Wednesday, 31 July 2013

How well have those share picking systems performed?

I have a plan

We’re now 9 days in from my first buys on the US market. The overall return has been 2.6%.

I hate the way that Vector Vest shows the Annual Rate of Return to indicate how fast a portfolio is growing over a short period of time. It gives you a clue about the rough trajectory of your stocks but there is nothing to say they will continue on that course. For what it’s worth and using VV's approach the portfolio is making a little over 70% p.a. Over the same period the VVC has fallen back by 0.3% or -9% on an annualized basis. The metrics on the performance of the strategy are good.

The strategy uses a number of different unisearches to pick stocks. See this post for the original analysis.
  • The A search which performs best in backtests but is risky has done well. It has chosen 8 out of the 14 shares. 6 out of 14 are winners- average increase 3.5%
  • The B search picked 3 shares : 2 winners 1 looser – average increase 6.7%
  • The D search also picked 3 shares : 1 winner 2 losers – average loss 11.3%.

So what now?

I have decided to use my ISA account again to buy US shares. I still have some free cash and I will use the C search to pick my next lot of shares. Timing will depend on how the market is moving and my gut. 

We are in a consolidation period. My judgement is that it will burst out to the upside but I must be ready to be wrong and to know what to do if that happens.

My US system has two stop criteria for pulling out:
  • The first is a four week stop. This means I will start selling shares on 15th August
  • The second is a 5% trailing stop which would be triggered if the market moves into a downtrend.

So I have a plan for the US market.

Those pesky UK shares

For the UK market I do not have a plan. The 25% stop loss and 50% take profit are my only strategies and those are based on guesswork and previous experience. The rest of what I do just has to be gut feel.

The two strategies I am using for picking shares are performing poorly (see this post for how they performed in back tests) particularly since they have been running for almost a month. The analysis does not offer much hope for an improvement over the next two months unless the market picks up strongly. 

The results are as follows:
  • DBH has 2 winners and six losers average loss 5.8%

  • VSTPE has 2 winners 2 losers average gain 1.6%
A lot of thought is required about what to do next.

Tuesday, 30 July 2013

Patience is a virtue

Patience is a virtue
A virtue is a grace
Grace was a little girl
Who wouldn't wash her face

What direction do I think the market is likely to take? My dollar portfolio is just about fully invested and my sterling account is over 75% invested. I think that says it all. I don't claim to be right, but I have put my money where my mouth is.

Unfortunately it is a waiting game. The market is struggling to get past the all time high. Never an easy thing for a market to do. There have now been thirteen days of consolidation. There will always be bears who cannot believe that the break out will happen and they sell each time an opportunity presents itself. I am never confident, but those long tails on the candles over the past few days give me hope that I have done the right thing.

New rules

I mentioned my frustration at the way my quick profit on HSOL disappeared like snow in the spring. Decision: I shall add a rule that any share that makes a profit of 50% or more will be sold AND shares which make 20-25% in five days or fewer will also be sold (or the holding will be significantly reduced to capture profit.


I've never been to an open air music festival before. But WOMAD takes place just down the road and my daughter, with her family wanted to go. They wanted  to stay here rather than brave the camping option. I suggested that I should join them and I was delighted that I did. It was an experience like no other. 

I did not brave the rain on Saturday but took the children home with me and picked up my daughter and son-in-law in the evening when
they had had enough. 

I came away with a henna tattoo and ate an Eritrean curry. The music we heard was great. Anything we did not like we left and found something else to hear. 

My favourites were a Japanese drumming combo of seven women and four men called Gocoo,
fabulous Brazilian singer called Flavia Coelho and an Indian Sitar group called Debapriya & Samanwaya

Saturday, 27 July 2013

Take the money and run

First the good news

The US market is still making those frightening intra-day down-moves . Yesterday the high to low movement was over 1% down. But the market recovered and ended a few points up on the day: another indication that the bulls are still there in the wings and have the edge. But the market is still flat, failing to make any progress for the seventh day in a row. 

