Techtrader---a long term trading methodology--Q&A

[tech/a]

Mark one of the posters here asked for a thread on this topic to be started.
Some others have also expressed interest in longer term trading so thought there could be some discusion on the topic.

Techtrader is a good stating point as it is a working model with a history currently 2.75 yrs.Having a good look and discussion about this method will I hope help those who ask--Why trade long term--How do I define a methodology---what will be the consequences if I add this or take out that.

It was designed by traders who are not directly employed in the industry but who had the "Theory" and the software to test the theory.After 6 mths T/T was traded as a portfiolio longer term method and has equalled or exceeded test results in realtime trading examples both on Reefcap,My own trading and that of others that I know Trade the method.I mention this only as its pleasing to know that the test results are being mirrored in realtime trading.

Why longerterm?
The adage "Letting your profits run" certaintly had me thinking as I was ducking in and out of short term trades-------------How on earth could I have a running profit if I was in and out of trades everytime the price corrected.Even when firmly trading longterm the fear of giving back profits was initially difficult to deal with.

Why a Mechanical Method.
It took years to understand that profit comes to those who have their NUMBERS right.Mechanically I had the best chance to know that I had positive numbers.I now know that if I stick strictly to the method designed in the end I will profit.
The hard part is knowing that a loss or a pullback or a stop when executed or a buy that I miss due to lack of funds are all part of the method its the END result that matters not the journey.

Happy to start a portfolio here as we have on Reefcap.Purely as an exercise and those examples used are in no way presented as recomendations to trade but for general discussion.Someone will have to record the performance of the portfolio as I dont have time if you wish to do this.

I would suggest a seperate thread so as not to clutter with discussion.

The method is designed to trade the BT Margin list as its traded with the leverage of Margin.BT have spent a great deal of time fundamentally analysing the stocks in the list and to me this is the Fundamental part of the equation for the method.All formulas are Metastock and Tradesim.I can post them for those who have the software.I am aware of people with Amibroker also trading the method and as such have Amibroker formulas as well if anyone wants them.

 

[RichKid]

Why a Mechanical Method.
It took years to understand that profit comes to those who have their NUMBERS right.Mechanically I had the best chance to know that I had positive numbers.I now know that if I stick strictly to the method designed in the end I will profit.

Tech, great idea to have this thread. If you don't mind me taking you back to when you first realised the matter of numbers and expectancy could you relate when and how you came across it? Did you learn it through a course or from a book or existing method? This relates more to your pre-Techtrader period when you started working out the importance of numbers and RRR etc. Just thought it might be interesting to see how you hit on it (I'm guessing it was after losing some money as that's when I really started to note down the details of trades and realised the real importance of money management via research and Van Tharp etc).

 

[tech/a]

Rich.

I had read Van Tharp and it meant very little to me.It was very early in my trading.I was still certain that I could work purely with analysis.Id know when to buy and then Id just sell on a regular basis and make a profit---easy thats how everyone did/does it right?

While on Reefcap Nick Radge mentioned numbers in passing--he had an agenda not to mention it in detail as he ran and still does run excellent courses.(I did one of his mentor courses but he never mentioned it there either!).

Anyway he was coming to Adelaide once to speak at an ATAA meeting and during the presentation he set about proving that it didnt matter how you trade or what you used to trade with your profit wasnt going to come from those scources.He also said very few would understand where he was comig from.

Now for many years I was one of those but this night for some reason it sank in! As I looked around the room and listened to the guests there I couldnt believe how the vast majority continued to argue that the analysis would/should/could be the ONLY answer to trading a profit.

It became crystal clear that this was THE reason youll be profitable in anything------and if youve ever gone to get a loan then youll know that banks think the same way---you wont get it if your numbers are crap.
A stock wont be supported unless its numbers are great.A business wont succeed or a property wont increase in value unless the numbers are right.

This has certaintly been my blinding flash of the obvious and its altered my veiws on most that I have learnt in the 12 yrs Ive been involved in trading.
So its thanks to Nick Radge.Van Tharp is now much easier to read and is no longer double dutch-(VanTharp dutch? sorry my humor).

 

[doctorj]

Do you have logs of the discussions over the six month period that will provide insight into the evolution of techtrader? I don't trade the system but I feel there may be more to learn in things you tried that didn't work than what you found to work.

