Annual Performance Review

With the end of 2011, it's time to see how the Night Owl did  Here are the numbers for my trading account, my IRA and the ES Fantasy Trader.

Trading Account

My final annual gross return on my trading account in 2011 was -1.15%, my first losing year since 2008 (I was up 30% in both 2009 and 2010).  I missed my basic goal of turning a profit, and also missed my goal of beating the Dow, which ended with a 5.5% gain.  I also failed to beat the3 SPX which finished flat.  I did at least manage to beat the Nasdaq (down 1.8%), the average of US equity funds, which lost 2.2%, and the Eurkeahedge hedge fund index, down 4.1%.

Clearly 2011 was a difficult year.  It was also a learning experience for me, not having encountered this sort of crazy environment since I began trading full-time in 2004.  In many ways, it was harder than 2008 to be a swing trader.  When you have the Dow up and down by 400 points for four consecutive days, it's really hard to make any money swing trading.

And that was part of the problem - I don't like to trade when the VIX is above 20, and the VIX spent nearly half of 2011 above that level.  By the time it broke 30, I pretty much stopped trading entirely.  So I really only ended up actively trading five months this year.  In addition, I was hampered by a failure to play the short side effectively so I missed a number of good opportunities there.

Also, I was hurt by one very stupid trade.  I had bought CSIQ and held onto it while it did nothing but go down.  I finally threw in the towel on that one but the damage was already done.  Without that one realized loss, I would have managed to equal the Dow for the year.

IRA

My IRA on the other hand did quite nicely, finishing the year with an 8.67% gain.  The big difference here was that my IRA is more heavily weighted to large cap dividend yielders that were in fashion this year.  I also unloaded almost all my shares in silver (SLV) at 44.50 near the April peak, realizing a nice profit there (I had bought in at 13).

ES Fantasy Trader

And finally, the ES Fantasy Trader.  This ended 2011 with a 34.75% gross gain.  I made 48 trades and had 32 winners and 16 losers, for a 2:1 win/loss ratio.  Commissions came to $1920, leaving us with a net profit of 32.83%.  And recall that I began the ESFT only on August 18th, so these are not full-year numbers.

Recall that the point of the ESFT is to put some substance behind my daily market calls.  I generally enter each trade late at night, usually around 1 to 2 AM, based on my call for the next day and then exit the next day (to be precise, later on in the same day) at some point during the regular session.  Very rarely, I'll hold a trade for a few days if that seems warranted.

So why not do this for real?  First, my trading account won't support the sort of leverage that even one ES contract affords, much less the 10 I trade each night.  IB will let me do it, but I'm just not very comfortable with it.

Second, I sleep better not holding futures positions overnight.  Obviously, just about anything can go wrong while my trade is cooking and I'm sleeping, whether it's an earthquake in Japan or some country in Europe going bust.  And since I don't put any stops on these trades, there's the potential for some really nasty surprises when I get up in the morning.

And third, although I regularly put on short ESFT trades, I don't like going short for real.  I'll admit that's just a purely psychological bias on my part and it's something I think I'll put on my New Year's resolutions list.  Still, it's sort of frustrating that my paper trading did so much better than my for-real trading.

Oh and last but not least, readership of The Night Owl Trader was up by an order of magnitude in 2011 over 2010.  Many thanks to all my devoted readers.