Hey guys and gals.
I’ve been wanting to run a trend following experiment for a while and this week I figured, let’s just do it. So i’ve put £1000 of my own money into a spreadbetting account and i’m going to trade it using solid rules. I began the experiment on 27/07/2015 and intend to run it for at least a year with 52 weekly update reports a year on the blog.
Purely as a bit of fun for me, but also because I think it’ll be a good way to show the power of trend following and could help other traders learn. I wanted to start with a £1000 account to show that it can be done on a small amount. I’ve achieved it before so hopefully I can do it again.
Taking advantage of the fact i’m running this trend following experiment I decided that I wanted to run a brand new entry exit system, just out of curiosity and to make it a little more interesting so i’m not just duplicating my other trades. Due to running 3x businesses I simply do not have the time to look at running something on the intraday setups (10-15 min charts) and so I’m having to run it as an end of day (daily chart) system where I can check and adjust anything during downtime.
I’ll be tying to stick to a maximum of 5% risk per trade to start off. With only £1000 in the bank i’ll need to take bigger risks in order to afford many of the markets. I’ll offset this risk a little by using large moving averages, small bet sizes, and an entry/exit setup that has a better % of winning trades. This will result in a slower capital growth. (Generally the larger the timeframe the better win% but slower cap growth. To grow quickly you can reduce timeframe but win% will be reduced due to higher frequency of small losing trades). I will be trying to only have 25% of my capital at risk at any one time. This means only adding positions as and when existing positions close, or exposures are reduced (i.e. trailing stops moving).
I’ll be screening for signals at the end of every day using a simple trend following system i’ve developed which fits in with my time availability. I’ll enter those trades in the evenings after market close with buy orders for the open the next day. My time availability means that swingtrading and daytrading are not realistic options for me at this stage as I am unable to commit to the attention they would require. My exit rules are more important than my entries. I believe there is room for error or flexibility on entries but the exits are where you need to make sure you get it right.
I’ll be trading all markets to help with asset allocation. Primarily US stocks will be my main arena due to the low entry bet size available with my spreadbetting broker IG. However, I will be looking at ETF’s as a way of reaching indicies and commodities. Forex may not be as easy for me to get into as this stage but my scans will still incorporate these markets in case an opportunity comes along which I can afford. Effectively I am not ruling any markets out in my scans. I don’t see any benefit in focusing on one market.
Where I am trading US stocks I will look to diversify by industry sector as well as Longs and Short opportunities. For example, I will not look to go Long on two US Stocks within the Electricity sector. These positions have a higher chance of being correlated and a big move in that sector against my position will effectively compound my losses, which I want to obviously avoid.
I’ll be recording my performance using my end of day tracking spreadsheet and publishing reports via the blog. I will be using Twitter Follow @spreadbetchris
to announce my opens and closes, as well as the weekly blog reports. However, please note that as an End of Day Trend Following system my scans and orders to open/close will only be executed in the evenings after market close and I am likely to be getting 6-7 out of 10 trade picks wrong. So please don’t necessarily follow the trade picks by trading them blindly yourself. I will only be doing them for transparency.
I will not be using any profit targets. Nor will I be setting any overall targets. It seems pointless given the unpredictable nature of the markets. The results will be the same regardless of whether I set expectations or not, so why bother?
I will begin my reports tomorrow and following on every Thursday. Often there will be little in the way of excitement and there will not be super huge profits early on. The aim however is to make money and have a little fun whilst doing it. I expect my win/loss % to mirror that of my personal trading experience which tends to fall somewhere between 38-42%. Letting my winners run and cutting my losses to a 5% maximum per trade will hopefully result in a profitable outcome. Of course, a run of 10 losing trades could result in a 50% drawdown of my account, however I have to take that level of risk in order to access most markets with my small account. As my account grows during the experiment I hope to reduce the risk per trade. Like the birth of a child, the early days will be the most dangerous until I can build my account up.
Nothing is a given here. With my entry selection criteria the opportunities are vast and I will not be able to trade them all. Selection could therefore be the make or break of the experiment. If I pick all the wrong trades this whole thing could fall flat on its arse.
This is not meant to be a super serious money making investment. Just a bit of fun which I can share online but under the conditions of using real money. I do not want to, or intend to lose my money. I figured however that using real money would make it all a bit more real.
I’m taking the Thomas Edison approach here. He once famously said that it took him 10,000 experiments to achieve the patents that he did before he died. He didn’t refer to them as failures, he referred to them as experiments. If one didn’t work he didn’t dwell on it, he shrugged his shoulders, learned what he could from it and moved on. I expect to make more losses than winners but hopefully my winners will be bigger and pay off all the losers. I won’t dwell on the losers. I’ll only focus on keeping them as small as I can.
Wish me luck.