Rol's Trading Journal

[Rol]

Hi all, I have been working on a mechanical trading system for about 4 years now and 4 months ago went live with it starting with $30,000. Some reasons for starting this thread are to chronical my performance, force me to go 100% auto and not interfere with the system. Also feedback, questions are welcome. I could go into the specifics of the strategies I use, but it probably wouldn't produce profit anway if not fully automated. Frankly, I'm not even sure what method to call what I do. Swing trading seems to imply holding times of several days to weeks, while mean reversion is considered intraday (correct me if I'm wrong). Some intraday charts look more like trend following. My average hold time is 2 days. My strat does not look at support or resistance levels, or moving averages, or volume other than to screen out low volume stocks. The couple of indicators I use are not used in the typical ways. It seems to come down to an edge I have discovered that backtests well or even better on out of sample data on a portfolio of about 1400 stocks (no futures, currencies, options, etc.). My theory was that if it worked on around 68% of the stocks out there, why not minimize individual stock exposure by diversifying into multiple symbols. I knew after backtesting on a portfolio of stocks, that automation was the only way to achieve this. Fortunately, just in the past year or so software, programming language and trade server connectivity has finally made it possible to go 100% black box, which is my ultimated goal. I wanted to be able to take the human element out of it completely,even including stock selection and the maximum number of stocks to hold. The results I have included are all the trades me or my system have made. I would say it is about 90-95% system. The discretionary trading dips on the equity curve are when I messed with the system. Starting today I plan to include weekly updates on the system performance and will begin a new equity curve with trading equity of $52000.

Attachment Removed at Request of Original Poster- Admin Joe

 

[Rol]

Quote from Rol:

Equity Curve

 

[Rol]

Mostly accumulating today. Several buy orders got help up at the open because a tick caused the strat to attempt placing a stop at the open which the trade manager tried to place pre-market. Guess I'll change that part of the code back to waiting a few seconds after market opens before firing. Reminds me why I don't place market orders at the open (avoid those nasty fills). :eek:

Anyway 2 sells today, overall market negative.

Realized P/L (2/2/11) $90.63

 

[Rol]

Faded the gap on 3 stocks near the open and then had protective stops filled to preserve profits. I don't mind passing up potential upside profit if the stock starts reversing back. There are hundreds more stocks on the radar. Rode another 5 to the close.

Unfortunately, got in CCME, China MediaExpress, after the news from Muddy Water's allegations of falsly inflated earnings. It just reaffirms the importance of risking a small percent of net worth per position. I will just consider this a negative outlier in my overall % profit distribution. It is surprising that a long term profit can still be achieved even with occasional hits to your equity by using position sizing. I guess we'll find out for sure if I'm still around in a few months.

My goal is to have no more than 3 losing days a month, an occasional losing week, and no losing months.

8 sells
Realized P/L (2-3-11) $333.36

 

[Kohanz]

Rol,

I'm a bit surprised that I'm the first one to be commenting on your journal, to be honest. First off, thank you for deciding to post. I have found the few posts thus far to be interesting and containing useful information and I'm hoping that continues.

As someone also interested in strategy automation, I have a number of questions for you, but I'll try not to ask them all at once.

Quote from Rol:

Hi all, I have been working on a mechanical trading system for about 4 years now and 4 months ago went live with it starting with $30,000.

Are you trading retail? What leverage?

Quote from Rol:

...while mean reversion is considered intraday (correct me if I'm wrong). Some intraday charts look more like trend following.

My understanding is that mean reversion and trend following are not time-scale dependent - you could try to trade either on an intraday or daily basis, but I'm no expert.

Quote from Rol:

It seems to come down to an edge I have discovered that backtests well or even better on out of sample data on a portfolio of about 1400 stocks (no futures, currencies, options, etc.). My theory was that if it worked on around 68% of the stocks out there, why not minimize individual stock exposure by diversifying into multiple symbols.

This intrigues me. Your equity curve is impressive thus far in terms of smoothness and the drawdown seems, thus far, quite manageable. It seems to be that this is not in small part due to a wide diversification. Could you elaborate a bit more?

You backtested your strat on a universe of 1400 stocks, but I'm interested in how you decide which stocks to trade on a given day. Do you select a subset of the universe (e.g. 10 stocks) based on some criteria to trade on a given day, or is each of those 1400 stocks "in play" on a day of trading? In other words, are you regularly "scanning" the universe of stocks for opportunities or are they pre-selected before trading starts?

Quote from Rol:

The discretionary trading dips on the equity curve are when I messed with the system.

Usually when people tamper with their strat, it's on the exits - was that the case here? Without hopefully asking too much information - are your exits stop or target-based?

Quote from Rol:

Starting today I plan to include weekly updates on the system performance and will begin a new equity curve with trading equity of $52000.

I'm looking forward to updates. Thanks for sharing! This has the makings of a very good journal, IMHO.

 

[Rol]

Thanks Kohanz for the questions and interest.

I'll try to hit all your questions, but I'm kind of new at this forum thing so it may seem disconnected. If you still have questions, keep asking them. I don't think I would be giving away the store by answering them. It is really just trying to pull everything together. The whole process has kind of directed itself with me discovering holes in the system and then trying to plug them.

I'm a retail trader with a full time job and dreams of retiring early to just trade. I dont' say trade full time because one reason for automating my trading is so I won't have to do this full time. It is more just a challenge for me to find the elusive "holy grail."

I use overnight buying power so it is 2X leverage. Occasionally the system will dip into daytrading buying power, and then I need to look at the trades closer to make sure I have enough that will exit before the end of the trading day.

I don't decide on which stocks to trade on a given day. The individual stocks, based on their price action, will determine whether they are potential candidates for trading. I scan the day before to narrow the list based on my criteria, and then during the trading day, if they hit my buy price, it triggers an order. It is on a first come first serve basis.

When I trade discretionary, I often get over exposed in a stock, usually trying to turn a loser into a net profitable trade. Many times I get decent gains as a result, but am usually left with that out of control feeling and don't want to hold overnight, and yes I usually get stopped out on the exit. With a small positon size, I feel much more relaxed about holding even currently underwater stocks, because there are usually some other stocks I'm holding that are profitable, so it helps smooth things out.

I don't use stops with the strategy other than to keep a profit from turning into a loss. I know that is heresy to many, but in backtesting it hurt my performance drastically to use stops. Actually, I am buying when others are being stopped out.
I want to get my equity high enough relative to my position size so I can comfortably say my "uncle point" is when the stock goes to zero.

When my exit conditions are met, that is when I exit, whether it will be a profitable trade or not, which is another thing that is hard to do if you have too large of a position size. I know others use profit targets and such, but to me that is like trying to predict where the stock will be heading. I admit I don't know where it will be heading and don't even really care. The more disconnected I can become from the trade, the better. I thought if I could step out of the fear and greed battle, it would be all the better.

My only concern is that I am connected to the markets.

 

[Kohanz]

Quote from Rol:

I'm a retail trader with a full time job and dreams of retiring early to just trade. I dont' say trade full time because one reason for automating my trading is so I won't have to do this full time. It is more just a challenge for me to find the elusive "holy grail."

I can definitely relate to that. Pure curiosity: what field do you work in?

Quote from Rol:

I don't decide on which stocks to trade on a given day. The individual stocks, based on their price action, will determine whether they are potential candidates for trading. I scan the day before to narrow the list based on my criteria, and then during the trading day, if they hit my buy price, it triggers an order. It is on a first come first serve basis.

Thanks for that description - it gives me a better picture of the setup. Do you narrow down the list to a number that your API can simultaneously support? Is there even a limit of that? Which broker/API are you using?

Quote from Rol:

With a small positon size, I feel much more relaxed about holding even currently underwater stocks, because there are usually some other stocks I'm holding that are profitable, so it helps smooth things out.

I assume your risk distribution is automated - does it vary per stock or is it more or less fixed?

Quote from Rol:


I don't use stops with the strategy other than to keep a profit from turning into a loss. I know that is heresy to many, but in backtesting it hurt my performance drastically to use stops. Actually, I am buying when others are being stopped out.

Far from heresy - the vast majority of times I see people using stops, they are not back-testing.

Quote from Rol:

When my exit conditions are met, that is when I exit, whether it will be a profitable trade or not, which is another thing that is hard to do if you have too large of a position size. I know others use profit targets and such, but to me that is like trying to predict where the stock will be heading. I admit I don't know where it will be heading and don't even really care. The more disconnected I can become from the trade, the better. I thought if I could step out of the fear and greed battle, it would be all the better.

This seems like a very good mentality, IMHO.

