Thank you for your kind words!
I don't want to deceive re my discretionary abilities in ES/VXX. They are better traders to learn from when it comes to those instruments.
Val
Fully Automated Stocks Trading
- Thread starter ValeryN
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Thank you for your kind words!
I don't want to deceive re my discretionary abilities in ES/VXX. They are better traders to learn from when it comes to those instruments.
Val
Hi Val, I have been reading your thread today, and I have some questions. When a buy signal is generated, if tomorrow's price cannot hit 10% lower to fill the buy order, that signal will be removed forever? or the signal stays in the list for the next days? If it is the latter, we might end up with a stream of signals generated on the same stock at different days at different levels.
Thank you for taking the time and opening this interesting thread.
Glad to hear you found it interesting.
I would imagine for most EOD trading systems out there a setup is universally good only for one day. Ultimately you are the architect of your system so it can be any way you want. But that is the way I do it.
If tomorrow your setup occurs again in the same stock then it is on the list again with a new price calculated using updated data.
Normally, "repeat" setups will happen with MR systems. Let's say if stock falls down next day but not enough for you to enter. Then next day you run you scan again to see stocks that have that MR setup and it might very well be there.
I had some instances where a stock not only generated but also hit my entry point 3 days in row, in the same direction... That is not a pretty, but part of the game. You just keep following your system. I don't but some people pyramid and most of the time it will decrease your pain. Till that one time when you can't take the pain any longer and will pull a plug.
When you test your system you can also try to check if you get better results if you don't take a setup which also happened yesterday.
Val
Hey Val, thanks for clarifying things. Your explanation makes the logic pretty understandable. "I don't but some people pyramid and most of the time it will decrease your pain. Till that one time when you can't take the pain any longer and will pull a plug." also reflects the truth of how some people deal with mean-reversion systems. I personally think tight stops harm MR, but some stop or exit criteria must certainly be there, otherwise there is a risk of holding companies that actually never recover back up.
Bests,
MR stops/risk is a cool subject, probably deserves a separate post.
Having time stops, sizing small and universe selection are the best ways to control MR risk in my opinion. When you have very high volume of trades in stocks, loosing 50% on any single one over few days is pretty normal, I'll post next time it happens to me, normally once every few months. Considering current market - will probably be on a short side.
There are mergers, acquisitions, bankruptcies, rumours, corrupt executives etc. Anything can happen.
I would be curious to read your thoughts about this topic.
Done!
Here is a visual on how hard stops typically kill MR systems.
Notice that it’s not necessarily a stop that actually hurts performance the most, but the added transactions costs. Stops are very expensive.
Though take it with a grain of salt as I haven’t been using stop orders extensively to have good stats on average slippage. I’m just assuming it will be way worse than entry, where we can use LMT orders. Good stats would require 500+ orders sample.
Included 3 visuals:
Not overly leveraged MR system will have return of ~15-20% per year with ~20% Max DD. I’m using $100k model account and not compounding. As you can see, just added costs of using slippage reduce annual performance by ~11%. While average DD didn’t decrease. So we’re left with a 4-9% annual return system with same 20% Max DD. Basically - not worth to trade in real life.
The larger the stop the less extra cost will be. Normally I see performance not degrading too much on 3 ATR stops and above. But then it’s because they don’t really get hit over the typical few days hold period short term MR systems have.
So if our stop is so large that it gets hit once in 10-20 trades why even bother putting it?
In real life we want to decrease complexity as much as possible, to reduce possibility of mistakes or overfitting. That goes for everything including orders generation. All the extra work for… decreasing performance for only a little bit.
Best stops for MR strategies, from my experience are
Notice that it’s not necessarily a stop that actually hurts performance the most, but the added transactions costs. Stops are very expensive.
Though take it with a grain of salt as I haven’t been using stop orders extensively to have good stats on average slippage. I’m just assuming it will be way worse than entry, where we can use LMT orders. Good stats would require 500+ orders sample.
Included 3 visuals:
- MR Long with stops and all costs included. What I think is realistic for 100-500k account, assuming no penny stocks
- Same but when commissions for stop is set to 0
- Example of calculation of total cost of incorporating hard stop into the system
Not overly leveraged MR system will have return of ~15-20% per year with ~20% Max DD. I’m using $100k model account and not compounding. As you can see, just added costs of using slippage reduce annual performance by ~11%. While average DD didn’t decrease. So we’re left with a 4-9% annual return system with same 20% Max DD. Basically - not worth to trade in real life.
The larger the stop the less extra cost will be. Normally I see performance not degrading too much on 3 ATR stops and above. But then it’s because they don’t really get hit over the typical few days hold period short term MR systems have.
So if our stop is so large that it gets hit once in 10-20 trades why even bother putting it?
In real life we want to decrease complexity as much as possible, to reduce possibility of mistakes or overfitting. That goes for everything including orders generation. All the extra work for… decreasing performance for only a little bit.
Best stops for MR strategies, from my experience are
- Timed stops. Hold only up to 5-10 days for example. If our profit taking condition didn’t happen within that interval we are giving up and allocating capital to other opportunities
- Soft-stops. When we check for stop being hit but exit either at the close or next open with MOC or MOO order. For small accounts that would have near 0 added costs will protect from intraday whipsaws
Thank you, I appreciate this.
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