sharp reversal followed by a sharp bounce between January and February 2014
C. A tight trading range in March 2014
We can see below that the steady uptrend produced most of the profits for the Portfolio Management. What was striking is that during that period, the profit ratio was higher than 4. It therefore seemed clear that a good way to improve the returns was simply to invest more. This is why I decided in January to try to find more trades and stay longer, so that the percentage of invested time could improve from the 40% shown below.
Indeed, if we had made 22% in 3 months by being invested 40% of the time, we could in theory produce 55% of profits using the same method by simply putting more money to work.
Unfortunately, this did not work in January and February. We can see below that the profit ratio was lower than 1, which means that the method lost money. Even though the portfolio only lost 0.7% during that period, this was a wake-up call. I accumulated small losses on long trades during the January pull-back, and I was late to catch the reversal in February. Really, this was poor trading!
When something does not work well, I usually trade less or I trade smaller positions. We can see below that the investment ratio fell to 23%, but I kept the positions during the same period of time as during the September/December period: almost 5 days (4.8 days vs. 4.9 days.)
At the end of February, I decided to enter more trades, but to book profit/losses faster. I felt this was a better way to deal with market uncertainty.
The table below shows the stats related to the March trades only. We can see that the average trade duration fell to 2.2 days, while the winning/losing trades ratio reverted back up to 60%. Because of the shortened holding period, in March, the profit ratio was 1.74, which is still below my minimum target of 2. My intention is to try to hold trades for a longer period of time, but as of now, I do not have enough confidence regarding the general market direction. Hence, I will continue to act fast.