Short term trend following system

[Shadowvkc]

Hey everyone. I will be posting my daily trades here starting tomorrow.

Trading hours are between 8am - 5pm UK time and I trade the following pairs:

AUD USD
EUR GBP
EUR USD
GBP USD
EUR JPY
USD CAD
USD JPY

I have been trading this system since the start of 2018 with the following results:

Number of trades: 112
Winning: 69
Losing: 43

Average winner: 45 points
Average loser: 38 points

Largest losing trade: -154 points
Largest winning trade: 236

Total points +1434

Lots of people won't agree with the following, however, I find it works well for this system - I do not use a stop and sometimes I hold a position overnight. The entry and exit are totally mechanical with no interpretation required - it is either a yes or no.

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

Current open positions:

Short GBP USD @ 1.39340

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

Will update tomorrow.

 

[Shadowvkc]

NEW TRADE

Long USD CAD @ 1.30705

 

[Shadowvkc]

NEW TRADE

Short USD JPY @ 106.042

 

[Shadowvkc]

I should mention that the above stats are all paper-traded.

The actual trades I am posting here are being taken live

 

[tomorton]

Your win rate is 62% and the average loser is 84% the size of your average winner. Separately these stats would be sustainable but together, doesn't this mean either the trades are a very small % of account capital or you face very significant draw-down when you get a run of high losers and then a run of low winners?

(I don't trade intra-day, just curious)

 

[Shadowvkc]

Hey Tomorton - cheers for the question.

I am actually trading with quite a small amount of total capital (my current bank is less than £1,000) so I need to be more aggressive in the start to build it.

Currently, I am trading £0.20 per point for every £100 in the account.

My current balance stands at £620 so each trade is opened at £1.20.

Using the largest loser in the paper traded period of -156 points this would represent a loss of -£187.20 or 30% of my capital. However, as the capital increases, I plan on reducing this risk.

During the paper traded session that loss came after a while so that trade didn't even reduce the capital below its initial starting balance.

IF all goes the same as the paper traded results then I should see something like this:

Total winning trades = 69 @ 45 points each = 3,105 x £1.20 = £3,726
Total losing trades = 43 @ 38 points each = 1,634 x -£1.20 = -£1,960.80

Total profit = £1,765.20 or a 284% return.

Hope that answers your question?

 

[tomorton]

Well it mostly does - as I wondered, you are risking a very small % of capital. And nothing wrong with that - its just psychologically hard to sustain when you upgrade to real money and all your effort and discipline brings you a fiver a day.

That 30% drawdown on one trade is more serious - this event in a series of only 112 trades looks like early warning of an account-killer to me. Surely you've got something in mind to control this?

 

[Shadowvkc]

So if you average it out over the total number of days it comes to an average of around 25 points per day which at £1.20 is £30 a day - I can live with that

Yes, so as mentioned above as the bank gets larger I will reduce the risk per trade. In the grand scheme of things, even though the 112 trade is serious, you also have to remember that the largest winner was 236 so you could use the same thinking and turn it on it's head - that's an early warning of an account lottery haha

 

[tomorton]

Well, we all live for that happy day.............

 

[Brumby]

Hey everyone. I will be posting my daily trades here starting tomorrow.

Trading hours are between 8am - 5pm UK time and I trade the following pairs:


I have been trading this system since the start of 2018 with the following results:

Number of trades: 112
Winning: 69
Losing: 43

Average winner: 45 points
Average loser: 38 points

Largest losing trade: -154 points
Largest winning trade: 236

Total points +1434

Lots of people won't agree with the following, however, I find it works well for this system - I do not use a stop and sometimes I hold a position overnight. The entry and exit are totally mechanical with no interpretation required - it is either a yes or no.

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

Current open positions:

Short GBP USD @ 1.39340

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

Will update tomorrow.

I don't think you have fully quantified the risk. There are a number of problematic issues including :
a)You have not identify your negative runs. If you have you did not share them in your statistics ;

b)You are trading too many pairs for your account size including there are 2 general correlated pairs that can compound your overall risk. It can become a problem if they are all triggered especially in relation to (a):

EUR JPY
EUR GBP
EUR USD

AUD USD
USD CAD
USD JPY
GBP USD

c)Your position sizing is too big if your biggest looser potentially constitutes 30 % of your equity ;

d)Since you do not use stops, your trade statisticss in relation to loosers per trade may be understated. In other words, your actual negative equity excursion is under represented. It may not matter when you paper trade but may trigger position closures by your provider. This can be a problem when you combine this issue with (a), (b), and (c)

 

[Shadowvkc]

Hey Brumby. Thanks for the questions and challenges - I find them helpful

Point A)

I realize I didn't post all the relevant information so this is the sequence of trades:

-0.4
5.3
20
20.9
-24
-32.9
-97.2
5.4
49
-5.6
-26
51
24.7
-0.8
68
22.1
29.6
43.1
-28.2
16.3
31.9
30.9
-39.9
20.7
-15.7
22.1
12.8
70.2
-55.7
-114.6
50.6
27.6
0.4
-28.1
-49.8
-20.5
-3.7
53.3
-18.1
-12.3
31
92
-29.1
-55.8
6.6
-64.8
26.4
46.5
51.4
47.6
-5.7
65.3
53.5
11.4
41
-27.8
42
14.6
236
15.4
-91
-5.7
77.7
65.5
95.8
29.7
14.1
-55.5
-73.2
109.5
86
-18.4
-41.5
-45.6
60.3
44.3
-63
76.4
85.4
25.4
-154.7
-22
30.3
6.2
-17.2
-71.5
58.2
18.3
44.2
32.4
-64.9
107
61.7
124.9
140.4
61.6
21.4
-29.4
-2.1
14.6
-71.7
10
-2.8
13.3
21.5
38.5
7.8
-31.2
103.5
10.5
-99.3
-1

