Cutting Through The Noise To Find The Most Profitable Trading Strategies. Forget the Hype - Read It Here First

Wednesday, August 29, 2012

Kagi Capital Growth Review

In a divergence from the norm I will do a review of a trading system for stocks available on Collective2 called Kagi Capital Growth. On my page I have selected for systems which have been around for at least 1,000 days and have a maximum drawdown in and around 20% or less.

What made it attractive was its performance history since its launch in October 2010, boasting consistent if modest returns.

It also boasts a maximum drawdown of just 15% which occurred between July 8th and August 22nd of last year.  It's one of only a handful of systems on Collective2 which doesn't exhibit a "wipeout" period.  The strategy does suggest some level of underperformance over the summer months as shown this year relative to the S&P.  Adapting the time-old mantra of Sell in May and Go Away would alleviate this.  It's possible the Publisher tries to hard to manage positions perhaps while on vacation?

The strategy has so far traded a core set of stocks, namely Apple (AAPL), Altera (ALTR), Amazon (AMZN), Salesforce (CRM), and F5 Networks (FFIV).  The only low price stock in the mix was a once off - and small - trade in Nevsun (NSU), so this is a strategy built around reputable stocks.

The largest individual loss was a Netflix trade which shed nearly 20% in a couple of months.

The biggest win was a Salesforce trade which returned 25%.

All bar one trade are buys. The strategy has generated 62 trades which are held for about a month. The average loss if -5.7% compared to an average gain of +5.4%.  Losses were skewed by three trades which each lost 18%-19%, excluding those trades gave an average loss of -3.9%. Taking out the 24% Salesforce winner dropped the average gain to +4.9%.

However, with 58% of trades profitable the strategy manages to return an average of 0.7% profit per trade including the outliers.  So while the performance graph may be somewhat distorted by the larger investment put into winners versus the losers, it still manages to be a profitable strategy which has outperformed the S&P.

At $49 a month it's a relatively cheap entry player.