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Example of actual trading
- Thread starter electron
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Quote from Magna:
Electron has a good journal going and there will be no hijacking of this thread to promote other agendas. If you would like to discuss another strategy or your own trades (real or sim), and you are not promoting a commercial website, please start your own thread. Thanks.
Magna,
thanks for keeping this journal clean. I appreciate that.
More about this strategy...
I mentioned that there are two kinds of poor entries in this system. This is because the system uses two major criteria to generate entries. One is the criterion of strong trend and the other is the criterion of strong breakout/momentum. It just happened that when the system incurred these two losses one of these was met quite well, but the other was met in a conspicuously unsatisfactory manner. The result was very poor indeed, although it did not have to be that poor as usually the system can adjust its stop to prevent the max loss. When both of the criteria were met nicely the system had no problems producing profits.
Obviously, it is possible to have a situation where both of these conditions are very poorly satisfied, but I have not seen it yet or at least I don't remember it, perhaps simply because it was not so traumatic as those two max losses.
The system in question is only a small part of a larger framework that is based on the same indicators as this system. I am showcasing this system only because it's very easy to handle, can be traded completely mechanically, does not produce many trades and simply does not take much time. However, this is not necessarily the most profitable element of the framework called STAR (strong trend and reversals). It might be the easiest one though, perfect even for complete beginners. The framework uses the strong momentum condition only to generate the strong breakout entries for the featured system, otherwise uses only the strong trend condition and the reversal conditions: a generic one and specific ones, the latter having to do with the situations where the momentum was strong but died prematurely.
For instance, Friday was a picture perfect day for this framework. It generated two trades based on the strong trend condition and two trades based on the generic reversal condition although in the first (short reversal) some discretion was required. One goes for 3 pt targets here, 2.5 pts if you have to apply discretion. The initial stop-loss is also lower than for the breakout trades as no momentum is involved here and so volatility is low. The stop-loss of 1.5 to 2 pts suffices quite well. All trades would have reached their targets. That does not happen everyday, of course. Usually, there are no more than 1-2 good setups a day within this framework. Sometimes there are none.
I might showcase trades generated by this framework at some later time in another journal. The reason I mention this framework is this: if you want to be successful in this field you need to think in terms of important elements. The trend is one of them. It is probably the most important element to build your strategy with. You want to have it on your side and you want it solid. You obviously also want to know when it has changed. That does not mean picking tops and bottoms although in the case of specific reversals this is close to it, but in a safe way.
I mentioned that there are two kinds of poor entries in this system. This is because the system uses two major criteria to generate entries. One is the criterion of strong trend and the other is the criterion of strong breakout/momentum. It just happened that when the system incurred these two losses one of these was met quite well, but the other was met in a conspicuously unsatisfactory manner. The result was very poor indeed, although it did not have to be that poor as usually the system can adjust its stop to prevent the max loss. When both of the criteria were met nicely the system had no problems producing profits.
Obviously, it is possible to have a situation where both of these conditions are very poorly satisfied, but I have not seen it yet or at least I don't remember it, perhaps simply because it was not so traumatic as those two max losses.
The system in question is only a small part of a larger framework that is based on the same indicators as this system. I am showcasing this system only because it's very easy to handle, can be traded completely mechanically, does not produce many trades and simply does not take much time. However, this is not necessarily the most profitable element of the framework called STAR (strong trend and reversals). It might be the easiest one though, perfect even for complete beginners. The framework uses the strong momentum condition only to generate the strong breakout entries for the featured system, otherwise uses only the strong trend condition and the reversal conditions: a generic one and specific ones, the latter having to do with the situations where the momentum was strong but died prematurely.
For instance, Friday was a picture perfect day for this framework. It generated two trades based on the strong trend condition and two trades based on the generic reversal condition although in the first (short reversal) some discretion was required. One goes for 3 pt targets here, 2.5 pts if you have to apply discretion. The initial stop-loss is also lower than for the breakout trades as no momentum is involved here and so volatility is low. The stop-loss of 1.5 to 2 pts suffices quite well. All trades would have reached their targets. That does not happen everyday, of course. Usually, there are no more than 1-2 good setups a day within this framework. Sometimes there are none.
