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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:
  1. 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%
  2. 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.


We have also noticed that many times fast movement of stock backtracks and hits the trigger in opposite direction in next few days. So, many short lived triggers which appear on daily basis are filtered out on weekly report.
As practical validation we selected 10 stocks (NIFTY in alphabatical order to avoid biasness in sample data) and calculated profit/loss across 5 years (1st April 2008 - 28th March 2013). Following table has summarized the same for both kinds of trading. Figures on right columns are showing amount of capital transformed after doing trading on corresponding stock for the last 5 years (initial capital Rs.1,00,000).

Stock Daily Trade Monday Trade
ACC 136190.00 133801.00
ASIAN PAINTS 379198.20 370163.95
BAJAJ AUTO 590265.00 548904.00
BPCL 212446.00 195422.00
BHARTI ARTL 76570.00 74306.00
BHEL 116882.00 121241.00
BANK BAROD 209767.00 222482.00
AXISBANK 194177.00 175870.00
CAIRN 161235.00 175549.00
CIPLA 142878.00 130337.00

Total: 2219608.2 2148075.95
Percentage Profit/Loss(%): 121.96082 114.807595
Profit/Loss(CAGR): 17.3 16.5

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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