Hi Mike,
>>Have you computed an average?
Overtime I find for every $1 risked, I earn between 10 and 30 cents. I tend to focus on this number closely each month as it gives me a true look at system performance. % gain is a misnomer as it doesn’t take into reflection risk. $ amount per week is even a worse number to look at as it really gives me no information at all about the system performance.
I use a time parameter to find a trade and quite often no trades will be found. So I just try again the next day. Often I will not trade at all for the day.
>> Do you compute average win:loss ratios, per period, or running average to date, or whatever? Also average win size to average loss size?
I’ve been using a fixed ratio of 2:1 risk/reward and find the win rate hovers around 42%.
In the past I’ve tried increasing it to 3:1 but find that the win rate declines down to the mid 30%. I prefer a 2:1 with a higher win rate which suits me. Both are profitable but the 3:1 has more swing both +ve and –ve. I’ve also experimented with a Risk/Reward based off market parameters but I prefer the 2:1. Suits me well and I rest easy with this.
>> I'm always interested in automatic traders, because it sounds so much like the holy grail and I've never been convinced that it can work, at least not the kind of system the average retail trader would have access to.
For me, automatic trading is the holy grail. It’s quite amazing to watch a computer program that you designed and wrote executing trades exactly to your rules in the market place. I am yet to accept it as norm and am still impressed by it each day. It is like having the perfect employee
>> I've never been convinced that it can work
Of course if you think it won’t work, then it never will
For me, I like to have a clear set of trading rules to go by. To the point that there is no ambiguity. A pattern can either be traded, or it can’t, there is no grey area where one has to go by hunch or gut feel.
These rules can then be written down on paper and someone else could follow them because they are so clearly defined.
For a long time I traded my rules. I would have a pen and paper when the market opened up, I would scan the charts and manually put my orders in etc…
I then learnt that Interactive Brokers has an API interface where one can write their own software. As I specialize in software and database design, I then designed order and money management software. I would still look at the charts and fire the program manually but the calculations for position size and actual orders to buy/sell where handled by the program. Saved me a lot of hassles.
The next step was to fully automate it. Instead of looking at the charts, my software now gets the data feed, and makes the decisions for me based off of my rules. No intervention is needed by me whatsoever. I bought a server computer that is hidden away in my house (so my kid can’t mess with it) and runs the automatic trading programs. Each morning I start it up before the markets open. I then can check on it remotely during the day to make sure all is inline and at the end of each day do my daily clean up and be ready for the next day. It’s really quite boring, un event ful, and monotonous. When I say I day trade Commodities (which I rarely say as it brings out the wrong type of conversation) people envision multiple charts, stress, screaming buy/sell, hair pulled out, no sleep etc… I knew what I wanted out of a system and designed it to be how I wanted – uneventful, boring and taking up as little of my time as possible.
>> Do you find you are continually having to tweak the system to cope with changing market conditions, or does it basically run year in year out?
In terms of how I enter the market and money management - I have never changed the rules of my system.
I have tweaked with Risk/Reward but that had nothing to do with market conditions.
>> What's your range of instruments?
Last month and this month it is Crude Oil, Wheat and Soy Beans.
I like to mix it up a bit. Sometimes I bring Corn, S&P or Dow Futures in for a few months, it depends. I use the same rules over every entity.
Often I find one Contract will be stella and others won’t for the month. Last month Soy Beans was the stella one and Wheat and Oil were break even.
>> Was 2010 as good, better or worse than 2009 for you?
2010 was worse. I got greedy and strayed from my system for a while
But that is another story.
>> (Don't worry; I'm not trying to steal your ideas. I have no intention of becoming an automated trader. I'm just interested, that's all).
Actually I’m not worried at all. I’m sure each person who is actually making money in the markets consistently is trading very different from each other. Which tells me the system is irrelevant but I bet they all have one thing in common – good money management, and wins bigger than losses. I find it interesting how people become obsessed with the “what should I buy”, and tend to ignore the more important parts of trading. How I enter the market is ridiculously simple, it’s how I exit the market that matters.
>> Great job, forget public expectations and just keep grinding away
Thanks Blackbison, I appreciate the feedback. I’ll keep that in my mind when the weather is overcast and it’s hard to get out of bed – “just keep grinding away”. Good, clear advice.