Frequent small profits, rare large losses...

[nxt7]

In my backtesting endevours whenever I've found a strategy that generates consistent small profits with a >90% success rate, when applied in real life the 10% failure generally seems to wipe out all my previous profits back to square one.

I have found that my positions generally seem to get wiped out during overnight/out of hours trading when there are large high/low spikes that trigger my stop losses.

Some people have suggested to trade without stop losses, but if I remove the stops, I leave myself open to black swan events and big losses can even trigger a margin call...

Any hints or tips on how I can perhaps improve my strategy? The only way I can see to resolve this is to basically have unlimited funds and trade without stops so that my positions never get closed out basically... But this is not really feasible as I only have limited capital to trade with...

 

[Apollonius]

Do you average down? Is this an option-selling strategy?

 

[globalarbtrader]

In my backtesting endevours whenever I've found a strategy that generates consistent small profits with a >90% success rate, when applied in real life the 10% failure generally seems to wipe out all my previous profits back to square one.

I have found that my positions generally seem to get wiped out during overnight/out of hours trading when there are large high/low spikes that trigger my stop losses.

Some people have suggested to trade without stop losses, but if I remove the stops, I leave myself open to black swan events and big losses can even trigger a margin call...

Any hints or tips on how I can perhaps improve my strategy? The only way I can see to resolve this is to basically have unlimited funds and trade without stops so that my positions never get closed out basically... But this is not really feasible as I only have limited capital to trade with...

Use less leverage (I'd say you are using at least 10 times as much). Or switch to a strategy with a lower success rate but which will probably have less tail risk.

There is no magic formula.

GAT

PS Don't remove your stops

 

[nxt7]

Use less leverage (I'd say you are using at least 10 times as much). Or switch to a strategy with a lower success rate but which will probably have less tail risk.

There is no magic formula.

GAT

PS Don't remove your stops

I have been using the lowest leverage possible. Reducing tail risk has been my biggest headache.

 

[globalarbtrader]

I have been using the lowest leverage possible. Reducing tail risk has been my biggest headache.

I don't understand how you can use the lowest leverage possible and still be exposed to frequent near 100% total losses. Unless your account size is absolutely tiny and you're trading futures with a large contract size? In which case you need to stop doing that.

GAT

 

[java]

oh man that cracks me up, will MAYBE give up stops but absolutely WILL NOT give up small profits. The small profits should be the very first to go always. Try the same system on paper, no profits no stops. You can always spread it against something, trade one side from the long side and the other from the short side. at anyrate, you need to increase risk somewhere not reduce risk. And the very best place to increase risk is to simply stop taking profits. Profits kill.

 

[Frederick Foresight]

Any hints or tips on how I can perhaps improve my strategy?

I have found that my positions generally seem to get wiped out during overnight/out of hours trading

 

[Handle123]

Hmmmm, this style makes no sense to me, Scalping and some day trading is risking greater than reward, but my testing show anything you keep overnight is long term ruin of accounts, unless you constantly hedge with options can help but sometimes that is not an answer either. I think it is back to drawing board.

 

[algofy]

Agree with above....get average winners bigger and it's okay if win % decreases. "Normal" win % in the 40-60% range is about right for my trading style.

 

[Jones75]

In my backtesting endevours whenever I've found a strategy that generates consistent small profits with a >90% success rate, when applied in real life the 10% failure generally seems to wipe out all my previous profits back to square one.

I have found that my positions generally seem to get wiped out during overnight/out of hours trading when there are large high/low spikes that trigger my stop losses.

Some people have suggested to trade without stop losses, but if I remove the stops, I leave myself open to black swan events and big losses can even trigger a margin call...

Any hints or tips on how I can perhaps improve my strategy? The only way I can see to resolve this is to basically have unlimited funds and trade without stops so that my positions never get closed out basically... But this is not really feasible as I only have limited capital to trade with...

If you're worried about "black swan" events, which indicate expectation of major gyrations, use delta neutral puts against the stock instead of stop losses.