The UK market continues to pull back. It's now one and a half percent below Wednesday's high. My losses have been modest. I suppose it makes up for the fact that I made so little on the way up.

Now the Bad

I have lost almost all the money I made on HSOL and EVC is down 20%. 

EVC has been struggling since I bought it. and in fact it made its first daily rise on Thusday but lost a chunk of that on Friday. The other shares I bought, using he same picking system a week ago, have yet to show a profit. I guess my timing was off so I am not too worried.

The share over which I am kicking myself is HSOL. Since I bought it, it has shot up in price and then down again. There is an influential share tipping service called Motley Fool that has had its knife into HSOL for the last couple of day's 

"China may have its fair share of struggles -- which has caused its strong economy to back off its 30-year average growth rate of 10% -- but when push comes to shove, plenty of investors are still paying close attention to multinational companies making investments in China. However, if there were one sector with a gigantic "beware" stamp attached to it, it would be Chinese solar panel producers like Hanwha SolarOne (NASDAQ: HSOL  ) ." 

These guys have influence and I should have bailed out as soon as they started to make noises about what they thought of the share. Not because they are right, but because they have lots of followers who act on their recommendations slavishly. I hate share tipping outfits, especially popular ones because they have a tendency to ramp shares, possibly for their own benefit. And they can, if they wish, do the opposite. Take short positions and then rubbish the share. I am not saying this is what has happened here, I do not know. But it can be done and it has been.

All I can do now is watch the news more carefully, looking out for danger signals and perhaps adding a rule to my trading that when I make 20% within a couple of days I grab the profit and move on.

Friday, 26 July 2013

Support and Pentillie Castle

We have arrived at the top of a strong bull run. That small volume spike I pointed out a few days ago appears to have marked the a flattening of price movement. Up to now I have been reluctant to draw a new support line but the time has come.

It is encouraging that yesterday's big dip was followed by an intra-day recovery. It suggests that there is a bull and bear battle going on with the bulls holding on to the high ground for the time being. With a fully invested portfolio I am keeping my fingers crossed.

In the UK the support line was broken on Tuesday and the same sort of battle is being waged. Volume of trade has dipped for most of this week so here too I am keeping my fingers crossed, holding on hopefully. I don't have the same clear view of when I should pull out after a break of support. Instead I shall just have to guess and watch individual shares and work with tighter stops in mind. 5% to 10% trailing stops perhaps instead of the 25% which I decided on a few days ago. It's so frustrating not having a decent backtesting system.

Pentille Castle

I've been away for a few days. My wife had a birthday and I took her to stay at Pentille Castle in Cornwall. It was fabulous. If you would like to treat yourself or someone special I strongly recommend it. The views are to die for. The house and its rooms are comfortable and spectacularly presented. The hospitality is warm and welcoming and very, very personal.

Wednesday, 24 July 2013

Nerves of steel

However much backtesting I do, however hard I think about what I should buy or sell, however well I kid myself that I understand market timing, at the end of the day I trade (or invest if you prefer the grander term) with my gut. If I seem to get it right straight away, I pat myself on the back. If it goes less well, fears bubble up and the steel in my nerves gets tested. (How I love to mix those metaphors!)

And that’s how it’s been with THT. It was when the loss got close to 20% that I finally decided that my old stop loss, developed soon after I started playing the game all those years ago, might work with my new share picking system. I had chosen 25% using crude backtesting methods that are no longer available to me. So I held on to THT as it continued to fall and it’s now starting to move back my way. White knuckles start to feel blood beginning to circulate again. 

I said that backtesting is not a panacea but its shortens the odds no end.

Despite this improvement my UK portfolio continues to disappoint. Now GLE and SDY are beginning to look dodgy. Oh well, no point fretting. Overall conditions appear benign so I’ve added LLOY and SIV to my portfolio but after the best part of three weeks I’m still over 2% down (after costs).

