Wednesday, October 30, 2019

First trade of the Samvat

After spending over 30 hours backtesting over the Deepavali weekend, I am trying out a momentum based trading system.

During the past 19 months, I have restricted myself to mechanically trading variations of the range breakout system. The results have been good but with big hiccups. The breakout based system works extremely well for many consecutive months, and then suddenly goes into extended drawdowns. I had superb profits from April 2018 to July 2018, followed by a nerve wracking drawdown from September to November 2018, then serious profits from December 2018 to mid-June 2019, and now an extended drawdown from mid-June onwards.

On analysis, I have found that I have been in loss (just below breakeven) in long trades, and short trades have been very profitable. Part of the reason for this is that I missed out on a few great long trades (luck?). I have known this fact for sometime now, but I continue to take long trades - I have some sort of cognitive bias towards symmetry of breakout trades. Also, out-of-sample backtest of previous years do not show a significant advantage for short trades - in many years, longs are significantly more profitable than shorts.

I am trying this new momentum based system to hopefully increase my win rates and reduce the extended drawdown periods. Yesterday, I traded YESBANK, while also watching TATAMOTORS, INFY and SBIN. The entries for this system are mechanical, but for now, until I get used to this system, I have left a minor scope for discretion in scrip selection and stop trailing.

First trade of the Samvat
First trade of the Samvat

1 comment:

  1. My experiment with the momentum based system lasted only 5 days. The discretionary component did me. I am no good at discretion during runtime.