There may be some technical difficulties associated with trading a system that uses the crossing or angles of averages. I always had difficulty seeing when the lines had actually crossed on my screen. I'm sure by now you realize that if you are using angles as part of your trading regimen, they are dependent on the size of the chart being constant, the scaling of the chart being constant, and the bar spacing being constant. Only then will you get consistent angles on the screen. I always found it difficult to identify average crossovers, particularly if I was updating on every tick. If you do update every tick, signals will fire then disappear, so in reality you will need to base signals off closed bar signals to not get false signals. You may be way ahead of me on these issues so please bear with me if this is the case.
Reward to risk: 1:1, however all gains are pressed for as much as possible by use of a trailing stop. The trailing stop is set to breakeven after the initial profit target has been obtained.
Reliability of signal: The signal appears to have a profitability of about 60%-70%,
Now that some time has passed since you initially posted these results, does your system continue to show these results: 1:1 ratio and 60-70% winners, or is the ideal performance for the system much lower? My experience is that you really need a 70%+ system if it is 1:1 because even with great discipline execution will never be perfect because of reaction time and the nature of fills in a dynamic market. The other observation is that in order to maintain a high win rate (which you need with 1:1 ratio) you will need to have profit targets, so your original premise of letting gains be pressed as much as possible is in conflict with this high winrate goal, and will result in a lower win %, which if coupled with the 1:1 ratio will end up with commissions eating you up.
In addition to this I noticed that pretty much all of my losers from last week resulted from early entries, it just so happens that all of these early entries never were confirmed by my MAs, so essentially they were trades that never should have even been taken.
Now we are getting down to the main issues. You have pointed out a disconnect between your actions and the signals of the system. Let me ask if you were to go back to the original entry rules posted on the first page of your journal, and apply those rules to the market since 11-3-03 to the present, how would strict adherence to these rules have performed? How does that performance compare with your actual trading performance?
What exactly is an early entry? An early entry to me is an entry that is made in anticipation of a signal, in order to capture a better price than the system can produce. When you start trading like this you run into some problems:
1) You end up entering some trades that do not have trade entry signals. The dilemma becomes, how do you then manage these trades when you have no plan for unconfirmed entries?
2) Because of 1), you end up with more costs in commissions. Trades like 1) have not got the higher 60-70% backtested probability associated with them, so the result is probably a coin toss, which combined with a 1:1 ratio and the extra costs from commission add up to a big drag on the bottom line. This is like the fat on a steak that needs to be carved off.
3) When you are attempting to enter ahead of a signal being given you put yourself in a really poor state of mind. It is a loser's state of mind. I know this from personal experience. The thing you are most afraid of is missing or being late in taking a signal, so you tend to anticipate (manufacture) signals left and right: overtrading, or in other words trading without a plan. You would have more luck by throwing darts every hour.
4) After you have anticipated entries for a while and gotten in early and been burned a few dozen times, this leads to another really poor losing state of mind. You start wanting confirmation of the anticipated entries you are making. (can you see how the whole system trading idea is now becoming convoluted beneath this poor thought pattern?) So now you only start anticipating taking trades that are more certain to work out or that are more definite. (Does anyone besides me see the irony of a "certain" anticipated trade?)
What is a confirmed or definite trade according to the context of 4)? It is a trade that has already moved in the direction you wish to enter. In other words when your trades are confirmed, you are chasing the market. And as I pointed out in my journal, the stock indexes are prone to retrace, so by entering when your anticipations are confirmed you are really entering at the worst possible point. The original premise behind the anticipated entries was to improve your fill price, and yet as it turns out when anticipating entries for a system, the net result is to ensure that you get the worst possible fill on a bunch of trades that do not meet your system's entry criteria. You can learn this simple lesson from studying the results of hundreds upon hundreds of anticipated entries.
You see, your ego would rather have you believe that anticipating entries is not the problem - just "the way" you are anticipating them is the problem. So rather than eliminating the problem with regards to your discipline - moving you closer to your system results, the ego gets you to do major alterations or even abandon your system altogether in a vain belief that you know what is best and you are smarter, faster, more certain than your system ever could be, even though your ego never wants to be backtested.
So you may in fact be caught in a snare, a trap of your own making. The ego will blind your eyes to what has been happening, will change your priorities and will warp your perception. But all you have to do is get back to a solid set of tested rules. Just test out following the rules on a trade here and there and make note of the results. Try it out. Start gaining confidence again in following your system by making small strides. After you have made some progress, resolve to follow all the rules literally for one entire trading day - just to see how it works out. Then work your way up to a week.
Only YOU can improve your trading. Good trading to you!
