Reducing the number of trades

[Chorlton]

Hello All,

Currently, I have developed a mechanical system which is generating more trades than I have capital for.

Consequently, I am now investigating different approaches that I can take to reduce the number of trades which are being generated. In reducing the number of trades, the idea will be to increase the number of successful trades by filtering those which have the highest chance of becoming profitable.

Has anyone gone through a similar process and if so, what suggestions would you recommend?

Many Thanks in advance,

Chorlton

 

[shadowninja]

Is it forex? If so, work out which pairs seem to work best for your system. If it's indices then work out which time things work better for you. Stock? Which sectors? etc etc.

It helps if you're recording all trades taken and their outcomes.

 

[nine]

Search for a distinction between best trades and normal trades (test it for robustness of course).

Examples:
- trade only between xx minutes after open and yy minutes after open
- trade only if the range for the last xx minutes has been less than yy (or more)
- trade only if zz has happened.

 

[Chorlton]

Is it forex? If so, work out which pairs seem to work best for your system. If it's indices then work out which time things work better for you. Stock? Which sectors? etc etc.

It helps if you're recording all trades taken and their outcomes.

Hi Shadow,

Thanks for the comments.

I'm trading Stocks and my universe is the FTSE250. The sector idea is interesting but the concern I have is that IMO selecting specific sectors would cause curve-fitting and as such there might be more chance of the strategy breaking down in the future.

 

[Chorlton]

Search for a distinction between best trades and normal trades (test it for robustness of course).

Examples:
- trade only between xx minutes after open and yy minutes after open
- trade only if the range for the last xx minutes has been less than yy (or more)
- trade only if zz has happened.

Hi Nine,

Thanks for the reply.

My universe is the FTSE250 and the timeframe which I'll be trading is Weekly.

Even though your suggestions are great examples, what I'm ideally looking for is something which wouldn't normally be used as an entry condition.

One example I had was to use something similar to the "Bang for Buck" indicator as mentioned in a few published books. (For those unfamiliar with it, it is used to monitor volatility of a stock).

What I'm looking for are other such ideas which wouldn't normally be considered...


Kind Regards,

Chorlton

 

[shadowninja]

I wonder... can your system be applied to sectors themselves? Sorry if that is a stupid question; just that with IG Index you can spreadbet on sector movements. The ones that look more positive on a given day/week/whatever your timeframe can be used as a filter for the trades you get signals.

 

[Chorlton]

I wonder... can your system be applied to sectors themselves? Sorry if that is a stupid question; just that with IG Index you can spreadbet on sector movements. The ones that look more positive on a given day/week/whatever your timeframe can be used as a filter for the trades you get signals.

Hello Shadow,

I definately understand how this could be beneficial. However, I'm not sure how I could code this "sector rotation" within my own strategy and equally important how I could effectively backtest it.

For me, whatever idea/s I decide to use, they have to be able to be backtested prior to inclusion within my strategy. I guess this is one of the disadvantages of using only mechanical models for trading.

Thanks for the suggestion though.....

 

[shadowninja]

Oh, ok. Good luck!

 

[counter_violent]

Hello All,

Currently, I have developed a mechanical system which is generating more trades than I have capital for.

Consequently, I am now investigating different approaches that I can take to reduce the number of trades which are being generated. In reducing the number of trades, the idea will be to increase the number of successful trades by filtering those which have the highest chance of becoming profitable.

Has anyone gone through a similar process and if so, what suggestions would you recommend?

Many Thanks in advance,

Chorlton

Filtering trading signals...good.....this is the correct way forwards.

A time frame based approach would work best...eg groups of traders trade different timeframes...5...15...1 hr...4hr...etc...so when You filter for a confluence area...ie...where every group has an interest or wants to be involved in the action. Generally the more groups involved and the better the move...supply demand basically....and of course this way is flexible enough so that in quieter times you can reduce the confluent T F criteria from 4 T F Confluent down to 3 or even 2 depending on how busy you want to be v quality of signal.

cv

 

[the blades]

Hello All,

Currently, I have developed a mechanical system which is generating more trades than I have capital for.

Consequently, I am now investigating different approaches that I can take to reduce the number of trades which are being generated. In reducing the number of trades, the idea will be to increase the number of successful trades by filtering those which have the highest chance of becoming profitable.

Has anyone gone through a similar process and if so, what suggestions would you recommend?

Many Thanks in advance,

Chorlton

what's the holding period and what number of stocks are you thinking of?

