APS and Monday Correction
Many times our users raise a question, we might be executing trade delayed by 7 days or more. Their justification is, if Rule-X generates a call to buy some stock on Monday then it will report to us on Friday. We can trade the same on next monday. Things could be even worse in case of sell trigger because bearish movements are steeper than bullish movement. Above argument appears to be very logical but we have found it has hardly any impact. At least granuality of impact which we have observed is not worth of investors time. There are two theoratical reasons why it does not affect investors:
- Average size if trade in APS is around 10 months (for profitable trade it is more than 16 months). Taking a linear model of growth (which is reasonable across 10-16 months period) delay of 2 weeks should not affect the result by more than 5%
- Rule-X triggers most of the time due to a breakout scenario (very sharp movement). After any such movement we have noticed stock price backtracks and cools down for the next few days. So, it becomes more favorable to delay a transaction by few days rather than doing trade on the very next day.
|Stock||Daily Trade||Monday Trade|
Out of 10 sample stocks 3 are showing positive impact due to delay in trading. This could be otherway round for different set of stocks. Without going in discussion of what could happen with another set of stocks, let us just analyze the final impact on our current selected set of stocks. Daily trade is showing yearly 17.3% percentage return while weekly is showing 16.5%. There is difference of 0.8% per annum. Is it worth of our time to visit everyday market instead of just on Monday to gain extra 0.8% return? I believe most of the investors will prefer for Monday trading. If someone likes to visit everyday market then anyway our portfolio data is updated every day in evening and one can do trading on daily basis. For detail calculations please download the following file http://safetrade.in/articles/APSMondayCorrection.pdf Conclusion: APS system appears like it is delaying its user to trade by a week. However, actual impact on the performance of the portfolio is very minimal and probably zero.
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