I might showcase trades generated by this framework at some later time in another journal. The reason I mention this framework is this: if you want to be successful in this field you need to think in terms of important elements. The trend is one of them. It is probably the most important element to build your strategy with. You want to have it on your side and you want it solid. You obviously also want to know when it has changed. That does not mean picking tops and bottoms although in the case of specific reversals this is close to it, but in a safe way.
#5 Entry missed
PL= 0
Total PL=2-3.5+2-3.5
I placed the entry with a limit order. The conditions for the entry were fine, although the strength of the momentum was not great. Because of this I was hoping that I would be able to use a limit order. Well, this is not what happened. The order was placed around 13:45 CST and stayed put for a while (see the red line in the picture). The order did not get filled while the market hit a new LOD and retraced. Unfortunately, when the market reached the entry level again, the momentum strength necessary for the entry was gone and so the entry conditions were not met completely. While there were no indications that the market was about to take off in the opposite direction, I decided not to use discretion to reenter. Had I done so, I would have scored 2 pts as the market did exceed the target by 1 tick eventually.
In the scheme we designed for first back testing and then forward testing this system, a loss of 0.75 pts is assigned to this trade as a hypothetical trade entered with a market order. This is so because the market did not exceed the target by 2 ticks, which is necessary to consider the target reached, and would have been stopped with a 3 tick loss had the target been not reached. Obviously, this scheme is vastly different from what most vendors use for their systems, but if you design a system for your own trading and not for selling it, you do not want to fool yourself with your hypothetical results.
PL= 0
Total PL=2-3.5+2-3.5
I placed the entry with a limit order. The conditions for the entry were fine, although the strength of the momentum was not great. Because of this I was hoping that I would be able to use a limit order. Well, this is not what happened. The order was placed around 13:45 CST and stayed put for a while (see the red line in the picture). The order did not get filled while the market hit a new LOD and retraced. Unfortunately, when the market reached the entry level again, the momentum strength necessary for the entry was gone and so the entry conditions were not met completely. While there were no indications that the market was about to take off in the opposite direction, I decided not to use discretion to reenter. Had I done so, I would have scored 2 pts as the market did exceed the target by 1 tick eventually.
In the scheme we designed for first back testing and then forward testing this system, a loss of 0.75 pts is assigned to this trade as a hypothetical trade entered with a market order. This is so because the market did not exceed the target by 2 ticks, which is necessary to consider the target reached, and would have been stopped with a 3 tick loss had the target been not reached. Obviously, this scheme is vastly different from what most vendors use for their systems, but if you design a system for your own trading and not for selling it, you do not want to fool yourself with your hypothetical results.
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#6
PL=-2 pts
Total PL=2-3.5+2-3.5-2
I guess I should be frustrated, but actually I am not. This is a good learning opportunity. The last 3 losses taught me more about the system and how to improve it than any other previous trades, so I am actually glad that what happened took place when I was testing SR and playing this system with half of my normal size.
Now, the entry was fine, the trend was very strong and the momentum was fairly well developed although far from being great. Closer to poor if I am to be honest, so I took the trade with a limit order. Unlike in the case of the first two actual losses, this time the system adjusted the stop, from 3.75 pts to 2 pts, which was not so good as you can see from the picture because had it not done so, the target would have been eventually reached. Now you see why many traders develop a hate-love relationship with Mr. Market and more often than not it is pure hate and only very lukewarm love at best.
This time just as during the previous losing trade, the pullback was poorly developed. The previous time it was what actually led to the 3.5 pt loss instead of a 1.5 pt loss that would have taken place in the worst case scenario if I had happened to improve my entry by only 2 ticks.
The lesson to learn from the losing trades is that discretion can be very important indeed. I was prevented from learning this very important thing during the first four months of using the system. As you later will see from the listing of past trades I really was not much challenged to use discretion.
