Develop and follow a written trading plan

[syswizard]

I do not agree with this.
If the moves become very small the more difficult it becomes to stay profitable as you cannot reduce the stops to a very small size, as this would result in a nonstop being stopped out even before the move starts.

But somehow, magically, volpri never gets stopped out. Probably because he has NO STOPS !
From his blotters, he rarely loses more than 1 tick on his losing trades. That is probably by design.

Small profits will also result in problems with the commission that are relatively expensive then.

But that is no longer the case. Interactive Brokers is at $0.85 per contract...plus CME exchange fees ($1.18 ES Non-member) which brings it up to about $2 per contract. So even at 100 ES contracts per day, we are talking a paltry $200 in commission+fees per day. That's nothing relative to the potential reward. So if your average profit per trade is only 1/2 tick (ES), we are talking $2500 gross profit per day, $2300 net profit. What am I missing here ?

 

[schweiz]

But somehow, magically, volpri never gets stopped out. Probably because he has NO STOPS !

From his blotters, he rarely loses more than 1 tick on his losing trades. That is probably by design.

He cannot have a 1 tick stop because he would be stopped out each time when entering the market. Till now he has everything under control. But it is impossible to take only 1 tick losses all the time I think. But till now he is really very good and I am impressed from what he is doing.

What am I missing here ?

All depends of you own trading system. I tested and saw what I will be missing if I would take all the small moves. I tested several entry and exit systems and the conclusion was that taking the small moves will make me miss some big moves as I will not always get an entry signal anymore. Tested on over 2 years intraday data. Small moves make for me less money and a multiple of trades to do. I cannot trade like Volpri does, so I have to take an option from the choices I have.

I average between 2-3 trades a day ,so much less then Volpri. But my average profit per contract per trade is in the same period as the data he posted, roughly 10 times bigger. He is between 1-2 points a trade, I am between 10-20 points (comparing the last few weeks). So less stress as I can let a trade run, sometimes holding times is from opening till more or less close. I am a trendfollower and that means that if I get out too early I ,in general, cannot get in at a better price as retracements are smaller then the move in direction of the trend and reversals come faster, so easier to miss them. And missing the big move is very expensive for me.

If you make a calculation on 100 contracts it is a lot of money of course. But per contract it is merely $23 difference. And on top of that, if I make double digit points profit a day, the ½ tick is less then 5% extra. And do all that work for this small improvement? I try to trade less and keep the same level of profit as it improves my quality of life with much more then the 5% in $. I prefer comfort above extra money. Depends from your goals in life and also from the level of profits you make already.

 

[volpri]

Everyone is different. They have to trade in such a way they are ok with the methodology.

I always use stop losses unless I forget or make a mistake. The placement of them can vary depending on the volatility and the dynamics of the market at the moment I take the trade. I have a high win rate because of three reasons.

1) I am fairly proficient at reading price action within the context where it is taking place. On days I find myself off my edge i generally just quit trading and go do something else. My intent is not to throw good money after bad.

2) I set my stops wide enough that i can stay in a trade and scale in and they are set at a level that correlates with the immediate market dynamics (how it is behaving) and the larger context within which that dynamic is taking place.

3) I am willing to scale into a losing position as long as the market dynamics and the context supports the idea. I can be off some on my entries and I am ok with that because i just scale in. I have some general concepts in mind for entries but I correlate that with immediate dynamics. Sometimes I may be off my cue a bit but the original reason for getting in the trade to start with is still valid so I will add to a losing position. At other times i just want in the trade NOW and I don’t care exactly where price is at in terms of a perfect entry because I see something in the dynamics that just tells me to take a position. I may end up scaling in 2 or 3 times to get my full position. I know some will say...why not just wait and take the full position at a precise entry? My simplistic answer is “i cannot know what the market will FOR SURE do two minutes from now but I know what it appears to be doing at this moment and I want in.” If it goes immediately in my favor there will be no scaling into a losing position and i will be making money right away. That is, I will not have missed out on a trade waiting for a perfect entry.

When you see me with a 1 tick loss that is usually because i scaled in. For instance, say i buy a contract. It goes against me. I buy another. It goes on my favor. I exit both at the same price. I make money on the second contract and lose a tick on the first contract. It is not that I bought a contract and had a 1 tick stoploss set. It is just that I scaled in ..market goes in my favor for a profit and i, for one reason or the other, think i best make haste and grab my profit even though i lose a tick on the first contract. Maybe the dynamics compelled me to do so.

 

[schweiz]

Everyone is different. They have to trade in such a way they are ok with the methodolgy.

I fully agree. You have to find what works for you, no matter what other people say or think.

 

[volpri]

I like the idea of compounding profits with previous profits on the shorter moves as my money makes money and then the original capital plus the recently acquired “actual” profits (as opposed to positional profits) are simply used again on a pb to make even more profits. Thus, I am putting to work newly acquired profits again and again. Over and over..again and again..

This type of compounding can only happen as often as trade interval happens. I like to see it happen alot hence I trade alot. Hurst speaks of the concept.

 

[syswizard]

This type of compounding can only happen as often as trade interval happens. I like to see it happen alot hence I trade alot. Hurst speaks of the concept.

Indeed, I've been mentioning "ATIT" (Average Time In Trade) as a major metric.
Big difference when ATIT is in days vs. minutes.
My backtesting research indicates the lower the ATIT, the better the sharpe ratio.

 

[schweiz]

This type of compounding can only happen as often as trade interval happens. I like to see it happen alot hence I trade alot. Hurst speaks of the concept.

I agree, but my tests show that increasing the number of trades from the rate I am in now, will reduce my profits. I see an optimal point from where on increasing works opposite.

 

[schweiz]

Indeed, I've been mentioning "ATIT" (Average Time In Trade) as a major metric.
Big difference when ATIT is in days vs. minutes.
My backtesting research indicates the lower the ATIT, the better the sharpe ratio.

To me sharp ratio is useless for the following reason:
Sharpe Ratio Calculations - Using Daily Returns

I have sometimes huge differences in returns, so behavior of sharp ratio goes crazy.

 

[syswizard]

To me sharp ratio is useless for the following reason:
Sharpe Ratio Calculations - Using Daily Returns

I have sometimes huge differences in returns, so behavior of Sharpe ratio goes crazy.

I understand that idiosyncrasy of the Sharpe calculation....but the example shown had few data points.
I doubt Sharpe would be biased when there is a trade sample of 100+.
Also, what about Sortino Ratio ?

 

[schweiz]

I understand that idiosyncrasy of the Sharpe calculation....but the example shown had few data points.
I doubt Sharpe would be biased when there is a trade sample of 100+.
Also, what about Sortino Ratio ?

I don't care about any ratio. As long as performance is like it is now, I feel no need and see no use of all these ratio's. Returns and drawdown are all I look at now.