Developing a model that works stably over the long term is very difficult. We repeat verification over and over again, fail, and then repeat trial and error again based on those failures.
The market is an impermanent world.
In a world where nothing is constant, it seems wrong to attempt to make an unchanging model work over a long period of time. When you are digging through a tunnel in the darkness, you are filled with a sense of despair that you can never see the end, but once you penetrate the tunnel, the pain is a good experience.
My operational model is mainly ultra-short-term day trading, but what I will introduce here is a swing trading model in which positions are carried over for several days. I have been developing a model that can work for a long period of time with many stocks and futures, and I have arrived at the swing trade model.
This model is a breakout forward style, which is quite different from the contrarian models that have been my forte in the past.
This is the Nikkei 225 Futures model, and the profit/loss is based on a fixed position of one mini futures contract.
As of July 2007 to July 2022
↓
| 2007 | +290,000 |
| 2008 | +1,478,000 |
| 2009 | +626,500 |
| 2010 | +610,000 |
| 2011 | +220,500 |
| 2012 | -15,000 |
| 2013 | +45,500 |
| 2014 | +192,000 |
| 2015 | +110,000 |
| 2016 | +291,500 |
| 2017 | +60,000 |
| 2018 | +579,500 |
| 2019 | +265,000 |
| 2020 | +537,000 |
| 2021 | +661,500 |
| 2022 | +482,000 |
Profit/loss +6,415,500 yen
Win rate 52.5
Sharpe ratio 0.11
Maximum drawdown: 262,500 yen
Over the past 15 years, the Nikkei 225 (index) has increased “from 15,765 yen to 27,840 yen, +77%,” while the
The investment model (simple interest) has outperformed the index by more than 15 times, “500,000 to 6,010,000, +1,202%,” significantly outperforming the index.
While the 2012-2013 period was a time of record volatility, so the returns were not that great, the most recent four years have been quite profitable.
The reason it has been so stable even in markets that have recorded historic crashes, such as the Lehman Shock and the Corona Shock, is that it has taken positions in line with the most recent trends.
Because they go long when the market rises and short when it crashes, they have been able to weather panic markets without incident, and of the past 15 years, they have been extremely stable, with only one year of losses in 2012 (and even that was almost even).
If we were to compound the investment using P’s formula, we would get
500,000 yen to 4,738 million yen (+9,477 times), which is an astonishing return.
Accumulate 10% from trade profits into a separate account
We have seen that compounding using the P formula can lead to an explosive increase in funds, but the problem with compounding is that the account balance fluctuates wildly.
When compounding using the P formula, we recommend that the initial investment be recouped when the trade earns money, and then the risk-free funds are invested thereafter.
Since they are running with risk-free funds, it is perfectly fine if the investment balance goes to zero after that, but still, some people may find it hard on their mental health to see their investment account going up and down so violently every day.
In such cases, there is a very nice way.
That is to set aside 10% of the profits from each trade. The key point here is to create a new dedicated savings account.
In this account, the money earned from trading profits is deposited into the account, so of course the balance does not rise and fall like an investment account, and the money just keeps accumulating.
You can use the money for travel and leisure, or you can continue to accumulate money in this account.
If we were to compound using the P formula and accumulate 10% of earnings on each trade, we would have the following
2007 – 2021
↓
Hmm? Let’s see, 1,962 million yen?
Just by accumulating 10% of every trade profit generated, it has become an amount that is beyond surprise…
Moreover, unlike an investment account, this is a savings account, so the balance does not rise or fall, but only accumulates, and this is the destructive power of an account.
Is this really a fantasy?
This accumulation method is based on compound interest management using the P formula, which is why it is possible, but even so, it is a little bit different.
However, this alone is a bit confusing, so let’s take an example of accumulating 10% of trade profits while using the P formula, as of this January-July 2021.
Profit/loss when fixed with one mini-futures
Profit +596,000 yen
↓
Profit and loss when the number of sheets is varied by P’s formula]
Profit and Loss +803,250 yen
Instantaneous maximum profit/loss +3,101,450 yen
↓
Profit and loss if 10% of trade profit/loss is accumulated].
Profit and loss +1,276,750 yen
↓
In summary, the total profit/loss if 10% of the trade profit/loss is accumulated while using the P formula is
P formula +803,250 yen
Accumulation +1,276,750 yen
Total +2,080,000 yen
The account managed by the P formula has a constantly variable number of shares, so the account balance fluctuates wildly, but on the other hand, the savings account with 10% removed from the trade profit shows a steady increase, as a matter of course.
