I finally managed to get an extra Spreadbet Account with igIndex and I started the Test System for my Index Spreadbets some days ago (incredibly, I still haven’t heard a peep out of CityIndex !!). Anyway, a couple of nights ago I looked at how far the FTSE100 dropped in March 2020 and worked out it was 36% at the worst level of Drawdown. You can see details of the Test System on my ‘Trades’ page on WD1.
It struck me I need to design my Rules and my System so that it can cope with a 36% Drawdown in its stride (although in practice, a 36% Drawdown would be extremely rare) and then it also hit me that really I should design for 50% Drawdown which I think some small Rule Changes will ‘easily’ manage and be mostly mechanical and just need a small degree of Hedging and the timing of those could be quite sloppy and not hurt Returns too much.
With my System I want it designed in a way that minimizes the scope for Human Interaction and of course the consequent Human Stupidity that comes along with it. The less input needed from the Human, the more effective and ‘leave alone’ the System will be.
So, in that vein a really neat solution seems to be to raise the Cash Buffer in the Account to 15% from 10% (we had a rough day on Friday 18th June and this made me realise that with my ‘Mirror’ Share Spreadbets I do tend to run with 15% minimum Cash Buffer most of the time). The other simple and mechanical change is to reduce the Cash Withdrawal rate per year from 75% of Profits to just 60%. The additional 15% would get added to the back-up Emergency Buffer of 10% (if you feel really conservative, you could start with 15% Emergency Buffer) and after a few years the Emergency Buffer would be sizeable and could easily cope with 60% FTSE100 Drawdown and maybe more. As a result, after a few years of only spending 60% of Profit on Beer and Cars, it would be possible to go up to 75% Cash Withdrawal to spend on pure fun. So, as a result of these Changes, the Full Rules are now:
Well, that’s it. If I think of any necessary changes then I will update this List and shove it out as a Blog. Cheers, WD. Related Blog: It is probably a very good idea to read the start of this recent Blog which described the Index Spreadbet System and the logic behind it (note, some of the Rules/Parameters may differ from those in my New Rules – this is because faults in the system have been found and addressed): https://wheeliedealer2.weebly.com/stocks--markets-blog/wheelies-new-index-spreadbet-system
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Stocks & Markets WheelieBlogsThese tend to be more Markets and Stocks related and timely - the Blog Page on the Main WheelieDealer Website has the 'Educational' stuff (well that's the theory anyway !!). Archives
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