Does my trading system stand a chance?

[tdrtw]

Hello All, let me give a quick overview (I've been lurking for a while, and got inspired by that the window that blares at me on this board "we notice you haven't posted on our forums in several weeks, why not take a few moments to ask a question" So ok, I will throw it all out here...

*) Been getting serious about this for the last 1 year and a half.
*) Did the "buy a trading system". Learn a lot about a trading system, but had trouble sticking to it, as I realized I needed to walk my own yellow brick road before I was confident enough to walk others. No regrets though as it gave me a huge insight, and I learnt so much invaluable information.
*) I have come to realize that I am my own worst enemy, and through this journey am learning a lot about myself, and my own quirks (some of which stems back to when I was growing up)
*) Read lots of book (the best ones I have come to found for me are Van Tharp and Mark Douglas).
*) I believe that once I enter a position, I have no control over the market, and thus no idea in which direction it will go. But I can control what I do, and thus manage my risk.
*) The holy grail is not something I will find "out there", but something I need to find inside myself.

What I found that suits me is Day Trading. I have a lot of computer skills that has helped me with this. I do not actually put the trades on myself. Interactive Brokers (who I use), allows one the ability to write your own programs to put the trades for you. I use a very simple setup to enter the market, and have all my money management rules and risk parameters programmed into it, so it will caculate everything for me and put the orders on.

Utimately having a system that I can program the rules suits me, because it allows me not to get caught up in the emotion of the single trade. All I need to do is over see it, and make sure it is doing what it is supposed to do.

I've attached last weeks trading. I am using a small amount of my total capital, so they are actual trades, I have not changed any values.

Question) After 35 trades, can one gather a feeling for where it is going?

I feel right now that because of my tight stop (fixed at the moment to $1.00), I am getting a lot of slippage. My win Rate is about 35% (which for a 2:1 ratio, is not survivable when you add in slippage and comissions).

My instrument of choice is GOOG. I figured as it is in the higher price range I would not need to buy as many shares and thus it would keep my commission down. Once comfortable I would be happy to trade any financial instrument.

I guess what I am getting at is am I going down the right path, maybe not so much is this system correct, but am "getting the jist" of things...

Cheers,

trdtw.

 

[Mathemagician]

Welcome!

A week is too short a time period to know if a strat will be successful or is overfit. However, it sounds like you've identified that the stop is too tight and choking the system. Why not widen the stops (I'd suggest setting them a little wider than optimization suggests) and reduce the size to bring risk back down to where you want it?

jj

 

[Trader333]

Question) After 35 trades, can one gather a feeling for where it is going?

I agree with Mathemagician that there have not been enough trades yet in which to make a full decision but you have made a great start in my view.

One thing that I suggest you factor into your system and that is "Volatility" of the instrument that you are trading. A $1 stop on Google will see you get stopped out almost all the time because it has a much higher volatility than this. As a way forward why not try a much lower priced stock (say $30) and apply your system to that and see how it compares to your current results.

To measure volatility you can use average true range and the usual length for this is 14 bars. If you measure this you will see that for a stock valued at over $400 it has a much higher ATR than for one valued at $30. Therefore your chance of being stopped out if you place a stop lower than 1 x ATR is much higher than for a stop that is placed at 1.5 x ATR ?

At least think about this and see how you progress


Paul

 

[tdrtw]

I've attached a document below, which spells out how I enter the Market. I don't use any indicators, as I like to keep it simple and focus on the Management of the trade.

Q) Does anyone use simple entries like this? (am I right in considering it a simple entry?)

Mathemagician / Paul - yes stops are definetly too tight (and thus slippage is a higher ratio). Here are some pointers I am also feeling:
*) The time frame is too small, in essence leading me to overtrade which keeps Interactive Brokers happy.
*) Taking Profit at 2 times my risk is limiting the potential for higher R gains.
*) No trailing the price (thus it is all or nothing, unless the MKT on close order gets triggered).

