Three Trading Systems (Wk 9) – When There’s Nothing Doing, Do Nothing

This excerpt is for educational purposes only and is not to be interpreted as trading or investment advice.  See Terms Of Use here.

I love these times in the market.

It’s almost like a holiday – I can focus on doing other videos, learning more for myself, and (this is the best part) spending more time with my family and actually enjoying life.  Little things like taking off to the beach on the weekends for fish & chips and a wade in the warm, sheltered waters nearby.

With a weekly trading system for myself, and a clear signal that the overall market isn’t ready to be bought yet, I’ve got little to do in the markets.  As a good friend of mine once said: “When there’s nothing doing, do nothing”.  In other words, don’t force it.  Or in the words of Warren Buffett “I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”

Not everyone is able to sit idly in times like this.  They want to find ways to make money all the time, which usually results in over-trading – and losing money instead.

There is another reason these times are a blessing: a down market doesn’t last forever.  During the 2008 Global Financial Crisis it sure felt as though it would last forever, but it eventually ended, and when it did the people with the cash could buy as much of companies that met their entry criteria as their hearts desired.  2009 was a boon year for pretty much everyone.  So having some cash left to buy, and a clear, back-tested method or signal for “when” to buy, is also important.

Golden Cross Index Timer

2016_02_07_Golden Cross Timer

ROC and Moving Average Index Timer

2016_02_07_ROC Index

Three Trading Systems Comparative Returns

The Index – All Ordinaries – is the Yellow line.

2016_02_07_Comparative

As expected – the trading systems that hold the most stocks have fared the worst over the last week.  Now, the Leap of Faith trading system has taken the lead by a fraction, as the Dow/Gann trading system has a wider stop loss.  This wide stop loss is great to catch big moves, but it sure hurts a bit when the market moves down.

While I have an “Index Filter”, turning these systems off new positions when the Index is moving down, I don’t have a complete “Off switch”, where a trader might sell all their positions if the Index meets certain criteria.

I have tested a few different combinations over the last two weeks, and using an “Off Switch” certainly reduces draw-downs, but it reduces overall returns as well.  Volatility works both ways – for better in up markets, and for worse in down markets.

If and when my “How To” Amibroker videos start to become fewer each week, I’ll be able to focus more on trading systems and some more research too!

I hope you’ve enjoyed this post.  Have a great week 🙂

Happy trending,

– Dave McLachlan

More Posts and Videos in the “Three Trading System” series:

  1. Three Trading Systems (Wk 11) – All Filters On, New Buys
  2. Three Trading Systems (Wk 10) – Leap of Faith System Index Filter Switches On
  3. Three Trading Systems (Wk 9) – When There’s Nothing Doing, Do Nothing
  4. Three Trading Systems (Wk8) – Two Additions, Dry Powder and “No Psychics”
  5. Three Trading Systems (Wk7) – Lessons, Ideas, Tests, Drawdowns
  6. Three Trading Systems (Wk 6) – Thank you, Drawdowns, and Trading System Talk
  7. Three Trading Systems Series Week 5 – Can I Ask You a Question?
  8. Three Trading Systems Week 4 – Buys, Sells and YTD Returns
  9. Three Trading Systems Week 3 – Current Trades and YTD Returns
  10. Three Trading Systems Week 2 – Current Trades and YTD Returns
  11. Three Current Trading Systems – Buys and Sells and YTD Returns

February 7, 2016  Tags: , , , , , , ,   Posted in: Trading Diary

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