My journey to long term consistency

[DrSafari]

Here I will post my trades for myself to monitor and the lessons learned with them. My current equity is € 4.786,79 I once started with 9k but lost a lot due to not really knowing what I was doing But it's okay, I can afford to lose the money.

I am currently reading "The new trading for a living" and I probably will come up with a new trading system which I will first test on a demo account. As for now my system is that I only trade European stocks. Each month I look at the European Economic Sentiment Indicator Report to see what sectors in which country are likely to be bullish or bearish. Then I select a list of stocks in those countries and sectors that are available on my trading platform and put them on my watchlist. Then I look at the charts. If there is a steady rise (or decline) without too much volatility (hence steady) for at least 4 days I take a long (or short) position. I decide my stop loss based on the volatitly of the stock but never so that I can lose more than 2% of my equity. Whenever I start making profits I raise my stop loss accordingly and let my trade run. I should also start with adding to my positions when I am making profits but still need to research when I need to add to it. At what level of profit is the risk/reward ratio the best and at what level do I need to put my stop loss then? This is not yet well defined in my strategy but I'll need to do it ASAP.

I also monitor the S&P500 and whenever there was a market correction, or stuff that happens like now with China, I take a very small position when markets are recovering again. Stop loss levels have not yet been defined well here but due to high leverage I currently have no choice but to break my 2% rule. This will change when I add more equity.

I will run my trades through the Kelly Criterion and decide how much I should add to my equity and how big my positions should be and all. Basic idea here is to slowly add more and more money the more consistent I get.


I'm not going to go through the effort of posting all my previous trades (yet) but I will post all the trades I'm closing as of now and include the thingsI did right or wrong.

Lesson learned from my last 4 trades which were losers:

When something global happens like the China thing now --> close my positions even before they hit my stopp loss

 

[Dr. Toad]

Hi DrSafari, just wanted to say I read your intro post and it looks like you are attempting to obtain your financial independence for very similar reasons to why I am attempting it. Best of luck to you.

The only suggestion I have for you is to limit your potential drawdown per trade to less than 2% until you find something that works for you (if you haven't already...maybe you have since you indicate you started about a year ago in your intro). I am still not quite there myself after about 3 months.

Had I not limited myself to very small potential drawdowns from the outset I would be far worse off than I really am now. Not only did I start with about a quarter of my planned trading cash, I limited most of my trades to 0.5%-1% potential drawdown of that quantity (so effectively 0.125%-0.25% of my planned cash).

Being able to lose the money without much impact makes it a bit worse I think since there is less urgency to "get it right". I have ramped my trades up to approximately 0.5% potential loss of my trading cash. It is tempting to increase it since I can stand to lose a good amount with no significant impact other than the general suckage of loosing money, but I know this will be foolish until I have proved to myself my technique works. The main reason this would be foolish is because it would take away from the available cash I have when/if I do finally have a system that works...this in turn will make my journey to financial freedom longer. So...bad, bad, and more bad. Anyways...just my 2 cents...feel free to use that deposit on your next trade and let me know how far my 2 cents went .

 

[DrSafari]

Hi Dr. Toad, thanks
I took a look at your journal and indeed we seem to have a similar goal.

As for your suggestion: 2% is my upper limit but not all my trades have a 2% risk. Most of them have a 1% risk and some 0.5%, 1 trade in 10 reaches my upper limit. It depends on how volatile the stock is. But maybe I should not select the 2% stocks yet for now.

I am not yet 100% confident about my system. I always added on to it. I first started using it in march of this year but I used bad timing so I added some indicators as to when to enter my trades. Then it went better but I still had louzy risk management. So after that I added better risk management. And now I'm making profits with it since three months. It's still not perfect so I probably can even increase my profits. But three months is not yet a sufficient time frame for me to be really confident in it. But it looks like it could be a good strategy.

 

[options-george]

Hi Dr. Toad, thanks
As for your suggestion: 2% is my upper limit but not all my trades have a 2% risk. Most of them have a 1% risk and some 0.5%, 1 trade in 10 reaches my upper limit. It depends on how volatile the stock is. But maybe I should not select the 2% stocks yet for now.

Hopefully you don't mind me making a suggestion?

Have you considered that your %-risk per trade should not be driven by the volatility of the instrument that you are trading? You could consider a fixed percentage for each of your trades. For the volatile instruments you will most likely need a wider stop (in points/pips) thus the lot size for your trade should decrease. But your percentage risk should stay the same.

