Trading Systems Performance for December 2022
Below is a performance summary for our fully rules-based trading systems for the month of December 2022. To learn more about these systems and to follow along in real-time with their signals, check out our Trading Systems page.
December markets at a glance
| Market | December | Year to Date |
|---|---|---|
| S&P 500 ($SPX) | -5.76% | -18.17% |
| 10-Year Treasury (IEF) | -1.49% | -15.19% |
| 60/40 Portfolio (SPY/IEF) | -4.05% | -16.98% |
Trading system performance
| System | December | Year to Date |
|---|---|---|
| Trade Risk Index | +1.91% | -13.57% |
| Merlin System | -0.39% | -20.91% |
| Lamorak System | +4.42% | -6.29% |
See Performance Disclosures: Monthly Performance. Trade Risk uses Interactive Brokers as our primary broker and reporting agent.
Trading system commentary
Stocks and bonds sold off reverting to their primary trends in December cementing one of their worst years in decades (particularly for fixed-income). Despite these dismal numbers, the S&P500 market cap-weighted index held up well (-18.17%) compared to the average widely owned tech stock that saw its share price get cut in half.
I am very pleased with the performance of our two trading systems, Merlin and Lamorak throughout this very turbulent year. Looking back over the individual trades and execution from the year, each trading system performed exactly as expected and handled the transition to an inflationary bear market just as I would have hoped.
Merlin had a loss of 20.91% in 2022, which is significant, however, it’s important to keep in mind that Merlin is a long-only system that favors buying and holding growth stocks. Growth stocks as a factor were more than cut in half throughout 2022 (depending on your universe) which shows us that Merlin did indeed do its job at managing risk. Said another way, if there was any type of environment that I would expect Merlin to draw down in, it would be a transition to a bear market for growth like we saw in 2022.
The Lamorak Trading System was our relative outperformer on the year and this makes sense since it turns over stocks much faster and doesn’t focus on longer-term holding periods.
The Trade Risk Index finished the year down 13.57%, well ahead of the S&P500 and also outperforming our 60/40 stocks and bonds benchmark. This helped reinforce that our system rules are robust and can hold up well to abrupt changes in market environments.
One other very important distinction about our Merlin and Lamorak numbers presented here each month is that they are based on a 150% leverage ratio on both systems (borrow up to 50% on margin). If you were to strip out the leverage component a Merlin cash account would have finished the year at approximately -13.90%, Lamorak at -4.19%, and Trade Risk Index at -9.04%.
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