UK bad US good

In rather less than a week,my US portfolio is showing a 3.7% return. LEE is up 28%, SOL 20%, and HSOL 18%. Only EVC is causing concern. I have spent all of my US$s having added COCO an LFVN to my selection. This contribution from across the Atlantic has started to make decent inroads to my accumulated losses from follies in gold and the like earlier in the year.

You see what I mean about nerves of steel. Starting in April I made some duff choices. If I had allowed them to cloud my judgement now I would not be in the position to start clearing up the mess.

I need to revisit my recent decision to restrict my ISA investment to the UK. (You’ll have to go back a few posts to see how that idea has swung back and forth).

For now I’ll keep hoping that things continue to go well and that my hard work, researching strategy, continues to pay off.

Sunday, 21 July 2013

Hard work making money in the UK. Recipe: Insulin and Colcannon

Suddenly I remember how much easier it is to trade in the US than in the UK! My UK portfolio plods on sedately making me no money despite my best efforts.  That's not quite true. I have now completed the laborious backtesting exercise and have found  one, possibly two better unisearches.

But it's a week since I bought my shares and I'm still down 1.6% after costs. If I strip out costs and the ghastly THT I would be up 1.1% but those are unavoidable costs. I do not know whether, with a good stop loss strategy, I would have dumped THT before now. No Simulator, no proper backtestng, no decent strategy.

In the mean time in the US I got my buy signal on Thursday, I bought six shares that day and six more on Friday. (SOL, HSOL, III, UVE, GTN, EVC). Overall I have 7 winners and 5 losers after just 2 days. Profit after costs is 0.7%. There is no guarantee that this will continue but you must agree that it is a much better start.

I do have an idea for how to plug the gap left by the lack of the Simulator in the UK by concerted action by members of the user group. It would not solve the lack of a stop loss strategy but it would guide us to the best unisearches. Unfortunately I am not a natural organizer so someone else would have to drive the idea forward. Anyone interested in leading the exercise or participating should contact me.

Insulin and colcannon

I was first diagnosed with diabetes 15 years ago. That is what brought me into stock trading all that time ago. I retired with far too little money and had to make the most of what I had by driving my capital very hard. So far it has worked.

Since then I have collected a growing band of chronic autoimmune diseases. It seems that each time my blood is tested another one pops up. I am lucky in that, so far, none has significantly cramped my style, except in the range and number of pills that I pop every night and morning.

The progress of my diabetes is interesting. I started with dietary control which kept excessively high blood sugar at bay for  six or seven years. Then I started on pills. They worked for another eight or nine years. All of that time I had to be very careful about what I ate and, latterly, when I ate. The big risk then, as now, was falling blood sugar which carries the risk of a hypo which starts a little like drunkenness and can end in a coma. Being caught driving with a hypoglycemic attack loses you your licence so it's no joke. 

A few months ago my poor old pancreas, the organ that produces the insulin that manages blood glucose levels, finally gave up its efforts despite the help provided by pills. I was put onto an insulin injection regime. I tried two daily doses of mixed insulin which helps most people who can't be bothered with a more complicated system. With good advice I was steered onto an alternative system where I take one type of insulin at night and another with each meal. This keeps tighter control of blood glucose levels and gives me far more flexibility. But it is hard work. You have to calculate how much carbohydrate you are going to eat at each meal and adjust you insulin dose accordingly. On the plus side you can miss meals if you want to, and occasionally have big ones with lots of carbohydrates.

Which brings me to colcannon. I have always loved mashed potatoes, a big no, no when you are managing diabetes with diet. And colcannon is a fabulous Irish version of this dish. I was inspired by a visit to the Aveyron in France where we were given aligot, a local specialty where the mashed potato is mixed with cheese and garlic. It was a little bit bland for my taste but that might have been the versions we were served.

Net result I came home, took the appropriate dose of insulin  and made colcannon.

It's dead easy. You cook peeled potatoes so they are really soft. Don't ask me how many I used. I had a bag left over in the larder and I used what I had left. Cut up, I guess, there might have been a dozen small pieces. I also had some left over carrots which I steamed over the potatoes for about half of the cooking time. I had grown a cabbage, one of those pointy ones, and cut that up and steamed it along with some sliced industrial sized spring onions for the last couple of minutes. 

