Trading Report - Monthly Wrap - December 2009
Trading Report Monthly Wrap, a detailed look at where we made and lost money during the month.
In an attempt to improve our service, we will now report our performance on a monthly basis, dividing our trades into three portfolios, Australian Stocks, UK Stocks, and Global Markets, which comprises commodities, currencies, bonds, and US indices. Going forward, we will report overall portfolio results for each of the three trading accounts, each in their home currency, AUD, GBP, and USD.
For each trading portfolio, we will provide
- A table of the closed trades from the month, with a combined Profit and Loss (P/L)
- A Portfolio Performance Table. The information in this table is rolling, i.e. the trades for the month are added to this table on a continuous basis. This table contains trades that were opened after 1 Dec 2008.
Below are a few notes which provide further explanation.
Current Account Balance – includes all closed trades from 1 Dec 2008 to the current month end
Overall Return – Total P/L to date, as a percentage of our starting balance
Win % - Percentage of trades where we book a profit
Scratched Trades – Trades where we were stopped out at break even
Max % Drawdown – This is the maximum amount, in percentage terms, in which our account decreases from our maximum equity line. Graphically, it is the maximum distance between our Maximum Equity (Pink) Line and our Current Account Balance (Blue) Line in the chart below.
AU Equities – December 2009
The bears took control early in the month on the ASX200, pushing the index lower from a high of 4795.20 to an intra-month low of 4,596.20. This represents a 199 point or 4.15% fall over a period of ten trading sessions. With this in mind, our trade recommendation to short Aristocrat Leisure was executed. With the initial stages of profiting on our short position, the local index then bounced from the intra-month lows of 4596.20 to gain 277.40 points (+6.04%) for the month on light trading volume. Our short position was stopped out as a result of the broader markets change of sentiment.
Although the markets moved higher, we were not inclined to recommend too many trades due to the light trading volume over the holiday period, with many institutional traders and fund managers on leave.
Looking at the broader picture, our AU Equities performance remains impressive, with the following performance returns.
After thirteen months of trading, the Australian Equities account is currently sitting on a capital return of 42.99%, with a winning strike rate of 57.50%.
This is quite a substantial outperformance when compared to our relative benchmarks over the same period of measurement, below :
1). Hedge Fund Market Directional benchmark : 29.34%.
Outperformance of 13.65%. Fat Prophets AU Equity Portfolio returned 42.99% vs. Market Directional of 29.34%.
2). Hedge Fund Macro Index : -8.78%.
Outperformance of 51.77%. Fat Prophets AU Equity Portfolio returned 42.99% vs. Market Directional of -8.78%.
Closed Trades for December 2009 
Portfolio Performance from 1 Dec 2008
Equity Chart from 1 Dec 2008
To reiterate, the blue line is our equity line, and is updated every time a trade is closed out, while the pink line shows our equity maximum line. Put another way, this is the highest level our trading account has registered.
UK Equities – December 2009
Our UK Equities portfolio saw just a few trades during the month of December. The FTSE 100 was struggling to break out to new highs and spent most of the month trading in a tight 4% range between 5200 and 5400. After such a long uptrend we felt the risk/return was more favourable on the short side but were aware that we were fighting the prevailing trend. With this in mind we decided to adopt a long/short trading approach.
As such our strategy was to seek out the technically weakest stocks in the weakest sectors, which were Aviva (LSE: AV.) and Barclays (LSE: BARC). We then proceeded to tighten our protective stop loss levels as the trade progressed to lock in gains and reduce the risk of loss of capital. This strategy enabled us to book some gains on Barclays and to break even on our Aviva trade.
On the long side we traded Tullow Oil (LSE: TLW) which had been a stellar performer for the year and was likely to outperform the market should it break out to the upside. We also decided to trade De La Rue (LSE: DLAR) which is a more defensive stock that had underperformed the market. In both cases the directionless volatility saw our stop entry orders triggered but we did not get the desired follow through that we were looking for. Eventually the volatility saw us stopped out of these trades.
Closed Trades for December 2009
Portfolio Performance from 1 Dec 2008
Equity Chart from 1 Dec 2008
Global Markets – December 2009
Most global indices advanced higher towards the later part of the month breaking above their most recent highs i.e. Dow Jones, S&P500 and the FTSE to name a few. Furthermore, the dollar index also continued to march higher, presenting shorting opportunities on the cross currency pairs. We recommended three currency trades, profiting from our shorts on the AUD/USD and EUR/USD pair and losing on USD/CHF.
Earlier in the month we recommended shorting the March 2010 contract on the US treasury notes. The technical picture was there, however the follow through in price action did not occur and we were stopped out.
After 13 months of trading, the Global markets account has returned 30.05% on capital, with a winning strike rate of 70.27%.
Closed Trades for December 2009
Portfolio Performance from 1 Dec 2008
Equity Chart from 1 Dec 2008
The Month Ahead
November and December have been choppy sideways markets which did not lend themselves to trend trading. While day traders have the agility to play the tight 200 point range in the FTSE we need a larger move for our style of trading. Towards the end of the month the market managed to creep to new highs on lower volume across most of the major global indices.
Should this upwards break continue we will have the market conditions we need for successful trend trading. We will be watching prior resistance of c.5400 on the FTSE 100 as we now expect this to act as support. We will be playing the market from the long side but will continue our strategy of trailing stops to lock in gains and limit downside risk. After a 60+% rally we feel the best course of action is to go to the party, but to stand close to the door.
2010 will begin with a refreshing suggestion that the worst is behind us and that the Government has saved the day.
As traders, we must acknowledge that January is a holiday month, though after many years of trading, experience tells us that it is also a trend month. January can be a month where markets reverse long term trends or continue with them.
January is the start of the year for many traders’ accounts in hedge funds, banks, and fund managers etc. They are pretty keen to start the year with a profit.
January is about all these players re-entering the markets after a holiday, a drawdown with a new budget target. They are relaxed and ready to go, this translates into plenty of energy. This gives January the potential to reverse trends or continue them powerfully.
Prosperous Trading!