These losing trades forced me to come up with a systemic solution to address the situations of very poorly developed trends and pullbacks. I will aply this solution from now on, which in some cases may even mean that I will fade a breakout first and then enter in the breakout direction. Doing so would have turned the last two losses of 5.75 pts into an 8 pt win with 4 trades altogether and the first loss also could have been avoided as no trade would have taken place. This is not a new solution. We apply it to specific reversals (mentioned by me a few days earlier) that constitute an extension of this system. What happens in the case of the specific reversal is that by the time the pullback is completed the strength of the momentum is gone and the market is more likely to reverse than to continue the breakout. The system provides a precise method of fading the breakout in the case like that.
Einstein once said that God is sophisticated, but malicious he is not. With Mr. Market it is the exact opposite. Sophisticated he is not, but good luck finding a more malicious bastard on the block...
PL=-2 pts
Total PL=2-3.5+2-3.5-2
I guess I should be frustrated, but actually I am not. This is a good learning opportunity. The last 3 losses taught me more about the system and how to improve it than any other previous trades, so I am actually glad that what happened took place when I was testing SR and playing this system with half of my normal size.
Now, the entry was fine, the trend was very strong and the momentum was fairly well developed although far from being great. Closer to poor if I am to be honest, so I took the trade with a limit order. Unlike in the case of the first two actual losses, this time the system adjusted the stop, from 3.75 pts to 2 pts, which was not so good as you can see from the picture because had it not done so, the target would have been eventually reached. Now you see why many traders develop a hate-love relationship with Mr. Market and more often than not it is pure hate and only very lukewarm love at best.
This time just as during the previous losing trade, the pullback was poorly developed. The previous time it was what actually led to the 3.5 pt loss instead of a 1.5 pt loss that would have taken place in the worst case scenario if I had happened to improve my entry by only 2 ticks.
The lesson to learn from the losing trades is that discretion can be very important indeed. I was prevented from learning this very important thing during the first four months of using the system. As you later will see from the listing of past trades I really was not much challenged to use discretion.
These losing trades forced me to come up with a systemic solution to address the situations of very poorly developed trends and pullbacks. I will aply this solution from now on, which in some cases may even mean that I will fade a breakout first and then enter in the breakout direction. Doing so would have turned the last two losses of 5.75 pts into an 8 pt win with 4 trades altogether and the first loss also could have been avoided as no trade would have taken place. This is not a new solution. We apply it to specific reversals (mentioned by me a few days earlier) that constitute an extension of this system. What happens in the case of the specific reversal is that by the time the pullback is completed the strength of the momentum is gone and the market is more likely to reverse than to continue the breakout. The system provides a precise method of fading the breakout in the case like that.
Einstein once said that God is sophisticated, but malicious he is not. With Mr. Market it is the exact opposite. Sophisticated he is not, but good luck finding a more malicious bastard on the block...
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Electron - i am wondering why the system did not take the second breakout around 13:45 EST - the momentum looked good too and the trend strengthened even further... - don't know if you limit to just one trade per session perhaps or if you need for the price to come back into the middle of the range to define a "range" before taking the next breakout... just not clear to me - i agree with your point that the longer it takes to complete the pullback, the more momentum is lost - you can see the difference if you compare the second breakout to the trade your system took.
I am looking at the chart: sr-pic-92105.png
and I can not find any reason to short from the area your system picked to short,
That is a very high risk short after such a big momentum down, I hope your system does not expect markets to go down continously for a the whole day to make money, those days come far and few in between.
and I can not find any reason to short from the area your system picked to short,
That is a very high risk short after such a big momentum down, I hope your system does not expect markets to go down continously for a the whole day to make money, those days come far and few in between.
Quote from fader:
Electron - i am wondering why the system did not take the second breakout around 13:45 EST - the momentum looked good too and the trend strengthened even further... - don't know if you limit to just one trade per session perhaps or if you need for the price to come back into the middle of the range to define a "range" before taking the next breakout... just not clear to me - i agree with your point that the longer it takes to complete the pullback, the more momentum is lost - you can see the difference if you compare the second breakout to the trade your system took.