 

[tech/a]

Yes.
I took the first 12 mths archives and put it on disk.
Email me your address (Snail mail) and Ill send one off if you want one.

There are certaintly things we learnt of what to expect when trading a long term method that i feel need to be known by those who want to trade this way.
The reward comes after years of trading and the gratification is certaintly in the long term not instant!.
In the early days T/T recieved all sorts of critisism along the lines of Snail Trading.
They disappeared after the first year.
Critisism now is "Yeh just watch it flop in a bear market".Well it could well do that------ seeing its designed as a long method which takes advantage of bull runs in stocks.Just watch every other bullish trading method fail as well including discretionary with a bent toward bull moves.

There is a lot to learn for any trader from the structuring of a method with positive expectancy---from here you can walk away and trade whatever you like in whatever way you want and have a very good idea of expectancy.

 

[tech/a]

Dont know if there is any interest in following this method.Here is a trade triggered today and one which I will buy more in tommorow as part of my portfolio.
If so there are things that need to be looked for in this and any longer term method such as initial expected capital drawdown as a portfolio is constructed.
There are various ways to construct the initial portfolio.
If not enough interest here then those interested can follow the Reefcap threads.

 

[dutchie]

Tech/a

I am interested in building a portfolio so keep up the posts!

I assume that you will be trading this method in a bear market to still look for uptrends (less prevalent). Would it also be possible to turn the system around so that it looked for downtrends (more prevalent).

What is the significance, if any, in the gap shown on your chart?

 

[tech/a]

dutchie.

A lot to go through and will get through it as time goes by.Re Bearmarket provided the extreme parameters of the methods testing are not breached (As time goes by Ill tell you what they are.)then I will be trading it and another like it.The test cases will also be run on Reefcap if not here as well.So all will be able to see how the method performs in all markets over time.

The gap has no significance other than it made todays bar a buy bar according to the characteristics the method looks for in an entry.

Short plays.I havent even looked at developing a method around that at this point.I have been working with a few on portfolio and universe composite charting and then relating it to performance of my portfolio.
Results so far are very good giving double return and early timing for bearish times at which point you would not be trading.A lot more to go here yet as its on going research.

Still plenty here for those interested.

Ill leave posing this question with a few answers.
The initial portfolio can be constructed from.
(1) New stocks which conform to the entry criteria as they come up.
(2) Stocks already in the test portfolio in Reefcap.(Quick selection)
(3) A combination of the best performers in the portfolio already trading and new selections as they come up and are required.

Which do you think best to begin with given PMM is the first of 10.?

 

[Porper]

Hello guys,

Maybe not the right place to post this but anyway here goes.

I have just been to a seminar run by "global Trader" one of the ownwers / founders is a guy called Allan Foulkes, the other guy is Steve somebody, can't remember his name, he was a Swiss banker.

They were trying to get you to buy a "program", tech trades, not something I know anything about really, pretty expensive at $5000.00 a year.

Any views greatly appreciated.

 

[doctorj]

Tech, I exited my position in that stock you've charted up there today. Nice little profit for me after buying yesterday - would have loved to keep it, but unfortunately real life demanded some funds

Reports of brokers revising that coy with a value of 4.15 or so, could be a good trade for you there!

As for paying money for somebody else's system, I'd be weary particularly if you are new to trading. You will find it very difficult to trade someone else's methodology if it doesn't fit into your own. If you're not comfortable with it, you're more likely to lose money. This is one of the reasons why techtrader has been so successful for Tech - it reflects his personality and he understands the way it works.

More importantly, with only a vague understanding of the system (it becomes a "black box") and you don't necessarily know why it makes the recommendations it has. This puts you in the position of possibly losing vast sums of money if market conditions change and you're unaware how this will affect your trades - as noted in this thread, something that works well in a bull market won't necessarily work in a bear market.

If your drive to get this system is as a sure way to get easy money, then I'm afraid in all likelihood the market will teach you a nasty lesson sooner or later. You're better off developing your own system and learning a bit about the market, your trading style and money/risk management in the process.

 

[dutchie]

Tech/a

I would go for option 3. Say you wanted ten shares. Pick the best 10 of what are running now.

Pick the last one selected and from the date of that last choice look at the next prospect and see if it is appropriate to replace weakest performer. Keep doing that until up to date.

 

[markrmau]

Another thing that we could do is keep track of the broker upgrades/downgrades that occur along the trend.