My reason for asking - I hold lots of stocks through spreadbetting with the advantage of no commission - so the round trip cost isn;t affected by the size of your holding. You'll find CMC markets cheaper to deal (on FTSE250) than holding outright, probably.

If your holding period is short then you might want to avoid SB.

Cheers,
UTB

 

[Chorlton]

Filtering trading signals...good.....this is the correct way forwards.

A time frame based approach would work best...eg groups of traders trade different timeframes...5...15...1 hr...4hr...etc...so when You filter for a confluence area...ie...where every group has an interest or wants to be involved in the action. Generally the more groups involved and the better the move...supply demand basically....and of course this way is flexible enough so that in quieter times you can reduce the confluent T F criteria from 4 T F Confluent down to 3 or even 2 depending on how busy you want to be v quality of signal.

cv

Hi CV,

Interesting suggestion!!

My System will be trading on a weekly timeframe.

Consequently, can you expand on your last post as I'm not too sure how I would implement your suggestion. I understand the basic idea but I'm struggling with the specifics...

Many Thanks and my apologies for the request for clarification.

 

[Chorlton]

what's the holding period and what number of stocks are you thinking of?

My reason for asking - I hold lots of stocks through spreadbetting with the advantage of no commission - so the round trip cost isn;t affected by the size of your holding. You'll find CMC markets cheaper to deal (on FTSE250) than holding outright, probably.

If your holding period is short then you might want to avoid SB.

Cheers,
UTB

Hi Blades,

Thanks for your comments.

My current average holding period is roughly 100days for winning trades and 30days for losers.

I intend to trade the FTSE250 and my max open positions at any one time is roughly 12-14.

Initially, I was looking at using SBetting to trade my system, so as to take advantage of leverage. However, when I backtested my same system on the list of FTSE250 stocks available through the SB company, the results were less than impressive.

I backtested using the same capital allocation but with 10% and 20% Margin. Although the overall Profit was higher, the Equity Curve had more dips than a rollercoaster ride, resulting in large Drawdowns !!! In my list of metric requirements, the smoothness of the EC is important as well as the value of the Max DD.

Consequently, I've decided to avoid leverage at the moment and trade in the conventional manner even though my overall Profit will be reduced.

*******
Side note, to all Newbies reading this thread:

If you are considering using Sbetting or CFDs, please seriously consider whether this type of trading will suit your personality and risk profile. Although using leverage has its benefits for newbies (minimum capital outlay, potentially big rewards, etc), based on my experience above, the journey in achieving this may be too much to handle. (ie Large Drawdowns, etc)

*******

Regards,

Chorlton

 

[the blades]

Hi Blades,

Thanks for your comments.

My current average holding period is roughly 100days for winning trades and 30days for losers.

I intend to trade the FTSE250 and my max open positions at any one time is roughly 12-14.

Initially, I was looking at using SBetting to trade my system, so as to take advantage of leverage. However, when I backtested my same system on the list of FTSE250 stocks available through the SB company, the results were less than impressive.

I backtested using the same capital allocation but with 10% and 20% Margin. Although the overall Profit was higher, the Equity Curve had more dips than a rollercoaster ride, resulting in large Drawdowns !!! In my list of metric requirements, the smoothness of the EC is important as well as the value of the Max DD.

Consequently, I've decided to avoid leverage at the moment and trade in the conventional manner even though my overall Profit will be reduced.

*******
Side note, to all Newbies reading this thread:

If you are considering using Sbetting or CFDs, please seriously consider whether this type of trading will suit your personality and risk profile. Although using leverage has its benefits for newbies (minimum capital outlay, potentially big rewards, etc), based on my experience above, the journey in achieving this may be too much to handle. (ie Large Drawdowns, etc)

*******

Regards,

Chorlton

Hmmm, I'm not sure I follow. The price you will get from your spreadbet firm will be the price you'd pay to hold outright (plus interest, minus dividends) so this can't efferct your backtests.

Are you suggesting you can't trade the full list of stocks - you should be able to with just about all the spreadbet firms - I do.

As for leverage - don't use it. If you were going to pump "£1000" in a stock - just bet at the quivalent £/pt that would equate to this. So if the share was £5, bet at £2 per pt. You're no more exposed than holding outright - and stick the money you save in a hight interest account.

You can have very small holdings through SB - and hence the transaction costs aren't magnified as they would be for paying say £20 per round trip. And surely holding all 10 - 12 stocks will smooth the equity curve?

See the thread "cost of spreadbetting" and download the spreadsheet at the end - it's the cheapset way for you to deal. You might be put off by the negative press around here - all I can say is don't be. Others will disagree. On your type of timeframe, you'll have zero problems spreadbetting.

UTB

 

[JTrader]

Hello All,

Currently, I have developed a mechanical system which is generating more trades than I have capital for.

Consequently, I am now investigating different approaches that I can take to reduce the number of trades which are being generated. In reducing the number of trades, the idea will be to increase the number of successful trades by filtering those which have the highest chance of becoming profitable.

Has anyone gone through a similar process and if so, what suggestions would you recommend?

Many Thanks in advance,

Chorlton

A few thoughts -

To simply reduce the number,move out an appropriate number of timeframes.

To try & filter out the losers is a whole new ball game . There are many ways one could try this, but coming up with empirical statistics to PROVE that this filter is adding an EDGE, is not so simple.
Trying to find a good filter can be complex.
Your filter may not weed out a higher % of losers than % of winners. In this case, the filter will not improve the strats performance, it will just reduce the number of trades further.

 

[Chorlton]

Hmmm, I'm not sure I follow. The price you will get from your spreadbet firm will be the price you'd pay to hold outright (plus interest, minus dividends) so this can't efferct your backtests.

Are you suggesting you can't trade the full list of stocks - you should be able to with just about all the spreadbet firms - I do.

Maybe... I need to look at the list from my SB company in more detail and compare it to my backtested FTSE250 list, as I'm not sure why there is this discrepancy. All I know is that there is a significant difference in the smoothness of the EC. I've checked my backtested results, and although there are a couple of outliner trades, most of them offer a similar return,

The other issue I have with SBetting, is that I find it difficult to determine commission costs which I need for backtesting purposes.

See the thread "cost of spreadbetting" and download the spreadsheet at the end - it's the cheapset way for you to deal. You might be put off by the negative press around here - all I can say is don't be. Others will disagree. On your type of timeframe, you'll have zero problems spreadbetting.

Cheers Blades... I'll take a look at this thread.....

 

[Chorlton]

for leverage - don't use it. If you were going to pump "£1000" in a stock - just bet at the quivalent £/pt that would equate to this. So if the share was £5, bet at £2 per pt.

Hi Blades,


Apologies in advance for the daft question but how did you work out that its £2 per point?

 

[barjon]

mornin' chorlton,

Three comments:

1. As you may recall I trade trend continuations after 3+bar retracement via ftse100 shares using daily timeframe. I get the same feast or famine problem that faces you. Some get filtered out because of the conditions associated with my basic set-up but I have found no way of effectively "ranking" the remainder. So I just work on a first come first served basis and take them as they trigger until I'm filled up.

2. When you back tested did you take account of the sometimes wide opening spread between bid and offer as they find their feet at the start of the day. This can be quite a feature (and exaggerated in SB quotes), particularly for the more illiquid shares, and wrongly trigger you into, or stop you out, of trades if you have resting orders in place.

3. To clarify what Blades is saying. £5 a point is equivalent to having 500 shares whether those shares would have cost you £500 for a £1 share or £5000 for a £10 share. Thus, pumping £1000 into a £5 share would give you 200 shares = £2 per point.

good trading

jon

 

[the blades]

Hi Blades,


Apologies in advance for the daft question but how did you work out that its £2 per point?

Chorlton,

If you hold £1000 (200 shares at £5 - or 500 pts) of stock that goes bust - you've lost £1,000.

If you spreadbet at £2, you get exactly the same exposure -£2 X 500 pts.

Use whatever expample - think how many shares you would want to buy for your exposure, then divide by 100 - that's your £ / pt. Exactly the same exposure, no leverage.

Cheers,
UTB

 

[the blades]

3. I'm not sure what Blades is saying. £5 a point is equivalent to having 500 shares whether those shares would have cost you £500 for a £1 share or £5000 for a £10 share.

erm....well that's what I'm saying, or trying to

My point is simply that just because you spreadbet, you don't have to have more exposure than you would otherwise. Pay the 5% margin and stick the rest in the bank to offset the spreadbet interest.

UTB

 

[barjon]

erm....well that's what I'm saying, or trying to

My point is simply that just because you spreadbet, you don't have to have more exposure than you would otherwise. Pay the 5% margin and stick the rest in the bank to offset the spreadbet interest.

UTB

Apologies, blades - I had just edited my post before you posted after I re-read what you said

good trading

jon