I then mashed the potato with lots of butter and salt (I confess to a liking for Aromat as a supplement to salt). It's a Knorr product favored on the Continent especially in Switzerland .)

I whizzed the cabbage and carrots in a blender for a few moments and then mixed them into the potatoes. I served it with sausages and gravy but it would go equally well with lots of other things, or by itself, or even cold. (I shall give you my gravy recipe one day.) Great plaudits.

Thursday, 18 July 2013

What a difference a day makes?

The high DJI of May 22 has been broken. The move up is not super-convincing but it has happened. And for me the more important fact is that the market has given me my buy signal. My toes, or perhaps even my knees are in the water. I have bought 6 US shares They are KTOS LEE ARC ORBC SBCF and SNV. They come, three each, from my two top performing unisearches.

 My nerves are on edge because we are at a new all time high on both the DOW and the S&P.

It helps that my UK portfolio has improved. Five winners and five losers as of today. The ghastly THT gave me a bad scare and it has ended the day lower once more. It has broken through the 89 day moving average but it did recover some of its losses as the day went on. So I decided that fortune favours the brave and it got another day's grace. All this angst results from the fact that I do not have a UK stop loss plan. No Simulator, no backtests, no system.

So that's how things stand. I am 49% invested. 45% of the total is in equities and the remaining 3% is my short ETF in US treasury bonds. 61% of the invested amount is in UK stock and 39% is in US.

Wednesday, 17 July 2013

Still no signal

Even though the DJI broke the resistance line almost two weeks ago, and it has touched the buy signal on an intra-day basis, it has failed to close above my signal level. I have therefore chosen the cautious route and have bought nothing in the US market. Probably a good thing since the market looks as though it lacks the will to climb to the high achieved in May.

I am also regretting buying into the UK market. You will recall that I do not have a system for entering the market and so I winged it when there seemed to be a strong push through resistance. The UK market is also softening and one of the picks THT has chalked up a 15% loss since I bought it on 8th July. Overall I have had only 2 winners out of 10 and my net loss has been 2.5% while the market has pushed up by about 1%. Net result: I am not a happy bunny.

Without the Simulator to test my systems in the UK I have no idea whether I have done the right thing and been unlucky or whether going into the market was a mistake. What I do know is that in the US my timing system has kept me out of trouble. In contrast Vector Vest's Sure Fire Success Action plan has been signalling buy for 5 out of the last 6 days. Only time will tell if my S&R timing system or VV's SFS have given the best advice.

For now all I will do is review the big loser on the UK market and and decide whether now is the time to dump it, or is it on the point of regaining momentum. You can see from the graph that it is possible that a bounce will occur so I might give it a day or two to work out.

Thursday, 11 July 2013

The water's cold and the markets bight currency traders in the bottom

I've jumped in and the water's cold. On Tuesday I added purchases of GLE SDY and TW to my original seven. And as always seems to happen I bought at something of a peak. So in addition to the stamp duty and dealing costs I had a pull back in prices.

I am in contact with one of my readers who is using a system for improving the short term timing of entry by putting in limit bids. I shall investigate this more to see if it might help me to achieve better entry prices. Part of my reason for writing this blog is in order to generate an exchange of information. So thanks for that idea and please keep them coming. Apart from anything else I feel as though I have a friend across the ocean.

In the mean time, including those costs I am sitting on an overall loss of 1.3%. But it's early days. In all I have 5 winners (after costs) and 5 losers.

The US FOMC minutes and questions following a speech by Bernanke set the market into turmoil. It was Bernanke that made the biggest impact. He reiterated the need for a "highly accommadative" monetary policy for the foreseeable future and he sited the fact that the unemployment rate at 7.6% might be overstating the health of the labour market. The market read this as a signal that QE would continue. The $ went into a nosedive. The comments were made after the US market had closed so the price action all happened overnight in the Asian market.

