In the past few days, many people’s thighs have turned red.
It’s not because of the hot weather,
It’s because I regret shooting for fame, “It would be great if I could stop profit on July 4th...”
Since July 4th, there has been a general decline in the market, whether you are large cap , small cap, growth and value have all fallen.
All Christians, without distinction, have been hurt...
said before, "Losing it after you have gained it will double the pain." , you can imagine how regretful this wave will be! Why doesn't
make a profit?
Just look at the market chart and you will know. Before
, the Shanghai Composite Index had reached 3731. There are not many people who have seen 4000 points in this round of rebound.
has only rebounded to 3424 now. Even if
only rises to 3731, it can still rise by 9%. If
rises to 4000 points, the potential upside is 17%.
Of course, there is a more confident reason.
The market valuation is not high, and Wind’s stock-bond performance-price ratio has just returned to the average level of the past 10 years. The position
can be moved up or down. You may continue to go up or you may go down.
But I didn’t expect it to be so unsatisfactory. It fell, and it was an indiscriminate general fall.
Then someone thought:
A valuation like this is acceptable, but when the market is at a periodic top, should I take profit on part of the position and ?
01
The market choice of
cannot be judged in the future, so whether to take profit at the periodic top, we still backtest the historical data.
Lazymao chose CSI 300ETF’s rising market price from the beginning of 2019 to the Spring Festival of 2021.
chose it because this market is representative enough.
In April 2019, January 2020, and March 2020, there were three major waves of callbacks, that is, there were three phased tops, and there were three opportunities to take profits at the phased tops.
02
Don’t stop profiting, get all the way to the bottom
first backtested the profit and maximum retracement of “not taking profit, get all the way to the bottom”. The lowest point of the
market was January 3, 2019. On this day, the net value of the CSI 300 ETF was 2.833.
The highest market point was February 10, 2021. On this day, the net value of the CSI 300 ETF was 5.718. If
buys at the lowest point and sells at the highest point, the total return after backtesting is 101.82%, the annualized return of
is 39.37%, and the maximum retracement of
is -16.09%.
03
stage high point take profit
In this wave of market, there have been three sharp falls.
are April 2019, January 2020, and March 2020 respectively.
If you stop profit before these three big drops, and then take it back after it reaches the lowest point, what will be the profit?
The answer is obvious,
's income will increase, because it has escaped the big drop, and the maximum retracement will also decrease. And the higher the take-profit position, the better the effect.
For the position with a profit stop of 10%, the total return increased to 111.96%, and the maximum drawdown was reduced to 14.44%.
When all positions are taken at a periodic high point and then fully filled at a periodic low point, the total return can be increased to 218.79%, more than doubled, and the maximum drawdown is also reduced to 7.27%.
is very effective! Since
, I have experienced this net value curve. I have escaped three major drops by "flattening", and excess returns have been accumulating.
Of course, this is the fairy difficulty, and mortals may not be able to choose the timing so accurately.
04
Dynamically adjust positions according to the market position
Let’s talk about our more conventional and ideal approach.
Take heavy positions when the market valuation is low; after the valuation is reasonable, gradually lighten the position as the market rises; after the overvaluation, accelerate the lightening.
PS: The next large section introduces the backtesting method, which is a bit convoluted. Friends who are not interested can skip it directly.
Considering that the main purpose of this time is to verify the impact of periodic top take-profit on final returns, Lazymao made a small change: determines the market position without using valuation, but using market growth instead.
And the increase or decrease here is not the actual increase or decrease, but the percentage increase or decrease.
Specifically, this is like this.
For example, if the actual increase of this market is 70%, then the 70% increase is divided into 100 equal parts.
The lowest 30 parts (that is, the increase is less than 21%) are considered to be undervalued areas. ; The top 20 shares of
(that is, an increase of more than 56%) are considered to be overvalued areas; the middle 50 shares of
(with an increase of between 21% and 56%) are considered to be a reasonably valued area.
Therefore, the final backtest method of is as follows: since the lowest point of
(1), any increase within 30% is considered to be an underestimation area, and the position is always full; when
(2) has an increase between 30% and 70%, it is considered to be an underestimation area. It is a reasonable valuation area. For every 10% increase, the fund position is reduced by 10%; after
(3) rises by more than 80%, it is considered an overvalued area. For every 10% increase, the fund position is reduced by 20%, and is finally cleared at the highest point. The last 20% position;
(4) In order to take profit at a periodic high point and then take it back at a low level, and to avoid frequent trading, it is required to fall by 10% from the highest point and fall into the next increase range before the stop can be taken. Take back the lost position.
