I am glad to see the close of 2013, the year in which I introduced several models and began testing them in real-money accounts. My Forex multi-strategy model, as tracked by MyFXBook, severely underperformed my expectations. There were three primary causes that contributed to this: errors in my programming code, errors in my data stream, and worldwide quantitative easing policies by the main central banks. Each of these errors, as one can imagine, proved critical. I hope I have corrected the first two, but QE has proven to be a new twist to the market that has confounded my counter-trend models. I hope that with additional data in the coming months, my models can be adjusted to reduce risk in these extreme scenarios, but only time will tell.
My stock models have done better, but still produced disappointing results. Windjammer, which is heavily influenced by my forex models, suffered from the problems mentioned above. My Tactical Asset Allocation model has been more robust, but was blown away by the terrific performance of the S&P 500 over the last 12 months.
When the general market moves, more or less, in a smooth 45 degree upward angle, one often begins to question the value in trading complicated algorithmic strategies when buy and hold provides such an easy answer. Unlike many trading gurus out there, my philosophy holds that if one is not filled with doubt when pursuing a strategy, then one is doing it wrong. Every model needs to be constantly checked for errors, checked to see if it’s still valid for the current type of market, checked to see if improvements can be made, and checked to see if the model truly adds value after commissions and taxes. If not, one must not be sentimental, and must instead cut away the dead weight and start anew. The question becomes, after how long does one make this decision? One can’t expect to beat the market every year, so the model must be given a reasonable period of time to be tested in the real world before ruthlessly eliminating it.
I’m going to see how the models perform in 2014, constantly checking them as mentioned above, before moving on. Hopefully 2014 will provide a more reasonable risk-adjusted return.
To all of my readers, may fortune smile upon you in the new year, and may you find success in trading. Happy new year.