You might find out that your system works better for low-volatility instruments and worse for high vol instruments. If that would be the case you would generally lose 2% on the bad trades and gain 1% on the good trades. Not a good combo!



Ps Also seeing that you have 5k in your account, you might be fine to risk no more than 1% (50 euros) per trade. If you are with a broker that caters well for retail traders, then you should be able to arrive at the right trade risk regardless of stop size in pips. CMC would be broker where this would work well depending on what instruments you like to trade.

 

[DrSafari]

Hopefully you don't mind me making a suggestion?

Of course not

Have you considered that your %-risk per trade should not be driven by the volatility of the instrument that you are trading? You could consider a fixed percentage for each of your trades. For the volatile instruments you will most likely need a wider stop (in points/pips) thus the lot size for your trade should decrease. But your percentage risk should stay the same.

You might find out that your system works better for low-volatility instruments and worse for high vol instruments. If that would be the case you would generally lose 2% on the bad trades and gain 1% on the good trades. Not a good combo!

Hmm good point. Only problem with my broker is that for some instruments I would have to put my stop loss way too narrow because the minimum amount of shares per trade is too high. But maybe I should avoid those for now.

Appreciate the input guys!

 

[DrSafari]

After the china debacle I went long twice on the S&P500 index and made some profits. Both times it went through my stop loss after I had raised it above the break even point so that I made some good profits. I bought a third time a few days ago and now it's in the minus a lot. I put the stop loss level very wide so if there is no crisis I should be fine -> Market corrections won't stop me out where my stop loss is right now. I bought the smallest amount possible but the leverage is very high.

However, I now realise this is a foolish thing to do. If I keep doing this in the future eventually a crisis will come and I will be done for. For now I will keep the position, and hope there won't be a crisis. The harm is done anyway. I will now either lose pretty much everything or make nice profits. With a higher chance of nice profits so I'm keeping the position but I can't do this again. I won't take this trade into account either in my criterium to whether I should add to my equity or not cause it's a bad trade (if it turns out profitable).

I can only start doing that again when I can put an equally wide stop loss but that in case the stop loss get's hit not half my equity would be gone but only 5% or 10% or something or find a broker with less high leverage.

My journal and this forum is already helping me realise some stupid stuff I'm doing. Let's hope this works out and then forget this strategy for now.

Edit: what I can do to emulate this strategy is go long on a bunch of stocks that are in the S&P500 index. Due to the lower leverage I don't have to risk too much and I can limit risk to 1% per trade

 

[options-george]

Good luck with your trade!

Are you keeping an online journal or is it just for your own records?

 

[DrSafari]

Good luck with your trade!

Are you keeping an online journal or is it just for your own records?

Thanks! Both actually. I'm keeping it for my self but I will be more consistent in writing in it on a forum than I would on a private word file or something... and it's more fun too. Another advantage is that people can steer me in the right direction or detect things for improvement.

 

[options-george]

That's great DrSafari!

I started keeping a detailed journal/blog two years ago, and have found it really beneficial, so I'd really encourage you to keep doing it.

good luck.

 

[DrSafari]

Thanks options-george, I certainly will!

--------------------------------

My S&P500 trade is still running. I thought and hoped the index would recover faster but it seems it will need some more time. Atleast the volatility is a lot less and I can only hope it's price starts to go up steadily so that I'm in the positives and be in a much more comfortable position.

I have not yet analysed the European Economic Sentiment Indicators report yet which I normally do at the beginning of each month because I made the decision to wait to make any trades using my trading system untill I'm sure the global economy is bullish again. Another reason is that I don't want to take on too many trades now and risk not having enough margin. This way I am protecting myself to make any trades using my system for the time being.

Whenever the index is going up (and thus global economy is bullish again) There will probably be some nice opportunities using my trading system as well.

So currently I'm trying to be patient and playing the waiting game.

 

[DrSafari]

Okay my S&P500 position I had open got closed because it got expired. Stupidly enough I didn't take that into account. Loss of 491 €. Serves me right for not following my trading strategy.. Because of that august was a break even month for me.

Tonight I'm going to generate some trading idea's and possibly open some positions tomorrow with all the extra knowledge I gained.

 

[DrSafari]

Okay here goes, this is my first real entry into my journal.

Only two stocks passed my trading system for now so I took two positions short. All other possible candidates are put on my watchlist. These are the only open positions I have for the moment. I also added a chart and my entry is at the black arrow. I will also post a chart whenever the positions are closed.

