Quote from In2Deep:
Hi Rol. Thanks for the journal. What you said about decreasing risk by diversifying across a lot of small positions has inspired some recent work on my ATS.
Hi In2Deep and thanks for checking in and enjoy your new house! Iâve been reading your journal, as well as ElecEquityâs, PropTraderâs, and archived oneâs. I think we all can learn my catching themes of what to do and not do from people with skin in the game. When diversifying across symbols one must still be sure they have a back tested system, otherwise what does not work on a few symbols will still not work on many. I believe portfolio level trading allows you to âplay the oddsâ better, while automation keeps the mmâs off balance ( if only they knew they were trying to play off the emotions of a Pentium 4).
It seemed to me while reading your journal that you were trading news related stocks discretionary and not with an ATS. I am poor at discretionary trading long term. Sure I have had my windfall trades, but the false confidence generally caused me to give it all back. I made $50,000 overnight in early 2008 on a small biotech (Encysive Pharmaceuticals) buyout by Pfizer. I suspected it was going to be bought out because the CEO was saying that he was in talks with an investment bank in order to âIncrease shareholder valueâ. I then proceeded to give it all back later that year by counter trending the down market through ETFs discretionary. What is unreal is that my auto strategy would have come out ahead had I had my code in place at that time. Now, I have no desire to trade discretionary because I know in myself that I cannot control the risk. Besides as my balance grows, it will become necessary to automate to be able to put on the number of trades required to diversify.
Quote from In2Deep:
Also, I'm intrigued by the idea of not using stops or profit targets. My system currently uses both and the results, as you probably know, are both good and bad (less bad when, I think, when you have an equal number of long and short positions, but I have been having a hard time coming up with a short strategy that works in this market). I haven't quite figured out how a strategy without stops would work. What kind of exit rules does your system follow?
I have read how others have had a hard time shorting, like during the recent earthquake crisis. What the market was doing was gapping down overnight and then trending up during the trading day. That was when I was using heavy margin to buy the dips at the open and it saved me. That is another reason I donât like day trading because you totally miss out on the overnight gaps in your favor, while trying to scalp 2 or 3 ES points. I am looking for the bigger moves that work even after slippage is accounted for.
Naturally I canât go into details of my entry and exit rules, otherwise everybody would be trying to get in and out at the same time. I occasionally post charts of my trades so it should not be too difficult to see what I am doing. I can say that I am buying into weakness and selling into strength. The trick is to discover what constitutes weakness and strength. This is where back testing and optimization come into play.
I work in a clinical laboratory and occasionally use microscopes. Anyone familiar with microscopes knows that they have 10X, 50X, and 100X objectives; or low, med, and high power. In analogy, the universe of symbols one tracks is the low power, the 50X is the scan you perform the night before, based on your scanning criteria before the markets open, while the 100X is where your strat zooms in on the individual symbols, based on additional criteria, that results in a hit, or not, of your buy trigger.
I may be proven wrong over time with my strat, but it survived a recent major earthquake, and nuclear accident, so perhaps I am onto something. There is nothing wrong with learning to paper trade a portfolio until the required $25,000 in funds are available, even if it takes years of saving.