Correct me where I am wrong - but on trailing the price in some fashion (with say a 3R Limit as well) - it may keep my losses lower in some trades (such as a -0.4R etc..) but also could stop me out of a price turn around. (aka I am stopped out at -0.4R but then the price turns around and would have hit my 3R Limit). Something to weight up.

If I get the time later, I will download the 30 minute data into a database, and see if that fares better over that.

I will look into the ATR formula and see if I can get it coded in.

Q) When the MKT opens, would you use the previous days data to forumulate your ATR, or would you wait until you had enough data that day to calculate the ATR?

Any other ideas/suggestion are welcomed.

tdrtw.

 

[Mathemagician]

It is simple and this concept can be effective. This particular expression of the concept, though, seems to contain a good bit of attempted imposition of your will upon the market. As an example, the placement of a $1 stop loss and $2 target. This rule is not set in response to what the market says it will give, but what you demand of the market. This is not a recipe for success as the market will ultimately prevail its will upon you and not the other way around.

jj

 

[MrGecko]

mechanical systems are not really my bag, but it seems more intuitive to me to have the price of your stop and limit orders determined by a function of price as well; although you would have to filter out trades where P(max) per/share wouldn't cover costs.

 

[tdrtw]

I did some rough calculations and would end up spending approx 30% of my capital (at the current amount) on comission costs for a year trading at that frequency. I'm going to do the following => (1) increase the time frame to 15 or 30 minute bars. (2) Make the stop a function of price instead of fixing it. (3) Increase the risk to 1% (4) trade only 1 trade per day and (5) increase my risk/reward ratio.

Now I just have to apply a sprinkle of consistency, discipline and patience.. and see how it pans out.

 

[Shanghai]

tdrtw, one thing stands out to me which is that you don't seem to be taking into account the longer term trend. For example if the trend shown on say a 30 minute bar is down you wouldn't want to be taking trades where the 5 minute chart is rising. I would be looking at taking only those signals that are confirmed by the longer trend. Maybe you can backtest this to see whether this would have increased your profitability.

 

[anley]

If you're day trading then you have about a 5% chance of making money over time. The reason is simple - the cost of doing business is what you and the majority won't be able to overcome. Slippage, bid-offer spread etc, THE curse of the day trader.

Good luck anyway but DISCOUNT the costs at your peril...........

 

[tdrtw]

Update on Trading

Here is an update on my trading for the last month (Apr 24 - May 23). Attached is my trade log.

Firstly, after a year of constistently losing money (albeit small amounts), I've finally ended up with a positive amount (just under 4% for the month - which includes commissions and slippage).

One thing I found during this month, is that EVERY TIME I screwed with my system, it ended up costing me. Classic example is a trade that has almost touched my limit only to retreat. I moved my stop to my entry so I could protect myself from a loss and break even. Then to see the trade bounce back and shoot through my limit (though I am already out as it dropped just a few cents below my "newly moved up" stop). Another thing I dabbled with was "scaling out" but that was just a function of "fear of losing profits". I stopped doing that. Again, that cost me as well. Another good one was "this stop is way too large, the MKT must be wrong, I will put in a tighter stop than my trading plan as there is NO way it could reach my limit". Of course this again cost me money. I was stopped out when in reality I should have ended the day with a profit on this trade.

I worked out if I didn't screw around with it, I should have had around 7% - 8% gain for the month.

Here is what I have done to "improve it".

1) Stop Amount and Direction is determined by the Market.
2) Before I enter a trade, it is completely planned out. Thus once my trades are on, then I can shut down my computer for the rest of the day (though I do log in just before the MKT closes to make sure all is well).
3) I go for a 3:1 Risk/Reward at a risk of 1% per trade.
4) I trade about 3 positions a day (currently sticking to MSFT, AAPL and FSLR though I have toyed with a few others), putting them on within 30 minutes of the market opening, shutting down and walking away.

Here is what is making the difference over the last week:

*) I have a rule, that once my positions are on, looking at the market will NOT change anything as my trade was pre planned before it was opened. So I DO NOT log in just to "take a peak how things are going". This is what really has screwed me up, as fear and greed kick in. Maybe after a year of consitency, I maybe able to do that - watch a trade without any emotional connection, but right now I cannot do that.

