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Saturday, October 6, 2007

Looking at TradeRadar Portfolio Performance

The fourth quarter has gotten off to a great start and all the major indexes are sporting solid gains for the year. So where does the TradeRadar portfolio stand? Trailing by a mile.

Let's look at where the mistakes were and evaluate whether the TradeRadar software caused the problem.

First, I would like to comment on the content of the TradeRadar portfolio. There are many bloggers who are also money managers who discuss proper portfolio composition; ie, appropriate diversification, minimizing volatility, etc. The TradeRadar portfolio is not intended to be the only portfolio held by an investor. It is just meant to be a vehicle for tracking stock picks made using the TradeRadar software. As an individual investor, I have a 401K and an IRA where most of my investments are mutual funds being held for the long term. The TradeRadar portfolio is my opportunity to implement a "put your money where your mouth is" committment. It's only fair, in my opinion, that if I am to offer stock picks, I should invest in them myself.

Starting with the TradeRadar software, can we say that it hurt our performance? In looking at the results and the comments I have made week after week on each stock in the portfolio, it can be seen that many stock picks did indeed yield initial profits. So how did we end up with losses?

The problem with the TradeRadar software seems to be in identifying when to exit a position. To initiate a position, TradeRadar works best when processing several months of data and identifying a reversal in trend. If the position starts turning bad abruptly (like during the two market downdrafts we saw in February and July) or within only a few weeks of initiating the position, the TradeRadar software may not generate the trigger to exit that position on a timely basis.

OK, so the software didn't always direct us to take the appropriate action. But there is a simple, low-tech technique that would have preserved our profits or limited our losses: the good old stop-loss order. This would have saved us on all the investments that are showing big paper losses like BigBand Networks, Generex, the ProShares UltraShort QQQ, etc. I will begin discussing the levels at which I set stops going forward. As the next improvement to the TradeRadar software, I will be looking to improve the responsiveness when trades start to turn bad.

As a final comment, one of the nice things about recording a weekly commentary on each stock pick is that it lets you review your thinking from the point at which the trade was initiated and at every step up to the point where you exit the trade. It is often said that the best investors keep a journal of all their trades. Note that the TradeRadar software provides a facility to do this in the Portfolio -> Individual section.

1 comment:

Blaine561 said...

If you are going to survive in these boisterious times then you have to learn how to beat the system at its own game. I found a great website for learning to trade options and soon they will be offering Forex courses as well. You can see the new website, still under construction, and get a feel for what they do at http://www.optionsuniversity.com

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