For example,
has risen by 30% since the lowest point. At this time, 10% of the position is taken as profit, leaving 90% of the position.
The market continued to rise, reaching a maximum of 36%, and then began to pull back. Only when the correction reaches "the increase since the lowest point is within 26%" will the 10% position that has been taken profit be taken back.
This is the buying and selling process of the dynamic position adjustment strategy:
The blue shaded part indicates the position change,
Look at the place circled in the red box, , part of the position was taken at the top of the stage, and then it was taken over at a lower position. came back.
Such a good strategy and such a smooth execution process, what do you think the final profit will be?
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The results are shocking,
total income: 78.43%;
annualized income: 31.49%;
maximum drawdown: -14.35%.
is really as fierce as a tiger in one operation, and in the end the return is not as good as the stupidest one (the return of holding the strategy is 101.82%).
05
There is another imperfection in this backtest.
has been going too smoothly since 2019. It is a typical bull market on the right side.
In reality, we cannot judge whether it is a bull market on the right side. For example, no one dares to say now that "after 2863 points on April 27, the market will fluctuate smoothly and upward."
What if there is another big drop like in 2018?
In order to make up for this imperfection, we pushed the market forward and started backtesting from the bottom in 2016, thus including the 2018 crash.
Let’s take a look at the backtest results.
This is the position change during the backtest:
At the end of 2017, the beginning of 2018, April 2019, January 2020, and March 2020, the profit was taken at the five stage tops. The position was successfully taken back at a lower position.
perfect!
What about the benefits?
total return: 75.35%;
annualized return: 30.41%;
maximum drawdown: -13.52%.
During this period, if you had gone from the lowest point to the highest point, the total profit would have been 118.4%, and would have made 43 points less by using the dynamic stop profit of the position.
is still unsatisfactory. It seems that no matter whether there is a big drop in the future, the dynamic stop-profit strategy will be difficult to outperform the position fixed strategy.
06
To be honest, the backtest results were quite disappointing.
originally thought that position dynamic stop-profit could enhance the income, but unexpectedly it significantly reduced the income.Why is
like this?
Let’s dig deeper.
The purple shaded part is the excess return of the dynamic take-profit strategy relative to the hold position strategy.
The purple shaded part is positive, which means there is excess return. The dynamic take-profit strategy outperforms the hold position strategy;
Purple The shaded part is negative, which means there is no excess return, and the dynamic take-profit strategy underperforms the position-holding strategy. The black curve of
represents the position. When the position of
is relatively heavy at the beginning, dynamic take-profit, that is, periodic high-point take-profit can bring excess returns.
Later, because the position was relatively light (less than 60%), and the market continued to rise, the dynamic take-profit strategy underperformed the hold position strategy, and the excess returns dropped rapidly, which ultimately led to the dynamic take-profit strategy running out of control during the entire backtest cycle. Lose and hold positions without moving strategy.
In other words,
dynamic take profit strategy underperforms the position holding strategy, not because of the periodic top take profit, but because the position drops too fast after the market is overvalued.
07
So, the conclusion is obvious,
No matter what the market valuation is, after taking profit on part of the position at a periodic high point, as long as you can take it back at a lower position, it will definitely bring excess returns.
This conclusion is nothing new, it is considered common sense.
But the motivation behind it is worth pondering. Why should
take profit at a staged high point?
Because the risk appetite is not that strong, even if it knows that it may rise in the future, it does not want to bear the possible fall in the short term.
And the risk preference is not that strong, which also leads to the high probability that you will reduce your position when the market is overvalued in the future.
In other words,
is now taking profit in stages ≈ lowering the position when it is overvalued in the future.
has just been back-tested. In the late bull market of
, as long as you dare to quickly lower the position and measure the entire profit range, there is a high probability that you will underperform the position. strategic.
Therefore, the answer to whether should take profit at the top of the period has come out.
If your goal is to outperform the index, unless you have the courage to operate with high positions in the overvalued area of the market, you can also take profit at a higher level after the period. Take it back at a low position, otherwise the staged profit taking will do more harm than good.
If your goal is to make money in peace of mind, it doesn't matter whether you outperform the index or not, then you should still take profit. After all, "losing it after you have gained it will double the pain."
After writing this, Lazy Mao instantly understood the reason why public fund managers were unwilling to reduce their positions easily even if they were bearish on the market.
The position is low. No matter how good the stock is, the total return may not be able to beat others. The assessment of public funds is relative ranking, and the level of ranking is more important than the level of income.
*Disclaimer: The content of this article is for reference only and does not constitute investment advice.
