Riding the Ripples

When I explained my short term trading system to a friend of mine, he said it was like “riding the ripples” as compared to longer term trend following systems that try to ride the waves. I guess that fits.

The deal is, every day I record the gains or losses into a spreadsheet and average the daily return across all managed accounts to gauge how the system is working. After yesterday’s strong 1.13% move, and seventeen trading days of data, the average daily gain is 0.26%, which if multiplied times two hundred and fifty trading days a year adds up to a sweet 64.78% un-compounded rate of return and a whopping 90.13% compounded annual return. With so few data points that figure varies wildly on daily basis but the figures are encouraging none the less.

One concern I have is that the smaller accounts I manage don’t share equally in those gains as trading sizes are smaller and transaction cost are greater. Recent back testing has me convinced I need to un-diversify (is that a word?) slightly to improve those ratios.

The above charts show a couple of typical trades generated by the system.