If you operate with the P formula without removing 10% from your trade earnings, you will be disturbed by the violent fluctuations in your account balance, and it will be difficult to continue trading calmly. However, by accumulating 10% of the trade total in a separate account each time, traders can continue to trade calmly with the peace of mind that their assets are increasing.
Although it may not seem to make much sense to take 10% out of your overall trading profits, the effect of gaining a sense of security due to the existence of a reserve account will bring you immeasurable mental benefits.
Application to individual stocks
Happily, this swing trading model can be applied to individual stocks as well as Nikkei 225 futures.
The maximum position holding period is one week, which is a bit long, and the positions are always closed on Friday, the weekend.
Using this model, the following is the performance of 30 stocks in the core30 sector listed on the First Section of the Tokyo Stock Exchange.
Total profit/loss of core30 stocks (100 shares)
As of July 2014 – 2021
↓
Profit/loss +22,822,000 yen
Winning rate 56
Sharpe ratio 0.25
Maximum drawdown: 952,000 yen
Below are the results of some of the individual stocks in the core30
Shin-Etsu Chemical Co.
+759,100 yen
↓
Kao Corporation
+528,900 yen
↓
Softbank G
+1,010,000 yen
↓
Sumitomo Mitsui Holdings, Inc.
+655,700 yen
↓
Mitsubishi UFJ Holdings, Inc.
+116,400 yen
↓
Mitsubishi Corporation
+396,200yen
↓
Nintendo
+6,644,200 yen
↓
Murata Manufacturing Co.
+882,000 yen
↓
Here are some emails from study group attendees
Dear Mr. Maekawa
Thank you for your kind attention. I am a member of the study group.
I have read your logic. The logic is very simple, and the win rate and PF leave no room for doubt that it is curve fitting.
And yet, the fact that you have achieved such a smooth, steadily rising profit-and-loss curve is amazing.
I am sure that you must have devised countless methods and tested them repeatedly, but it is very interesting that you finally arrived at a breakout model that takes volatility into account.
In addition to the simplicity of the logic, the fact that the number of trades is high and the win rate and PF are not so high makes it worth trusting.
Also, as you mentioned in the explanatory video, the system that follows the direction of the market straightforwardly gives me a sense of security. Although I have not yet operated the system, I have a pure intuition that “this system is great! I also felt that Puyan, the creator of this system, is a great person.
I also think that Mr. Puyan is even more amazing for having created this system…. I am going to start using this system from the beginning of the week.
I think that the relatively large drawdown in July is also favorable for me.
I think there is a high probability that a major recession will occur in the future, but I am looking forward to it a little, though inappropriately. I think I will ask some practical questions in the preliminary stages of the operation.
I would appreciate your company.
I only have an account with Rakuten Securities, so I will start with that. After I have operated it for a while and become familiar with the practicalities, I would like to prepare funds that I can afford to lose, use the P formula, and leave it with my eyes closed.
In the meantime, I would like to erase it from my memory because I feel up and down when I see the earnings. In that case, would Okasan Securities’ Excel automatic trading be the best choice? Thank you in advance.
About the Study Group
The Swing Trade Model is a study group that can be used for a variety of stocks, including futures and equities, and furthermore, aims for insane returns using the “P’s Formula” money management technique.
Contents
Understand how the swing trading model works using Nikkei 225 futures and individual stock issues.
Understand the various uses of the “P formula” to systematically adjust the lot size for each trade.
The benefits and mental utility of accumulating 10% of trade profits and losses.
How to set optimized loss-cut settings.
Order Flow
Nikkei 225 Futures
The order is placed in two steps: “Place a new order (stop loss) at 16:30” → “Place a close order between 8:45 and 15:00 of the next day”.
This is a swing trade that carries over positions to the next day or later, and all positions are closed at the close of trading at 15:15 the following day.
Individual Stocks
An order is placed only once a week.
The order will be placed in two steps: “New order (stop loss) at 9:00 on Monday → Close order at the close of trading between 11:30 and 15:00 on Friday.
This is a swing trade where the position is held for up to 5 days, and all positions are closed at the end of trading on Friday.
Trading Environment
Individual Stocks
Those who are able to place orders at “9:00”, the start of trading on Mondays.
Please note that this does not mean “placing an order by 9:00,” but rather that the order must be placed based on the rate at 9:00. If you cannot place an order with a securities company at this time, you will not be able to place an order for individual stocks.
The handouts will be in Excel format, so you will need Microsoft Excel on your PC.
Handouts
Evidence material of the operation model (Excel)
Signature file for ordering (Excel)
P formula” for lot management (Excel)
Explanatory materials (PDF)