The FTSE climbed along with the DOW overnight but has pulled back sharply with the light of day.

I thought it would be interesting to show what happened to the $ against the € too. It shows just how sensitive the currency markets are. Traders get caught with big short positions and suddenly the markets bight them in the bottom and they are forced to liquidate because they are so highly leveraged.

I find it interesting to note that writing these blog posts is much quicker when I am active in the market than when I am sitting on my hands and have to think up interesting (hopefully) things to say.

Monday, 8 July 2013


I took the plunge after all. The FTSE is sitting comfortably above the resistance line, and the Bank of England has signaled that interest rates are unlikely to fall any time soon. This suggests that QE will continue. Since interest rates are controlled by keeping the price of bonds high, this means more bond purchases by the BOE hence more QE.

I'm using different charts because I have downgraded my Sharescope subscription to end of day. I am using IG Index advanced charts which have few peculiarities. They follow futures prices through the night, hence the rather strange July 7th candle. During opening hours prices shown are normally the same as the real index. Anyway the charts do the job with the advantage that they are integrated with futures prices so give an a clue about where the market is likely to open.

So I have dived in buying the following shares: THT AML WIN CLDN III BDEV KLR

I have used several of the unisearches that I identified as good ones. I am currently in the process of refining my understanding of how well they work, whether they have a seasonal bias, whether they are better for buying short or longer term etc. No easy task. Oh how I wish I had the simulator.

As for the US, I await a clearer signal while keeping in mind that the end of QE is on the cards.

Friday, 5 July 2013

Decisions today, trading the FTSE again

I have reviewed some of my US trading. Although I still believe that this is best market in which to trade, US trading through my ISA attracts unacceptable costs. Put briefly, I am not allowed to hold foreign currency in my ISA (a tax shelter for investment which means that I pay no tax on capital gains). This means that I have to pay exchange rate costs on both buying and selling shares. This can reach 1-2% in each trade in each direction. It might be possible to justify this cost in a strong bull market but in a whippy market like this one I end up paying my broker too much to make a decent return. This means that from now on I will restrict my US trading to my SIPP (another tax shelter with different rules which allows me to hold foreign currency:  there are no exchange costs, and I enjoy the benefit of my returns).

This means that I have to switch back to trading in the UK. Unfortunately Vector Vest does not offer the same facilities to backtest strategies as they do in the US. I have no system which tells me when to enter or exit the market. I have to guess.

The FTSE broke an important resistance level on Monday.It continued upward and yesterday it passed my test criterion. If this move had occurred in the US it would have been a clear buy signal. So today I decide whether to buy in the UK. I've left my decision till late in the day. The market is pulling back, I feel bearish, the market is hovering on a resistance line, and the US market is showing weakness. I think I'll leave my decision till Monday.

The market is probably showing strength because the Bank of England announced that it is too early for interest rates to rise. This is interpreted as code for a continuation of the QE policy. A big deal for the market. It has certainly put the knife into the value of the £. I am thinking that in view of that news the market should have been even stronger. More information to make me negative.

Using Vector Vest UK to pick shares

But in the mean time I have been trawling some of the unisearches that I know work well in the UK. Even though I cannot test them with the same rigor that I can in the US tests give me enough information so I will know which searches to use when the time comes to buy.

Some are searches that I have developed myself, others are standard VV unisearches. I have tested them in good times and bad. To paraphrase Longfellow, in good times they are very very good, in bad times they are mostly horrid.

I have chosen time periods that include the good and the bad. The first table shows the return for the whole period and compares it to Vector Vest's own index the VVC/UK. The average shows how well these searches did overall in good times and in bad, weighted by the length of the time period. I have not fully identified the unisearches I have used but some of you can guess. They all do very well except when the market is in free fall as it was in three of my time periods (chosen deliberately to stress test the searches).

The second table shows the annual rate of return so performance in the different tests can be more easily compared. None of this shows how the picking systems would have performed if they had been subject to sensible stop loss criteria or had sensible entry and exit criteria. Hard to test without the simulator.