Equity before the trades: 4535,37 €

Positions:

G
Type: short
Amount: 50 shares

Opening rate: 33.44
Stop loss: 34.16
Opening time: 9:57:30 am 9/15/2015

Amount risked: 36 €




-------

WA
Type: short
Amount: 50 shares

Opening rate: 74.68
Stop loss: 76.26
Opening time: 10:00:41 am 9/15/2015

Amount risked: 79 €

 

[timsk]

Hi DrSafari,
Your charts don't offer much in the way of granularity - so the comment that follows may be inappropriate - apologies if that's the case. From what I can see, of the two shorts you've taken, it looks to me as if you may have a half decent entry on the first one (G), but a rather poor entry on the second one (WA).

I know you've been reading Alexander Elder - although I've not read the particular book you mention on your other thread - so I don't know whether or not he discusses 'value trades and greater fool theory trades'? If not, take a gander at the link and the reason for my observation will become clear. If it's not, let me know and I'll elaborate.
Tim.

 

[options-george]

Thanks for sharing your trades here DrSafari.

Is there a specific reason why you are risking different amounts of money on the trades?

 

[DrSafari]

Hi DrSafari,
Your charts don't offer much in the way of granularity - so the comment that follows may be inappropriate - apologies if that's the case. From what I can see, of the two shorts you've taken, it looks to me as if you may have a half decent entry on the first one (G), but a rather poor entry on the second one (WA).

I know you've been reading Alexander Elder - although I've not read the particular book you mention on your other thread - so I don't know whether or not he discusses 'value trades and greater fool theory trades'? If not, take a gander at the link and the reason for my observation will become clear. If it's not, let me know and I'll elaborate.
Tim.

I see what you mean. Yes he talks about choosing good entry points but he doesn't use the term "value trades and greater fool theory trades" in that book. To be honest I didn't take my entry points into account at all. I just saw a daily chart that was meeting my criteria and opened my positions. But thanks for pointing it out, it is something I must incorporate into my current trading system.

Meanwhile I've finished the book and now I'm looking for things to incorporate into my current system (such as choosing better entry points) and also create a second system which I will test on my demo account. There's a lot of information in that book and it's going to take some time to properly digest it.

 

[DrSafari]

Thanks for sharing your trades here DrSafari.

Is there a specific reason why you are risking different amounts of money on the trades?

Yes there is actually. With the second trade which I called "WA" here I shorted the absolute minimum I could short. But that was still 1.7% of my equity. Which is on the rather high side when you are still testing and learning. The first trade the minimum was about half of that which is a better amount for learning. It's difficult to keep the amount risked the same with my current broker and equity.

 

[DrSafari]

Both the G and WA positions are already closed:

G simply went up at the point I bought it and hit my stop loss

G
Type: short
Amount: 50 shares

Opening rate: 33.44
Stop loss: 34.16
Opening time: 9:57:30 am 9/15/2015

Amount risked: 36 €

Close rate: 34.17
Net P/L: € -36.33
Closing time: 9:14:06 AM 9/16/2015



---------------------------

WA suddenly dropped a lot so I moved my stop loss slightly above the break even point. Sadly then it rose again and went through it. I'm looking for a good entry point to reopen this one if an uptrend doesn't establish itself.

WA
Type: short
Amount: 50 shares

Opening rate: 74.68
Stop loss: 76.26
Opening time: 10:00:41 am 9/15/2015

Amount risked: 79 €

Close rate: 74.66
Net P/L: € +1.37
Closing time: 12:58:08 PM 9/16/2015



Next time I will try to use the same timeframe as the first charts for my opening position are hourly and the ones for my closing position 15min interval.

 

[DrSafari]

I took on another short position at WA at 74.17 and currently it's down to 72.17 being in the +100€ profit zone. I moved my stop loss to +40€. I don't remember precisely but my original stop loss was risking around 60€. This trade is going good. Should have journaled it immediately but didn't have the time. When the position is closed I'll add a chart with my entry and closing point.

 

[options-george]

Your initial stops and adjusted stops are based on technical price levels, not on monetary amounts, right?

 

[DrSafari]

Your initial stops and adjusted stops are based on technical price levels, not on monetary amounts, right?

Yes, my original stop loss is based on technical price levels. But my adjusted one isn't. Isn't it so that you should take into account your risk management rules for that so if you base your adjusted one on monetary amounts (relative to your original monetary amount) it would be correct as well? Provided that your original one is based on technical price levels?

If not, how else should I do it?