Sunday, August 08, 2010

Portfolio Performance for July 2010

One thing I've noticed in trading systems over the years is the observer effect. Typically, when a thoroughly backtested system fails...the trader will dismiss the system as being too optimized.

You never hear about the observer effect with real-time trading of the system. That is probably the most difficult aspect of developing systems. Just the mere fact of participating in the price pattern you've discovered changes the price pattern. Despite how small a fish you may be in the market.

All we can hope for as system traders is finding an edge that is large enough to accommodate the increased order flow. So, when we jump in and reduce the edge...there is still enough leftover for us to be profitable. I guess, that is why I've always traded very long-term systems. And probably why I still lack confidence in this new short-term mean-reversion system.

Moving on...

July was an excellent month for the market. The portfolio was trounced. But, still finished the month with another positive number. This marks the second month trading the new system.

Adding a new chart to the reporting: Investment Levels. This reflects the amount of capital that TaylorTree is invested at the end of the month. As you can see, when the portfolio is less than 100% invested in the market and the market has a month like this is extremely difficult to beat it. Cash drag kills you when the market turns around.
TaylorTree Investment Levels as of 07/2010

The picture above of the alligator is from our stay at The Retreat at Artesian Lakes located just outside Cleveland, TX. They had several cabins overlooking the lakes. Step out on your front porch and this 6ft alligator would come swimming up - day or night.

Later Trades,


No comments: