frostengine,
I am also using a stop and reverse strategy in the ER2. There are a couple of points I want to convey:
1) your conclusion about trailing or other profit-taking stops is correct, they will always worsen the results of daytrading. The reason I believe is that the upper end of your distribution of trades provides a substantial portion of your return. If trailing stops are used, those trades exit too early and leave too much on the table. I've found that trailing stops are more appropriate for larger macro-sized trades that enable you to stay in the trade for weeks or months at a time. Even then the stop must be placed substantially far away from the current price to stay in the trend. The best option I've found is to give the trades room to breathe, without giving into the fear and worry that the small winner of 20 ticks you have is going to reverse into a small loser. You NEED those outlier trades to make your system profitable.
2) The ER2, like was mentioned, still has liquidity issues. It tends to intraday trend the most out of all the major equity indexes, this is why on backtest micro-trend following scalpers look so damn profitable. BUT it is important to keep in mind that the number of trades you take per session should be relatively few for the strategy to be robust. If you use MIT orders to ensure all limit orders will fill, the slippage can and will kill you over a number of months.
3) Instead of worrying about the day-to-day PNL so much, trade the system everyday, day in and day out. NEVER try outsmart your system by turning it off for days you feel might give you losers. Instead, employ some form of compounding so that your position size will grow as your account does. This is only possible if your strategy follows 2) above. You can't get filled on 20 or 30 cars stopping and reversing every 5 or 10 ticks. It just doesn't happen in ER2. Make sure your SAR is discriminating the price action carefully to limit the number of trades you take.
P.S. I am not a programmer by profession, but I have used EasyLanguage and Matlab for about 10 years now. I am in the ropes of learning java, and am trying to build my own execution platform that talks directly to IB to replace the mess of software apps I use now.
Hopefully I can grab a few tips from you here and there if you're willing.
Hope this helps,
RoughTrader
I am also using a stop and reverse strategy in the ER2. There are a couple of points I want to convey:
1) your conclusion about trailing or other profit-taking stops is correct, they will always worsen the results of daytrading. The reason I believe is that the upper end of your distribution of trades provides a substantial portion of your return. If trailing stops are used, those trades exit too early and leave too much on the table. I've found that trailing stops are more appropriate for larger macro-sized trades that enable you to stay in the trade for weeks or months at a time. Even then the stop must be placed substantially far away from the current price to stay in the trend. The best option I've found is to give the trades room to breathe, without giving into the fear and worry that the small winner of 20 ticks you have is going to reverse into a small loser. You NEED those outlier trades to make your system profitable.
2) The ER2, like was mentioned, still has liquidity issues. It tends to intraday trend the most out of all the major equity indexes, this is why on backtest micro-trend following scalpers look so damn profitable. BUT it is important to keep in mind that the number of trades you take per session should be relatively few for the strategy to be robust. If you use MIT orders to ensure all limit orders will fill, the slippage can and will kill you over a number of months.
3) Instead of worrying about the day-to-day PNL so much, trade the system everyday, day in and day out. NEVER try outsmart your system by turning it off for days you feel might give you losers. Instead, employ some form of compounding so that your position size will grow as your account does. This is only possible if your strategy follows 2) above. You can't get filled on 20 or 30 cars stopping and reversing every 5 or 10 ticks. It just doesn't happen in ER2. Make sure your SAR is discriminating the price action carefully to limit the number of trades you take.
P.S. I am not a programmer by profession, but I have used EasyLanguage and Matlab for about 10 years now. I am in the ropes of learning java, and am trying to build my own execution platform that talks directly to IB to replace the mess of software apps I use now.
Hopefully I can grab a few tips from you here and there if you're willing.
Hope this helps,
RoughTrader
