2004 Performance Summary (starting May 21st 2004): +11.3% return
2004 saw 2 profitable closed LONG trades and 1 SHORT trade which was carried forward
into 2005. No losing trades.
During this year (in a little over
7 months) we turned $1,000,000 into $1,112,734. Please scroll down for links to all
weekly real-time reports.
We entered our first tracked trade LONG at a NASDAQ Composite level of 1925 on 24th May as the model showed an 84%
bullish probability. Trade entry was documented in the following reports:
Around 60% of our capital was filled and the market then moved immediately in our favour. Already
by late June, complacency returned and the model drove us to set up limit orders and close the
position. Trade closure is documented here:
We tightened these orders to close the trade as our model hit the neutral trigger point by 2nd July and our
trailing stop was hit on 6th July. The LONG trade was fully closed at an average level of 1995, generating a useful
70 point profit.
Closing the LONG proved timely as the market then fell precipitously within a few weeks, losing a further 200 or so points
by mid August while we were in cash.
This provided an opportunity to enter a second LONG trade at much lower levels - without experiencing the summer
volatility experienced by funds which stayed permanently invested.
Uncannily, the model reached a peak of 78% bullish probability exactly as the NASDAQ composite reached its weekly low
close for the year at a level of 1757 on 13 August.
We were fortunate enough to scale into our LONG position on 6th and 16th August at an average level of 1787, as documented
here:
We were able to deploy more than half of our capital in this trade.
For the second time this year, the market moved immediately and rapidly in our favour. In fact, not all our LONG
limit orders were filled because of the speed of the move.
We were able to hold this position safely as the model continued to show excessive pessimism over the next
few weeks.
We eventually closed this position for 16.3% profit on the trade at a NASDAQ level of 2079 (through a Limit Order) on
12th November after the model had finally turned neutral. 292 NASDAQ points of profit had been successfully
captured by this trade.
Here is the real-time documentary evidence for the closure of this trade:
The report of 5 November 2004 above gives proof of the advance notice given for the closing trade (we
often set up both limit and stop orders when the model is neutral and whichever is hit first closes the entire position).
We were in cash for just a few weeks as our model then flipped and detected excessive complacency and optimism in the
air. This triggered a SHORT trade entered on 1st, 2nd and 3rd December at an average level of 2144, as signalled
by the following report:
Entry of the position was also confirmed by the following report:
We ended the year holding this open SHORT position (which used just under half our capital), showing an overall 11.3%
profit for the period May 21st to December 31st 2004. This implies an annualised return of almost 20%.
The blow by blow real-time documentation of the above trades is shown in the weekly reports - all of which you can
read below.
Key learnings for 2004
Although we made a good profit in closing 2 well-timed LONG trades, in both cases we were not able to scale in much above
half our capital. This obviously left some profit on the table.
We therefore resolved to scale in more aggressively in future whenever our model triggers a trade, even at the risk of
accepting greater volatility.
It is noteworthy that we managed to enter LONG in our 2nd trade at close to the year's lows, matching or beating the
performance of long-only funds in the same period.
At the same time we avoided the excessive volatility others experienced in July/August 2004 when our model kept
us safely in cash. Therefore we managed to bag the positive performance without experiencing the excess volatility.
The SHORT trade entered near the end of the year was carried forward into 2005 (see the
2005 Performance Summary to learn what happened to it).
