Healthy Profits After Years of Trading

As we saw happen so often last year, US stock prices on Monday were heavily buffeted by headlines stemming from trade negotiations between the US and China.

Share prices on Wall Street initially slumped — following weekend tweets from President Trump that suggested imminent hikes in tariffs on imported Chinese goods — but later bounced back, on hopes that trade talks may still progress and succeed.

After falling more than 1%, the S&P 500 Index subsequently clawed back much of these losses and finished the day down just 0.4%.

The shaky start to the trading week came after what has been a bullish time for the stock market — the NASDAQ and S&P 500 Indices both hit records highs last week, buoyed by better-than-expected quarterly earnings.

While European stock markets haven’t been testing all-time highs, they have been on a strong bullish run so far this year, nevertheless. In late April, the French CAC 40 hit its highest level since May 2018, while the DAX pushed to a fresh seven-month high at the start of this month.

The top trader we are looking at today has a substantial exposure to the German stock market and has been faring well so far this year. Their name is DAXMonat and this is how their account has been performing:

An impressive aspect of this account is the length of their track record — they have been trading with real money for more than four years and over that time have delivered overall profit in excess of 12%.

They don’t trade particularly frequently though. As you can see, they have traded fewer than 150 times over that long stretch of time. As they state in their strategy outline, the low frequency of trading is intentional, designed to keep transaction costs down.

Risk metrics are generally on the low side — volatility of just 2.24%, with an overall risk score of 3, though the maximum drawdown is quite chunky.

Let’s look at how that long track record breaks down by month:

I like the consistency on display here. Yes, they had a bad second half to 2018 — as did many other traders — but how bad is relative. Their overall loss for the year was very modest in comparison to the profits generated in 2016, 2017 and so far in 2019.

Finally, let’s view the assets they have been using:

About three quarters of their trades utilise the DAX, and therefore, as noted above, they do have a big exposure to the German stock market — though once again, that is consistent with the stated strategy for the account.

There is a sliver of EUR/USD exposure, along with nearly a quarter of positions being in oil. There is therefore at least some element of asset diversification here.

In summary, this is an account that has been able to demonstrate profit while trading over a long period of time. If a track record is only brief, it can be difficult to determine whether positive performance is more to do with luck than judgement. The longer the track record, however, the less likely that the outcome is being governed simply by good fortune. Their trading criteria is explicitly laid out, which is always nice to see and their risk metrics are sensibly low.

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