The PayTrading strategy is to never take a loss. Regarding your implementation of the strategy, is it your inclination to hold on to a position or positions if the prices move against you and the 1% sell isn't hit for some time? I'm talking worst case. Presumably last winter your shorts would have done well but might the longs have gotten away? You're using ETF's; would your answer be the same for stocks? Perhaps the innate volatility of a 3X would trigger the sell before it got away?
Yes, my intent in this exercise, at least is to remain long all the time, taking repetitive profits as they come along. At least in this case it's not real money so I'm not actually having anything at risk, per se, but this would be how I'd play the game in real life. The small detail not yet having an extra $40,000 to use for "seed money."
In the worst case, yes, you'd be sitting on paper losses, but in theory the mirror image funds should be making money and growing for you. Truly the worst case with these particular set of funds would be for them both to revert closer to the mean of zero, then move in a sideways fashion but in a non-trending way. A couple of them do pay a small dividend which would at least offer some time compensation, especially as the holdings grow to larger values.
If I were doing this with stocks I might favor larger, dividend paying bluechips to at least offer some compensation if the holding time becomes long.
The bottom line is that any and all systems, methodologies, what have yous are always going to present a mixture of risk and reward. Finding our place on that "efficient frontier" where we get the most return for the level of risk we're comfortable with is, in a sense, our own personal Holy Grail quest. That's why such a journey is unique to us all individually, why there's never going to be a one-size-fits-all system that will work for all of the people, all of the time. AIM comes close for many, but won't save you if you keep feeding more and more money into an Enron. Pay trading may also work well for others, either in the form I'm experimenting with or in the pure stock form as originally developed for. And lord knows there are as many ideas and systems as there are investors to think of them, write a book or put up a website. If it sounds too good to be true it probably is, but if it lets you kick the tires and try it out, judging for yourself, then such a system merits consideration, if not implementation.
Best,
AIMster
AI
