Ken Calhoun's Trading Room

huby,

Ken's trading room will be back up October 1. He usually makes between 10 and 20 calls a day (only trades from 9:30 to 11:30 or so) and works from a list of approx. 50 stocks which he periodically changes depending on what the market has done (NASDAQ stocks only). He is very down to earth (ex. engineer) and runs a very tight trading room. No off topic comments, no criticism of him or others. He is quick to boot someone who will not follow the published rules.
 
I tried out his room for a couple weeks quite a while back. I didn't try following a small group of stocks like he suggested. Instead, I wrote down all his entry points for all his stocks, and then later that day pulled up one minute charts on all of them. I didn't do this every single day, maybe just 3 times, so take what I say with a grain of salt.

Anyway, the conclusion I came to is that there seemed to be just as many losers as winners. And that will lose you money in a hurry. That stock that moved up a point within 2 minutes of his long entry point? Well, you didn't get in because everyone else in the world was trying to buy at the same time you were. And the one that dropped a quick point after the long entry point? Well, you got into the stock real easy, but you didn't exactly get out with your 25 cent stop loss because everyone else was selling when you were trying to exit. So you have two trades you attempted to make, one was a winner and one a loser (each by the same amount), but you're down close to a point.

Again, it's been quite a while, and I can't say I actually tried to follow his picks in real live trading conditions, but those were my general impressions. I'd be glad to be proven wrong. Just remember that papertrading trades that move quickly is about worthless.
 
Just to follow up on the comment on win rate. I swing trade a simple breakout strategy modeled on the system used by Gary B Smith at realmoney.com. His system has a historic win rate of close to 70% over several years. I've averaged 65% this year, which I'm very happy with. But it's money management that will determine overall profitability, not win rate.
 
"But it's money management that will determine overall profitability, not win rate.'

Hi.

Well, let's say for example that your win rate is 10%. How's your money management doing for you now? :(
 
:) :) :) :) :) :) :) :)

How can one count on each win scoring large? You have no way of knowing before hand to what extent your one win will be. Hence, a lousy win/ loss ratio is likely to do you in regardless of your exceptional money management strategy. A good win rate is at least as important to your success as is good management. (And gives great bragging rights)
 
The profitability or edge of a trading approach is determined by three factors

Pw = Probability of a winning trade

%w = Average percentage gain from winning trades

%l = Average percentage loss from losing trades

Your edge is given by

Pw*%w + (1-Pw)*%l

If this number is negative, no amount of money management will save you. However, it is certainly possible to have a trading method with many less winning trades than losing trades, provided the size of the wins is sufficiently larger than the size of the losses so that the above equation gives a positive result.

Trend following systems tend to be like this. A trader will scratch many trades for a small loss to latch on to a sustained trend that will give him a large profit. The 10% winners used in the previous post may be a bit of a stretch, but it is hypothetically possible.

The other key aspect of money management is that even if you do have a method with a positive expectancy, you must tailor the size of your bets so that a string of consecutive losses does not wipe you out before you hit the big winners.
 
I have a Brainless system that averaged a 50% win rate for August, but also a 2 to 1 average profit to loss. It was up 15% in August overall. My systems profitability came from my reward/risk ratio being 2:1.

There is an inverse relationship between win/loss ratio and reward/risk. but the key is to get them both as high as possible to achieve optimum results.
 
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