Thankyou to everyone for showing an interest in this as well.

 

[tech/a]

Dutchie.

No 3 is also my choice.Ill put together a trial portfolio for aussi forums this week.Making start day today as PMM will be included.There may not be the full contingent of 10 stocks yet.

Mark.
You can track whatever you like but the method has clear and defined entry exit and stop rules.The key is that we know from testing and experience that if those rules are adhered to there is a profit.So regardless of outside influences gut feelings and or news to the contrary we stick to them.
(There was one case when CTX changed directors that we held next day when the stock fell below stop---well below intraday and recovered to just below,we decided to hold for the next day b4 making a decision---at that time it was around $4 and we sold out on exit at around $8.20).

Another question and choice.
STOPS.
Tests have shown the following.
5% of purchase price stopped out of approx 40% of all trades Initial Drawdown is around 14%
10% of purchase price is around 20% stopped out and Initial Drawdown is around 12%.
20% of purchase price is around 10% stopped out and the Initial Drawdown is around 10%.
Profits for each stop are similar.
Time in losing trades increases as the stop level increases.
Consecutive losing trades increases as the stop is tightened.
As This is traded Margin the actual maximum Initial Drawdown could be around 35% of starting capital.

Suggest using $35K Initial capital with $65K on margin while not exactly to ratios this is simple for calculation purposes.
Best parcel size is around 14.25% or 7 in the portfolio.

Current Reefcap tests have adopted.
10% of Initial capital as the parcel size.
10% stop level
Similar starting capital.
Id like to do something different here.

Suggest.
20% stop level
14.25% parcel size.(7 in the portfolio)
$35K initial capital.
Pyramid trades Ie if another trade is triggered in a stock alread held and we have funds then buy it again.
Pyramid winnings.As we make profit re invest it.
Trade the BT Margin list.

I have 2 eyeball criteria which I will explain soon these are simple rules which i think have helped the method.

Here are the simulations for the above

The first Table is the method as described above.
The second is the simulation of 20000 different portfolios of the above (Montecarlo)
The first Pik is of yearly profit on CLOSED TRADES note the huge rise this year purely because each year there is much held in OPEN EQUITY.
The last Pik is of the number of occurences where X% is gained.
Note that our ORIGINAL portfolio simulation is BELOW the average for the 20000 simulations.

This is meant for EDUCATIONAL purposes only and is not offered as recomendations to buy or a method you should adopt in your trading.
If unsure seek professional advice from a licienced Financial Advisor.

Im happy to answer any questions and suggest you take sometime analysing the tables above.They are a wealth of information.I also promise not to be aggressive or condesending.My apologies to those who find me that way.I sincerely hope this can be benificial to those who follow.

Detailed Report
(TTrader 20 Aussi)

Simulation Summary
Simulation Date: 2/24/2005
Simulation Time: 7:14:12 AM
Simulation Duration: 0.40 seconds

Trade Summary
Earliest Entry Date in the Trade Database: 7/24/1995
Latest Entry Date in the Trade Database: 2/21/2005
Earliest Exit Date in the Trade Database: 1/19/1996
Latest Exit Date in the Trade Database: 2/23/2005

Start Trade Entry Date: 7/24/1995
Stop Trade Entry Date: 2/21/2005
First Entry Date: 7/24/1995
Last Entry Date: 2/2/2005
First Exit Date: 2/9/1996
Last Exit Date: 2/23/2005

Total Trading duration: 3502 days

Profit Summary
Profit Status: PROFITABLE
Starting Capital: $100,000.00
Finishing Capital: $909,339.16
Maximum Equity/(Date): $809,339.16 (2/23/2005)
Minimum Equity/(Date): ($2,301.44) (7/17/1996)
Gross Trade Profit: $997,475.43 (997.48%)
Gross Trade Loss: ($188,136.27) (-188.14%)
Total Net Profit: $809,339.16 (809.34%)
Average Profit per Trade: $5,359.86
Profit Factor: 5.3019
Profit Index: 81.14%
Total Transaction Cost: $9,060.00
Total Slippage: $0.00
Daily Compound Interest Rate: 0.0631%
Annualized Compound Interest Rate: 25.8706%

Trade Statistics
Trades Processed: 3257
Trades Taken: 151
Partial Trades Taken: 0
Trades Rejected: 1212
Winning Trades: 60 (39.74%)
Losing Trades: 91 (60.26%)
Breakeven Trades: 0 (0.00%)