I think I know which unisearches I'm going to go with.

Tuesday, 2 July 2013

Robotic line drawing

Here we are back in no man's land. The market is failing to make a clear move. One day up the next down, and so on. It leaves me with very little to say.

I am, however experimenting with a new charting tool called ProRealTime. I think you can get the end of day version free but I am using a version provided by IG Index which uses the IG trade prices in real time. One of its features is that it draws horizontal and diagonal support and resistance lines automatically. Here is the daily chart for the DOW. You can see that it has drawn the same higher resistance line that I tentatively put on the chart on Friday. It's the highest red diagonal line. I've included my old line in blue but I'm going to ditch that as an idea. You see how the drawing of these lines is subjective and evolving. Their weakness and their strength all rolled into one.

As I write he DJI seems to be showing some strength, following through from yesterday. We shall have to wait and see if it holds.

More Vector Vest research

When the sun did not shine I used my time to do more research on Vector Vest. It has this fabulous tool called the Simulator which allows you to test theories about how best to play the stock market. You will have heard that the past is no guide to the future but that is rubbish. The past is our only guide to the future. It is why we revere experience. The wise are people who have seen seen it all before and have learnt from what they have seen. The past is an imperfect guide but it is the ONLY thing we've got. Used wisely it can be very helpful indeed. 

The Simulator allows you to test an idea over any period of time you like. It provides the best guide to the future if you look to see how your idea fared over a range of earlier time periods. 

The simulations include three key elements:

  • a timing list which defines whether the market is in an up phase, a down phase or is neutral. I have used my S&R timing list (look back a few posts for an explanation) and one of VV's timing lists known as the GLB/RT Kicker
  • unisearches which are VV's share picking systems. I have picked ones that I have found to work well or that VV favours. I have not named the ones I've used but have called them a,b,c etc. suffice it to say I have chosen them carefully
  • stop loss criteria which have taken me out of my positions. I have used one rather unusual stop loss system which ensured I did not hold positions for more than 4 weeks before replacing them in up down and neutral periods. In down or neutral periods I also ran a 5% trailing stop but bought nothing and kept cash realized until the next up period. I found that these stop systems worked well.
I picked a range of periods over which to test these systems:

  • 18 Sept 2007 to 11 Mar 2013 This took us through from just before the sub-prime mortgage crash to the point where the market recovered to the level of the previous high
  • 28 Dec 2007 to 10 March 2009. The period of the crash
  • 28 Dec 2011 to 11 Mar 2013 A recent 15 month period
  • 28 Dec 2012 to 27 June 2013 The most recent six moth period
The table below shows the results of the simulation runs as annual average rates of return (i.e. simple rates not compound). At the bottom of the table I have shown how the DJI and the VVC, VV's own proprietory index performed over comparable periods.

The simulations show that;

  • on average all the simulations outperformed the market  many times over
  • even when the market crashed the S&R system was able to make a profit and if the exceptional performance of unisearch A is excluded the system broke even.
  • The Kicker system halved the potential loss in that crash period
  • The S&R system outperformed the Kicker system by 2.4 times and was winner in all time periods except the last six month period. If the exceptional performance of Unisearch A is excluded the positions would have been reversed 
  • Unisearch A on average generated almost twice the return of the next best search on both timing systems. However, it was a high risk strategy, on some occasions it only generated one share and so offered no diversification. It was not a system on which to stake the whole of one's portfolio
  • Returns were fabulous. 
    • Even if we ignore search A on average the S&R system yielded 41% pa and lost no money in the crash. 
    • The Kicker timing system yielded an average 15% when A is excluded, also creditable. More importantly it caught up in the last two test periods and was only about 7% behind when A is excluded
Conclusion: My early quick and dirty tests to see if the S&R timing system works are endorsed by this latest round of testing. The GLB/RT Kicker also works well. There are 4 Unisearch systems that seem to be solid performers over a range of time periods. This approach works. Further research is necessary to endorse these results and to refine them.