ASSESSING TRADING PERFOPRMANCE

[whiteheron]

I am essentially a short to medium term trader

There seem to be a number of ways to assess share trading performance , firstly external comparisons with appropriate indices or benchmarks of which there are many depending on your individual circumstances and the shares being traded and secondly , self set performance targets
It is the self set targets that I am particularly interested in and on which I comment below
I have set myself two targets

TARGET ONE
To achieve an annualised return in the region of between 30 % and 35 % on average funds invested , net of direct costs such as online brokerage and margin lending interest
Presently I am exceeding this by more than double , largely as the result of some exceptionally good trades in the last few months , but I do not expect to continue at this rate

TARGET TWO
To minimise leakage from unprofitable trades to no more than 20 % of returns from profitable trades , thereby achieving a net return of not less than 80 % of profitable trades
I have not yet completed figures for this but expect that I will have at least achieved my goal

I see target two as a strong discipline to consciously strive to minimise losses from bad trades by setting stop loss orders and not amending them downwards , sometimes exiting even before the stop loss point has been reached if the trade looks like going bad
A losing trade exited early to minimise potential losses is just as important as maximising returns from profitable trades ( think about that , I consider it to be most important )

I will be pleased to hear from other traders about the disciplines and systems that they use to enhance trading returns , what their targets are and if they have been achievable

My philosophy is to take reasonable but not stupid risks to maximise the upside and to minimise the downside by quitting bad trades before they become too big

[duncan macgregor]

WHITE HERON, I know you are familiar with my time line strategy, which gives me at a glance how a share is trending to expection against other shares at different prices in my portfolio. We both think five maximum which means close watch, and strict stop loss systems. I think both our buy, and sell strategies are on the right track what is in question is when to let a share go that goes side ways. My time line is drawn in advance and will take me out as it did with HQP when it went side ways but still held the sp. My idea is to look for new opportunities on a continual basis, with straight out fundamental analysis, and a touch of TA, and let my systems do the selling. The point being, it is finding the new opportunities that is our problem, we dont have a sellers problem. macdunk

[limegreen]

I am an investor rather than a trader, although in the medium term I won't discount developing a trading portfolio. I have a mortgage over my hut, therefore my performance target is to keep my investment portolio ticking over at a level greater than my the rate of compounding interest. It is also my general aim to keep each of my single investments likewise beating those odds. Currently I'm doing rather better than that, so I'm happy

And I agree with Macdunk that working out when to liquidate a share moving sideways is my biggest issue. I currently have 3-4 on the block in that respect.

[zyreon]

equity curve

it doesn't lie

[value positions at net realisable value i.e. at current bid - the market may be $2 but if bid is at $1.90 you can forget about $2; it exists only in the past.]

[whiteheron]

MACDUNK

I know that our philosophies are fairly closely aligned , except that I probably hold for rather shorter periods than you do except for my portfolio shares which are long term holds
--- I normally hold trading shares for between a week or two and a few months , occasionally for a year or so if all signals are good and the price is still trending up

Although I dont use a time line strategy exactly the same as yours what I do is pretty similar , I have to keep my capital working so any trade that is dragging the chain doesnt last too long before being replaced

I spend quite a bit of time just searching for shares that look very promising but for one reason or another are well priced --- not yet discovered or temporarily out of favour for one reason or another
Virtually all of my research is now done via the internet , the place where opportunities tend to first emerge (eg , exchange announcements , company websites , charts , rises / falls , metal prices and stocks , broker reports for leads , etc , etc )
Newspapers are too late and not very good anyway

The shares in my trading portfolio come and go on a daily basis and at any one time I may hold up to a dozen or so , as distinct from investment shares of which I only hold four
Trading shares are reviewed at least once a day , sometimes several times depending on what is happening
I am considering reducing the number of trading shares and dealing in larger parcels to firstly simplify matters and secondly to reduce brokerage costs , at present costing me something like $10,000 to $12,000 per year

It is a system that has worked very well for me for just on two years now , being refined as time goes by
Not so before March 2003 though when I lost plenty --- new to the game , making all the usual mistakes and bad markets ; not a good mix

I have found much the same as top sportspeople --- the more I research (train ) the more luck I seem to have !

[KJ]

I have the bulk of my $ in LT shares.

Over the last few mths I have commenced share trading as well.I have restricted myself to $30k for trading and usually have about 3 trades on the go at any one time.

My goal is to achieve a return of 50% (on a pa basis)on share trading.So far this yr I have completed 10 trades and have exceeded this 50% return.(after broker costs)

I look to complete a trade in the 1 to 8 week range.I only trade stocks that have strong earnings growth and are in an uptrend.

[Phaedrus]

Assessing your performance by comparison with an arbitrary fixed percentage "target" is a flawed concept, in my opinion.
Say you had decided on a 25% "target", and made 15%. What are you going to do - mark your report card "Must try harder"? Give yourself a bit of stick? What if the Index that year went down 10%? The fact is that you have performed brilliantly.
Say you had decided on a 25% "target", and made 30%. What are you going to do - mark your report card "Excellent performance"? Shout yourself a new car? What if the Index that year went up 40%? The fact is that you have performed very, very poorly. You clearly have an inferior system - one that needs a major rethink and maybe should be ditched altogether.
You can only make what the market will give you. The market is bigger than you - you must tailor your expectations to the current conditions. I suggest that it is more logical and more realistic to assess your performance by comparison with the appropriate Index, rather than by whether or not you met some completely arbitrary target.

[duncan macgregor]

PHEADRUS, You missunderstand the concept. You are not targeting anything. A fixed percentage line drawn at a percentage rate only gives you an indication of the percentage rate in comparison with your other shares. It also gets you out of a share that goes sideways. HQP was my example. If a share trends up at a much faster rate, all you do is raise the time line to your stop loss level. In my case 20pc for the time line. There is no ultimate price, nobody knows what price anything will be next week, this only shows me at a glance what is the best and worst in my hand. The biggest mistake is to sit on a share that stops working time catches up and you get out. You do it in a different way, which i understand this is the easiest and simplest system that works for me.
CHEERS MACDUNK

[KJ]

Phaedrus-very valid points.I am new to trading so will give myself time to get to grips with it.I have been a LT investor for a long time and consider myself successful there.

In terms of trading,if I cannot beat my LT returns by at least 15% then I would think that it is not worth doing because of the added risk and tax that needs to be paid.

In terms of my LT portfolio I measure this against the NZX50 which I set to beat by at least 25%.More importantly I look to average over 20% return over the previous 5 yrs.Anyone can have one good yr-if we just looked at the last couple of yrs we would be fooling ourselves.

[whiteheron]

Thanks for the replies folks , some pretty good points raised

Phaedrus
I did not make myself clear that the personal goals I have set for annualised returns are long term goals to be assessed over at least 4 or 5 years and I am no where near having data for that length of time yet

The points you raise are all very sound and well reasoned , as are all of your contributions on ShareTrader --- thank you

I agree with you that on a year by year basis you can only make what the market will give you so comparison to an appropriate market benchmark is essential
I was not suggesting that comparisons to market benchmarks be ignored , I was trying to see if I could have a couple of personal goals as well , together with some fairly good disciplines

macdunk
You are a great exponent of the time line ! and I can see where you are coming from
My technique is different , but in many respects achieves a similar result , especially with the shares that end up going nowhere

Any further contributions will be welcome no matter who you are or what your experience is

Good robust discussions are beneficial to us all