Normal Exit Trades: 130 (86.09%)
Delayed Normal Exit Trades: 0 (0.00%)
Open Trades: 9 (5.96%)
Protective Stop Exit Trades: 12 (7.95%)
Time Stop Exit Trades: 0 (0.00%)
Profit Stop Exit Trades: 0 (0.00%)

Largest Winning Trade/(Date): $112,315.00 (2/23/2005)
Largest Losing Trade/(Date): ($10,716.34) (10/10/2002)
Average Winning Trade: $16,624.59
Average Losing Trade: ($2,067.43)
Average Win/Average Loss: 8.0412

Trade Duration Statistics
(All Trades)
Maximum Trade Duration: 1226 (days)
Minimum Trade Duration: 2 (days)
Average Trade Duration: 213 (days)
(Winning Trades)
Maximum Trade Duration: 1226 (days)
Minimum Trade Duration: 140 (days)
Average Trade Duration: 436 (days)
(Losing Trades)
Maximum Trade Duration: 257 (days)
Minimum Trade Duration: 2 (days)
Average Trade Duration: 66 (days)

Consecutive Trade Statistics
Maximum consecutive winning trades: 9
Maximum consecutive losing trades: 13
Average consecutive winning trades: 2.22
Average consecutive losing trades: 3.37

Trade Expectation Statistics
Normalized Expectation per dollar risked: $1.2000
Maximum Reward/Risk ratio: 23.99
Minimum Reward/Risk ratio: -1.26
Average Positive Reward/Risk ratio: 3.49
Average Negative Reward/Risk ratio: -0.37

Relative Drawdown
Maximum Dollar Drawdown/(Date): $49,101.37 (10/10/2002)
Maximum Percentage Drawdown/(Date): 10.0200% (10/10/2002)

Absolute (Peak-to-Valley) Dollar Drawdown
Maximum Dollar Drawdown: $65,439.72 (13.3500%)
Capital Peak/(Date): $490,182.31 (7/18/2002)
Capital Valley/(Date): $424,742.59 (9/1/2003)

Absolute (Peak-to-Valley) Percent Drawdown
Maximum Percentage Drawdown: 13.3500% ($65,439.72)
Capital Peak/(Date): $490,182.31 (7/18/2002)
Capital Valley/(Date): $424,742.59 (9/1/2003)


Monte Carlo Report
(TTrader 20 Aussi)

Simulation Summary
Simulation Date: 2/24/2005
Simulation Time: 7:16:17 AM
Simulation Duration: 517.49 seconds

Trade Parameters
Initial Capital: $100,000.00
Portfolio Limit: 100.00%
Maximum number of open positions: 100
Position Size Model: Fixed Percent Risk
Percentage of capital risked per trade: 2.00%
Position size limit: 14.25%
Portfolio Heat: 20.00%
Pyramid profits: Yes
Transaction cost (Trade Entry): $30.00
Transaction cost (Trade Exit): $30.00
Margin Requirement: 100.00%

Trade Preferences
Trading Instrument: Stocks
Break Even Trades: Process separately
Trade Position Type: Process long trades only
Entry Order Type: Default Order
Exit Order Type: Default Order
Minimum Trade Size: $0.00
Accept Partial Trades: No
Volume Filter: Ignore Volume Information
Pyramid Trades: Yes
Favour Trade Pyramid: Yes

Simulation Stats
Number of trade simulations: 20000
Trades processed per simulation: 3257
Maximum Number of Trades Executed: 177
Average Number of Trades Executed: 153
Minimum Number of Trades Executed: 137
Standard Deviation: 6.28

Profit Stats
Maximum Profit: $1,552,496.70 (1552.50%)
Average Profit: $1,010,084.65 (1010.08%)
Minimum Profit: $518,340.17 (518.34%)
Standard Deviation: $210,635.09 (210.64%)
Probability of Profit: 100.00%
Probability of Loss: 0.00%

Percent Winning Trade Stats
Maximum percentage of winning trades: 48.94%
Average percentage of winning trades: 42.56%
Minimum percentage of winning trades: 35.98%
Standard Deviation: 1.72%

