Midwestern Trader,
From your postings you seem very systematic in your approach to trading, may I ask why the allowance for a "$25K drawdown bust out event". Is it some sort of 2.5 times previous historic drawdown number? Is it just a random amount you are willing to lose for entertainment purposes?
Yes, the $25K figure is about 2.5 the historic, maximum drawdown, so I chose that as it would be a negative number clearly invalidating my approach.
I am asking because your style of trading a basket of systems is the way I have always traded and it strikes me as odd that you wouldn't be removing individual systems from the basket if they reach some predetermined drawdown amount allowing the basket to continue trading. The removed individual component can always be placed in monitor mode to see if it continues its death spiral or recovers quickly from a newly acceptable total drawdown number.
I have done some thinking along these lines to pull individual instruments or replace them, but not yet put anything into practice. For instance I would like to include on Soft (KC, SB, CC) or Grain (ZW, ZS) in the diversified futures basket. I'm sure there are times when it may be more advantageous to trade one of these products over another in terms of having greater trend velocity potential, etc. KC right now is languishing near what looks like multi year low levels, so my guess it has limited downside potential. Whereas CC might have more two way potential based on its chart. My strategy signals don't care which way a trend occurs, but it typically requires some velocity up or down to maximize profitability.
As per one of your last posts I notice you have done this with the NQ component of your basket calling it a 'conscience decision'. Did it break its previous historic DD amounts by 2.5 times or did it have more losing trades in a row than historically noted?
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The decision to halt NQ was partially due to the number of consecutive losers, but probably more with the realization that this equity volatility event is rather unique given the market's behavior the past five years. My strategy signals were not designed for this type of volatility, so I figure they likely are not worth acting on as they currently work. I would like each trade in the basket to have a stop loss between -$500 to -$1,000 so no single instrument makes up a majority of the loss potential each day. Running my signal variants over the past couple weeks in NQ shows a -100 to -150 NQ stop as optimal, but I do not want one instrument risking a -$2,000 to -$3,000 draw. I have chosen to select a different timeframe to enter the NQ trade this week and keep the same stop loss ratio in line with the other instruments. Instead of a pre-market trade open, I'm waiting until mid-morning to open a position to help avoid a lot of the two sided action currently occurring pre-market and in early regular trading hours. I'll use this later open few a few weeks and see what the results are.
In essence I'm really a beginner at trading most of these instruments and certainly a beginner in trading a diversified basket each day. I feel there is no better learning experience than by actually doing, so I'll risk what I feel I can risk to learn and hopefully improve.
The thought behind the public journal was to bring in experiences of others to provide perspective and new thoughts. I suspect most other people that trade are in my situation where I have no friends able to help with the challenge of trading successfully. The drawback from reading the public ET journals is there are people that seem to enjoy seeing others fail and offer nothing other than general skepticism for commentary or the all-star trolls who just instigate against everyone. It is easy enough to use the ignore function on the trolls though, so at least I don't have to see their nonsense.
In the end I'm willing to take the slings and arrows from the negative naysayers in an attempt to gain a few nuggets of useful information. Thanks for your post.
