Message From TraderJanie
Last week we embarked upon a conversation that centered around the question, “Why don’t your results match the performance numbers posted on the website?” The discussion encompassed Closed vs. Open Trades and Mark to Market as well as Trade Throughs. Today we are going to exam how commissions and trading multiple portfolios in the same account can affect your results.
Then I would like to review the resources QiT has designed to help reconcile your results to the posted performance numbers.
We’ll finish off the newsletter with an introduction of the new S&P 500 portfolio QiT has just added to its ever expanding list of trading options, a Long Only S&P 500 Portfolio, for retirement type accounts and take a visit to the Land of OZ.
Let’s get started …
How About Commissions
Commissions can vary from broker to broker. Click here for a discussion on commissions and QIT.
Quantitrader has elected not to include commissions in its metrics and performance tables since they vary so much from one broker to another and from one trader to another. With most brokers, commission costs shouldn’t affect your overall performance too much, however, if you find that they are, you may want to take a closer look at your broker.
Trading Multiple Portfolios in the Same Account
If you are like many QIT members, you probably trade multiple portfolios in the same account. You may trade two different retirement portfolios in your IRA. Or different margin portfolios. Or some other combination.
To compare returns, can you take the posted returns and average them for the month?
A lot depends on how you allocate your funds between the portfolios each day. If you keep them complete separate and all the trades on separate spreadsheets, then your results will be similar.
However, if you take your overall account balance each day and calculate shares for each strategy off this total value, you will get different result
The reason for this difference is because you are rebalancing your portfolios on a daily basis. By using your total account value, you add more funds to the portfolio that is underperforming and reduce them from the better performing portfolio.
We hope this gives you a better understanding on why there may be differences between the posted returns and your account statement.
QiT Resources to help you Reconcile your Statements
Since I like to keep these newsletters relatively short I decided to just link the article on the site that explains the tables. Please click here for a more in-depth examination of the resources QiT has to help you reconcile your trading accounts.
Here at Quantitrader we believe – no we know- we have some of the best algorithms available. We also believe in transparency. We want you to understand and feel comfortable with each of the portfolios. We want you to know what goes into the evaluators we use and why we use them. We don’t believe that trading success is reserved for a select few. We want to empower you so you can reach your goals. If you ever have questions, don’t hesitate to drop us a line at firstname.lastname@example.org. We always love to hear from our members.
S&P 500 Portfolio for Retirement and the Land of OZ
In the February 14th newsletter, where I introduced the S&P 500 portfolio for margin accounts, I stated, “When trading small cap stocks, you have to have an environment that is conducive to going long only and when you don’t you go to cash. There is just no other way around it.” It’s simple, it elegant, and it works – QiT’s mission. I also stated that if you want the best risk to reward ratio, you need to trade a small cap index and do your best to deal with all its idiosyncrasies.
But what if there was another way? What if you could trade an index of large caps, accept a lower Compounded Annual Return, (yet still maintain a pretty darn good CAR) and finish off with an excellent looking equity chart?
From the first step down this yellow brick road, we call algo trading, I started a search for a strategy that traded large caps for a retirement type account, thinking it would be the cornerstone to QiT’s portfolios. Unfortunately, it proved to be as elusive as Dorothy’s search for the Wizard of OZ.
I began my quest with an attempt to re-create an S&P 500 portfolio strategy Larry Connors’ profiled in the Machine believing, building strategies was a “walk in the park.” It didn’t take me long to realize, when I dug deeper into the code, this strategy was copiously more complex than I initially thought. It did not fit QiT’s basic philosophy, “simple is better than complicated” and I had to start from scratch.
My next attempt was just slugging through ideas where the labor turned into hours resulting in 100s of tests – I’m not exaggerating here; I ran 100s of backtests. I tried every possible combination of indicators and filters that was reasonable.
As well, I tried picking the brains of anyone within earshot for ideas. Here’s an example of one of those conversations:
Me talking to my daughter: Heh hon, what do you think of using a Bollinger Band as a filter to a large cap strategy?
My Daughter: What’s a Bollinger Band?
I even tried clicking the heels of my sexy red shoes together (Ok I don’t own sexy red shoes).
I got close a couple of times only to realize I had made a tactical error and the Wicked Witch of the East forced me back to square one. I felt like I was never going to find the Land of OZ and bring it altogether. I would get discouraged, stow it all away, then, every once in a while, dust it off and try again.
There had to be a combination of parameters and filters that would give me, not only a decent CAR and MDD, but a good looking equity curve for large caps.
On my last attempt at reaching the Wizard, I hit the jackpot.
Now I get to share my jackpot with you.
Here is that good looking equity chart.
I don’t think there is much more to say than, enjoy.
“Everything seems backwards,” Adam Parker, the firm’s (Morgan Stanley) chief U.S. equity strategist, said in a note to clients. “Sell winners, buy losers, own staples in both up and down markets. Just do the opposite of what makes sense.”
All markets point to “growth problem”
Plan your Trade and Trade your Plan