Very good point, thanks for bringing this up. The system takes two trades a day at most and this breakout should have been taken. The reason it was not is very mundane: I simply missed it. I did not notice it! I don't remember what I was really doing at that time... I had taken 2 trades before taking this system's call and I was pretty much done for the day, so I guess I was not paying much attention to the market. Well, that is actually good news because otherwise I would have lost 3 pts on this one.
Incidentally, using the new rules for trading this system (for shallow pullbacks, etc) this trade was pretty much a borderline case even if the pullback was indeed deeper but not really so if relative criteria were used here and the momentum was good too, being even slightly better than in the case of the first trade. Using discretion you should have not taken it but instead you should have sold the market around 3 PM at 1219.5. Fading the breakout would have not applied here as the pullback was not deep enough for the fading setup to form.
I guess luck was on my side after all.
So the hypothetical record says that we have had 7 trades this month so far, with 2 wins and 5 losses and with the net result of minus 8.75 pt at this time which is so close to twice the previous max drawdown of 4.5 pts that I am suspending trading this system till the end of this month. Also the maximum number of consecutive losing trades was exceeded by 2 (from 2 before to 4 now). This does not look good at all, but I might resume trading the system next month using the new formula.
It's hard to beat this market with this system because this month ES moves in a very zigzag-like manner. Today's session is a very good example of this. For this system to work a more follow-through market is needed.
Well, I will post the complete list of hypothetical trades taken by this system YTD (including this month's results) and the monthly statement when this month is over.
I will also write some concluding remarks at that time.
Quote from coolweb:
That is a very high risk short after such a big momentum down, I hope your system does not expect markets to go down continously for a the whole day to make money, those days come far and few in between.
Well, the system does not expect the markets to go in the same direction all the day, but as you see that's what the market did today anyway, even if in a zigzag like manner, which is what killed the trade today. It is really always easier to judge things in hindsight and indeed I was aware of the things you mentioned, except that the system is mechanical and how things eventually evolve cannot be predicted. You can only make some guesses and models.
And yes, despite such risky circumstances you mention the system did well this year until now. So basing your opinion about the system performance on this one trade can be shortsighted.
Thanks for your comments...
makes sense, thx for clarifying - it seems difficult nowadays to get retests on these short-term momentum moves, even if the trend is strong, seems like as soon as there is momentum, they all pile in, and then all pile out as the momentum thrust is over, i.e. no wiggle room for a retest... on the other hand, as you know, this behavior is often cyclical, i think it's dependent on seasonal factors too and also correlated with the general level of volume in the market, i.e. more volume means more "vibration"/retests.. - so the next month may show much different performance.
Quote from electron:
Very good point, thanks for bringing this up. The system takes two trades a day at most and this breakout should have been taken. The reason it was not is very mundane: I simply missed it. I did not notice it! I don't remember what I was really doing at that time... I had taken 2 trades before taking this system's call and I was pretty much done for the day, so I guess I was not paying much attention to the market. Well, that is actually good news because otherwise I would have lost 3 pts on this one.
Incidentally, using the new rules for trading this system (for shallow pullbacks, etc) this trade was pretty much a borderline case even if the pullback was indeed deeper but not really so if relative criteria were used here and the momentum was good too, being even slightly better than in the case of the first trade. Using discretion you should have not taken it but instead you should have sold the market around 3 PM at 1219.5. Fading the breakout would have not applied here as the pullback was not deep enough for the fading setup to form.
I guess luck was on my side after all.
So the hypothetical record says that we have had 7 trades this month so far, with 2 wins and 5 losses and with the net result of minus 8.75 pt at this time which is so close to twice the previous max drawdown of 4.5 pts that I am suspending trading this system till the end of this month. Also the maximum number of consecutive losing trades was exceeded by 2 (from 2 before to 4 now). This does not look good at all, but I might resume trading the system next month using the new formula.
It's hard to beat this market with this system because this month ES moves in a very zigzag-like manner. Today's session is a very good example of this. For this system to work a more follow-through market is needed.
Well, I will post the complete list of hypothetical trades taken by this system YTD (including this month's results) and the monthly statement when this month is over.
I will also write some concluding remarks at that time.
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