Hi folks, I hope you're all having a good weekend.
I'm just catching up on my $50K weekly gap strategy homework. As you'll see, my spreadsheets have had a few changes as I've gone along, and there will probably be some more, as I develop the templates to suit how I want to monitor and analyse the strategy performance.
In particular, a big focus is on the variance beteween the strategy (as defined by the historical backtest results) and actual execution, as I've already covered issues like daily gap opens which cause variances in trade entry price and volumes, plus delays in entry, exits vs chart closing price, etc). Since the backtest results are good I believe the biggest risk to performance is execution, hence important to monitor and analyse the variances, as that will probably enable the first sign of any divergence between actual and strategy performance expectancy.
In any case, updating the end of week results, there were 2 new entries on Friday (PPT & ORA) and 4 exits as per schedule (DMP, FPH, CHC & CAR) - the 1st table shows the current status of open, partially open & closed positions:
As can be seen, out of the 4 exits, 2 were small losses and 1 small win, but CAR was a good sized win and in fact it was enough to pull the equity position of fully closed trades to just on breakeven after earlier being in a drawdown down to -$1121 fromt he losses in the 1st 2 weeks.
The next table shows the variance analysis that I perform on execution vs strategy:
The variance analysis has gone through a couple of iterations, primarily because I've been tinkering with definitions, but now I believe I have the right definitions (including that daily gap up opens are defined as part of the strategy, not as variances to the strategy, since they are baked into the backtest results, and also that I need to monitor the closing price vs chart price since there can obviously be some variance there). SO based on the current perspective, the total variance of fully closed trades is -$231, or approx -$33 per closed trade. Given that the strategy has an expectancy of $220 per closed trade (alhough at half weight for the 1st 6 months, that translates to $110 per trade) that is a variance of -$33/$110 = -30%, or in other words, actual results (to date) achieve 70% of the strategy results. I have set a target of maintaining actual at > $80% of strategy as being acceptable, and given that this is only the 3rd week of application, and some execution teething issues are not unexpected, then I am happy with progress so far, but recognise that execution needs to improve to meet the target I have set.
Since there are now 7 fully closed trades, I felt it is worth starting an equity curve, and I have included actual vs strategy results to compare:
Anyway, that's the update for now. I will post tomorrow morning on the screen results for the upcoming week's watchlist.