Percent Losing Trade Stats
Maximum percentage of losing trades: 64.02%
Average percentage of losing Trades: 57.44%
Minimum percentage of losing trades: 51.06%
Standard Deviation: 1.72%

Average Relative Dollar Drawdown Stats
Maximum of the Average Relative Dollar Drawdown: $8,444.97
Average of the Average Relative Dollar Drawdown: $4,225.19
Minimum of the Average Relative Dollar Drawdown: $2,469.48
Standard Deviation: $861.17

Average Relative Percent Drawdown Stats
Maximum of the Average Relative Percent Drawdown: 1.9574%
Average of the Average Relative Percent Drawdown: 1.1298%
Minimum of the Average Relative Percent Drawdown: 0.8015%
Standard Deviation: 0.1314%

Maximum Peak-to-Valley Dollar Drawdown Stats
Maximum Absolute Dollar Drawdown: $153,672.62
Average Absolute Dollar Drawdown: $67,315.48
Minimum Absolute Dollar Drawdown: $20,046.45
Standard Deviation: $24,098.71

Maximum Peak-to-Valley Percent Drawdown Stats
Maximum Absolute Percent Drawdown: 23.0498%
Average Absolute Percent Drawdown: 11.4725%
Minimum Absolute Percent Drawdown: 7.0248%
Standard Deviation: 2.3657%

 

[markrmau]

Hi Tech,

That last graph (%Net profit distribution) doesn't look right from a statistical point of view. With such large simmulation run numbers, you should be getting something that looks more like the 'standard normal distribution'. Not 2 peaks in the frequency distribution. Are these results all from the one run, with the same timeframe and all other parameters equal?

However, thats what you got. I guess it could be due to the chaotic nature of the share market.

 

[markrmau]

Having said that, even if 2005 turned out disastorous, and lost all of the 2005 gains, the average profit of the 10yr time frame would be 17-18% (compounded annually).

Not too shabby!

 

[tech/a]

Mark a couple of things.

(1) The distribution is very roughly a bell curve which would be expected.

The method and any long term method takes possibly 50-100 yrs to collect enough data to show statistical uniformity purely because the trades last so long---the longest being in these tests over 1200 days or 4 yrs approx.
This means that your waiting ages for some stocks to close.

NOW ON FROM THIS.

The initial profit per year chart also needs to be read bearing the above in mind.The ONLY reason there is $432000 profit in THIS year (In 2 mths) is that at the end of the test period I had the system SELL ALL OPEN PROFIT.
Hence all stocks trading profitably are closed before exit at the profit on the day of test completion.

As you look at each years profit your only seeing results for trades CLOSED so the results look so so.
What you dont see until the last period of trading is the OPEN PROFIT still held in trades.

Hope this makes things a little clearer.

Important information I feel as if your going to trade longterm you need to understand these things.

tech

 

[TjamesX]

Tech

Is it possible for you to do the yearly profit graph with the paper profit component for each year in a different colour. ie for each year show the cash profit/loss made for the year in green (as you have done) and on top of this show the paper profit/loss position as at the end of that year in a different colour.

I think this would help show yearly performance for your portfolio and you wouldn't have to sell all at the end of sim to show true performance.

If you were really really keen I suppose you could show dividens recieved in a different colour also!

cheers

 

[tech/a]

Unfortunately Tradesim doesnt do that.Amibroker does.So Ill have someone do that.

I dont record my own portfolio like that either.But Darryl has kept the Reefcap open equity grapgh going on that thread Ill grab a copy and post that here.

Youll note the equity curve(top of the lines) is much more consistant.
The chart is from inception to December.

 

[markrmau]

Hi T/A,

How has techtrader gone over the last 5 years?

It should have done very well during the GFC - stopped out on all positions and then caught the recovery very well.

Any links to charts?

Regards,
Mark.

 

[tech/a]

Hi T/A,

How has techtrader gone over the last 5 years?

It should have done very well during the GFC - stopped out on all positions and then caught the recovery very well.

Any links to charts?

Regards,
Mark.

Mark I stopped trading T/T Longterm system in 2007.
Most know this.
I trade a discretionary model shorter term with some of the entry keys based around the T/T entry.

I know of at least 4 who continued to trade it for their SMSF.
All Have now new equity highs.
All including the Model on Radges site had all trades exited in early 2008 (From memory).
We didnt have any index type switches.

Ill run a scan and Montecarlo tonight and post up those if you like.