This month, my goal is stick to that rule (no peaky peaky during the day), trade my system each and every day, and no more screwing around with it !

As an FYI, my win Rate is aobut 36.5%

Any thoughts and ideas much appreciated.

Cheers,

tdrtw.

 

[tdrtw]

Per the Previous message, Trade Log attached here.

 

[Windowsill]

Here is an update on my trading for the last month (Apr 24 - May 23). Attached is my trade log.

Firstly, after a year of constistently losing money (albeit small amounts), I've finally ended up with a positive amount (just under 4% for the month - which includes commissions and slippage).

One thing I found during this month, is that EVERY TIME I screwed with my system, it ended up costing me. Classic example is a trade that has almost touched my limit only to retreat. I moved my stop to my entry so I could protect myself from a loss and break even. Then to see the trade bounce back and shoot through my limit (though I am already out as it dropped just a few cents below my "newly moved up" stop). Another thing I dabbled with was "scaling out" but that was just a function of "fear of losing profits". I stopped doing that. Again, that cost me as well. Another good one was "this stop is way too large, the MKT must be wrong, I will put in a tighter stop than my trading plan as there is NO way it could reach my limit". Of course this again cost me money. I was stopped out when in reality I should have ended the day with a profit on this trade.

I worked out if I didn't screw around with it, I should have had around 7% - 8% gain for the month.

Here is what I have done to "improve it".

1) Stop Amount and Direction is determined by the Market.
2) Before I enter a trade, it is completely planned out. Thus once my trades are on, then I can shut down my computer for the rest of the day (though I do log in just before the MKT closes to make sure all is well).
3) I go for a 3:1 Risk/Reward at a risk of 1% per trade.
4) I trade about 3 positions a day (currently sticking to MSFT, AAPL and FSLR though I have toyed with a few others), putting them on within 30 minutes of the market opening, shutting down and walking away.

Here is what is making the difference over the last week:

*) I have a rule, that once my positions are on, looking at the market will NOT change anything as my trade was pre planned before it was opened. So I DO NOT log in just to "take a peak how things are going". This is what really has screwed me up, as fear and greed kick in. Maybe after a year of consitency, I maybe able to do that - watch a trade without any emotional connection, but right now I cannot do that.

This month, my goal is stick to that rule (no peaky peaky during the day), trade my system each and every day, and no more screwing around with it !

As an FYI, my win Rate is aobut 36.5%

Any thoughts and ideas much appreciated.

Cheers,

tdrtw.

You need to start again.

3/1 risk ratio and 36.5% win rate!!!

Looks as if you will break even over the long term and have long periods of drawdown.

 

[Chorlton]

You need to start again.

3/1 risk ratio and 36.5% win rate!!!

Looks as if you will break even over the long term and have long periods of drawdown.

Hello trdtw,

Firstly, let me congratulate you on asking for advice by posting your system's results to date.

Unfortunately, I agree 100% with Windowsill's post. Your R:R ratio and win rate just does stack up if you still intend to be trading in the future.

A win rate of around 35-40% is in line with long-term trend following systems. The reason that they work, however, is that their R:R is much, much higher.

In contrast, short-term systems achieve a R:R ratio from anything from 2-3 upwards but this time their win rate is at least 50%, if not much higher!!

In addition, can I ask why you have chosen to use a Profit Stop? These are effective if one is trading a mean-reversal type of strategy but if your rules are based on a common trend-following / breakout type of strategy then this type of stop can be very damaging.

I would guess that you have chosen to you it so that you don't have to monitor the Mrkt intraday?? If this is the reason (and the only reason) then I would highly suggest you look at a different timeframe to trade.

On a more positive note, I do commend you on your choice of % risk. Most newbies tend to choose a much higher percentage (3-5%) which IMO is totally wrong. The aim of this game is to still be in it over the long-term.

Regards,

Chorlton