Another question: you talked about market orders at the open. Just wondering how (not why) you typically enter and exit positions and how much of your strats profitability is related to that. For example, if you just used market orders for everything, how profitable would your strat be compared to what it is now.

Thanks and good luck - looking forward to more updates.

 

[Rol]

Hi, I just wanted to post an image of a trade from today to practice inserting images along with a message. I'll post more later of results for the week and answer questions.

 

[Rol]

Here are the results for the week:

Total Net Profit $1,217.15
(Per Share) $0.39
Gross Profit $1,356.01
Gross Loss ($138.86)
Profit Factor 9.77
Total Number of Trades 33
Percent Profitable 69.70%
Winning Trades 23
Losing Trades 10
Avg. Trade Net Profit $36.88
Avg. Winning Trade $58.96
Avg. Losing Trade ($13.89)
Largest Winning Trade $158.08
Largest Losing Trade ($47.12)
Max. Consecutive Winning Trades 9
Max. Consecutive Losing Trades 4
Total Shares/Contracts Held 3094
Total Commission $76.36
Return on Initial Capital 2.43%
Annual Rate of Return 205.73%
Buy & Hold Return 0.87%
Trading Period 4 Dys, 6 Hrs, 28 Mins
Percent of Time in the Market 81.26%

Mark-To-Market Period Analysis:
Period Net Profit % Gain Profit Factor # Trades % Profitable
2/4/2011 $379.36 0.75% 100 8 100.00%
2/3/2011 $443.78 0.88% 4.79 16 75.00%
2/2/2011 ($264.47) -0.52% 0.14 13 30.77%
2/1/2011 $505.32 1.01% 9.51 10 70.00%
1/31/2011 $153.17 0.31% 6.28 13 61.54%

Mark-To-Market Rolling Period Analysis:
Period Net Profit % Gain Profit Factor # Trades % Profitable
2/4/2011 - 2/4/2011 $379.36 0.71% 100 8 100.00%
2/3/2011 - 2/4/2011 $823.13 1.56% 30.71 17 82.35%
2/2/2011 - 2/4/2011 $558.66 1.07% 4.13 20 65.00%
2/1/2011 - 2/4/2011 $1,063.99 2.08% 8.25 27 74.07%
1/31/2011 - 2/4/2011 $1,217.15 2.43% 9.77 33 69.70%

 

[Rol]

Kohanz, thanks for the interest. It helps keep me thinking about things and not get lazy. I am a Medical Technologist at a major medical center hospital. Working around automated analyzers in the laboratory helps me appreciate the role computers can play in strat automation. The instruments follow programming instructions to perform functions tirelessly. A lot of success in trading I believe is just about being at the right place at the right time, and a human just can't keep up. I mean what person would just sit there for weeks to months at a time with their finger on the buy button, hoping it doesn't turn out to be a "Fat" finger.

I use the TradeStation platform and the limit is 1000 symbols in what is termed their RadarScreen. I don't trade off of charts, otherwise I would need a separate chart for each symbol. The RadarScreen is similar in function, it appears, to what others are doing with Excel.

Let me just say that if you trade futures or forex, don't use TradeStation. If you go to their forums, you will hear many complaints about bad tick data, bad fills, disconnects, and fees for futures data. I only trade stocks, and you don't pay for the platform if you trade at least 5000 shares per month. I have developed into my code the ability to handle disconnects and position mismatches, so that is no longer a big problem for me.

Depending on what the market is doing overall, the number of signals can vary from a few to hundreds. In my code it prints the symbol and time that a valid entry occured, and each night I compare the trades I took to how many I could have. This was an unexpected surprise during my strat development because it meant that the strat could adapt to changing market conditions without my interference. When markets are quiet I am more in cash, but when things start moving, I am slow to enter, but quick to get out.

My position size is an equal dollar amount per position. This is necessary for me to be able to calculate the maximum number of positions I can take. A lot of what I have been doing recently has to do with determining that sweet spot between position size and maximum number of positions to maximize net profit.

With regard to entries and exits, I always use limit orders for entry and market orders for exit. I use market orders for exits because when the strat says to go flat, I am willing to give up a few points to do so. There is a bit of slippage in backtesting because it assumes I buy at the bid and sell at the ask, when the opposite is usually true. I am not scalping so it really is not a big issue. If one is developing a daytrading strat with tight margins, I would suggest they assume they have to buy at the ask and sell at the bid to get a realistic perfomance report (unless they are a quant trader working next door to Wall Street).