To summarise the losing streaks:

2 Losers in a row: happened 10 times
-31.6, -170.3, -30.4, -84.9, -96.7, -128.7, -176.7, -88.7, -31.5, -100.3

3 Losers in a row: happened 2 times
-154.1, -105.5

4 Losers in a row: happened 1 times
-102.1

As I am unable to post the equity curve graph, this is how the bank grew over the period:

620
619.52
625.88
649.88
674.96
646.16
606.68
490.04
496.52
555.32
548.6
517.4
578.6
608.24
607.28
688.88
715.4
750.92
802.64
768.8
788.36
826.64
863.72
815.84
840.68
821.84
848.36
863.72
947.96
881.12
743.6
804.32
837.44
837.92
804.2
744.44
719.84
715.4
779.36
757.64
742.88
780.08
890.48
855.56
788.6
796.52
718.76
750.44
806.24
867.92
925.04
918.2
996.56
1060.76
1074.44
1123.64
1090.28
1140.68
1158.2
1441.4
1459.88
1350.68
1343.84
1437.08
1515.68
1630.64
1666.28
1683.2
1616.6
1528.76
1660.16
1763.36
1741.28
1691.48
1636.76
1709.12
1762.28
1686.68
1778.36
1880.84
1911.32
1725.68
1699.28
1735.64
1743.08
1722.44
1636.64
1706.48
1728.44
1781.48
1820.36
1742.48
1870.88
1944.92
2094.8
2263.28
2337.2
2362.88
2327.6
2325.08
2342.6
2256.56
2268.56
2265.2
2281.16
2306.96
2353.16
2362.52
2325.08
2449.28
2461.88
2342.72
2341.52

Point B)

You are right about the correlation between certain pairs, and I think that is what has caused the high number of 2 losers in a row (mainly GBPUSD and EURGBP). However, this also works the opposite way, so if the system is right about GBPUSD then it's usually right about EURGBP. Another thing to note, it doesn't always produce a corresponding entry to a correlated pair i.e if it's long GBPUSD then it may not be short EURGBP.

Point C)

I totally agree that the initial risk is to large. I am only trading with a small bank which I am ok testing this strategy with. I plan on tackling this by not increasing my position size as the bank increases. That way as the bank increases the risk will naturally decrease.

Point D)

Again you are totall correct - especially holding overnight. Something like a random black swan event could blow the bank. It's worth looking at adding a "worse case" guaranteed stop to all position overnight. In regards to the negative equity - it is marginally more where it is stopped. Basically I am not holding a position which goes like -300 and then gets stopped eventually for -100.

Hope this is helpful

 

[mpups]

..i am unable to post the equity curve graph...

here you go

 

[tomorton]

here you go

View attachment 250800

Well done Kaeso, looks better than I expected, but the stats still make me feel uneasy.

 

[Shadowvkc]

here you go

View attachment 250800

Thanks Kaeso

 

[Shadowvkc]

Another thing I forgot to mention - the results have taken into account a 1.2 point spread on each trade

 

[Pat494]

Don't fall into the averaging down trap.

 

[Shadowvkc]

Hey Pat. I think you maybe a little mistaken. The system doesn't average down. It enters 1 position of equal size until it is closed for either a profit or loss. No additional positions are added to either winners or losers

 

[Pat494]

Hey Pat. I think you maybe a little mistaken. The system doesn't average down. It enters 1 position of equal size until it is closed for either a profit or loss. No additional positions are added to either winners or losers

Just checkin' in case you might be tempted.

 

[Brumby]

holding overnight. Something like a random black swan event could blow the bank. It's worth looking at adding a "worse case" guaranteed stop to all position overnight. In regards to the negative equity - it is marginally more where it is stopped. Basically I am not holding a position which goes like -300 and then gets stopped eventually for -100.

I have a couple of further comments based on your reply.

Firstly, we both agree that your position sizing is too risky. However you are of the view that based on your paper trades such a risk event did not materialised until your equity had grown sufficifiently to absorb such an event. I think such a view is not sound because the sequencing of events is random and if you conduct a monte carlo simulation, the risk of ruin would probably be high.

Secondly since your exits are mechanical, how do you handle your overnight positions exit subsequent to an overnight exit signal? Do you just exit at market at the earliest opportunity.?The fact that you don't have a stop in place is problematic. Your overnight session is basically the US session and they tend to be more volatile then the European session because a lot of tier one data is during the US sessions. A swing in excess of 100 pips is very common and do not require a black swan to trigger. If you hold 3 correlated positionrs like say EUR, a swing of 100 to 200 pips aganst you could result in serious damage to your account if not ruin. I think you need to think about some kind of stop for overnight positions if your position sizing is not addressed. Having a risky position size and no stop is not sound risk management. Maybe your account might survive having one risky bet but not two.

 

[Shadowvkc]

Hey Brumby,

Again you are correct that the initial position sizing is too large, however, I am prepared to take the initial risk to grow my capital - as the capital grows, the risk will diminish until it is at an acceptable level.

In terms of overnight positions, the strategy only looks for entries and exits between 8am and 5pm so there would be no valid exit overnight. While I accept that sometimes pairs can swing quite a bit overnight, they very rarely move 100-200 points. Almost all Tier 1 data is released between 10am and 3pm UK time. You do get the odd event such as FOMC meetings and Fed Speakers.