Rule of 10 Journal

[Now is Now]

Quote from jagmot:

Thanks! That was one crazy up move (still in at 49, so we could continue..cant edit anymore past 30m on my other post). There must have been news leaked to the big boys.

My guess is BofA is buying Lehman.

You would think they have a big enough headache with buying Countrywide for too much.

Pekelo, I am going to go over previous trades from the beginning of this month and see how the reloads work out. On first blush, I would think that each "reload'" should be on a reduced exposure from the last i.e if 3 contracts,reduce to 2 ,if good, reduce to 1 until a "10" or knock out.

The 9/18ma was powerful this afternoon...missed all the action as I had other commitments..

 

[Now is Now]

I think Volente enjoyed his T day today

 

[yip1997]

Quote from jagmot:

Is anyone reading between the lines here?

I hate to point out the obvious (at least to me) but here goes.

Based on the data (although small sample size) it looks like if r10 goes more then 5pts, the probability of going to 10pts is quite high (our sample size it was 100% on actual trades) and over the past few months more than 70%.

FWIW
Jagmot

J:

Thanks a lot for your experiment.

Based on your observation, it seems to me that we can modify r10 to rule of 5 to get a postive expectency.

For example:

If the long entry were supposed to be x based on r10,

entry should be made on x + 5,
target is x + 10 ( only 5 points profit)
stop is x

r:r is 1:1, but the probability of hitting target is 0.7, so
Expected return = 0.7 * 5 - 0.3*5 = 2 points

The whole analysis is based on your observation. I am not a future trader, and I am here to learn.

 

[jagmot]

Quote from jagmot:

Moved happened so quick there....

Next long was at 33.25, however I wasn't ready and got lucky with a long at 32.50. (either way the trade hit the first target)

Target 1 filled
Trailer 2 still open, currently at 31.25

Got our first runner, trailer is now at 49.00 (cant keep editing fast enough)

Is there some news?

Trailing stop is still in at 49.00 even. I have to head out for about an hour or so. We could see a gap higher on any possible lehman news, but I don't expect a gap on the downside.

What I really like about the trailing stop most is it kept us from getting stopped out on a short.

 

[volente_00]

Quote from Now is Now:

I think Volente enjoyed his T day today

Whats a T day?

 

[Decel]

jagmot can you detail your new strategy with an example? I'm not fully understanding the trailing stop part (when it's active, how large, etc?)

Nice trading btw (both this and on the ES thread). I totally missed the pm action.

 

[volente_00]

Quote from jagmot:

Trailing stop is still in at 49.00 even. I have to head out for about an hour or so. We could see a gap higher on any possible lehman news, but I don't expect a gap on the downside.

What I really like about the trailing stop most is it kept us from getting stopped out on a short.

You are heading the right way. Keep tweaking and get the trend at your back without fighting the gaps.

 

[jagmot]

Quote from yip1997:

J:

Thanks a lot for your experiment.

Based on your observation, it seems to me that we can modify r10 to rule of 5 to get a postive expectency.

For example:

If the long entry were supposed to be x based on r10,

entry should be made on x + 5,
target is x + 10 ( only 5 points profit)
stop is x

r:r is 1:1, but the probability of hitting target is 0.7, so
Expected return = 0.7 * 5 - 0.3*5 = 2 points

The whole analysis is based on your observation. I am not a future trader, and I am here to learn.

Yip,

Great thank you for contributing to the board. I agree with you that this is a positive setup. If the 1 day old new trading system continues to go well, I will plan on upping the size to 3 contracts at some point.

Before I realized this stat, I was thinking I would use a second target at 6. After realizing this, I will plan on using 3, 10, and open ended.

I would definitely be curious if someone traded this setup...you might be able to play around with the stop of 5 vs 3. If 3 works at the same consistency then we are looking at 2.6 v 2.0 A big difference over time.

 

[smilingsynic]

The Rule of 10, as this journal has demonstrated, is too subjective and open to interpretation.

Nevertheless, I do not doubt that market moves are often measured by the power of 10, esp. the Nasdaq.

On the ES, summer high off of bottom (Sept contract) was 1313.50; the morning low today was 1211.25, a little over 100 points down.

 

[jagmot]

Quote from Decel:

jagmot can you detail your new strategy with an example? I'm not fully understanding the trailing stop part (when it's active, how large, etc?)

Nice trading btw (both this and on the ES thread). I totally missed the pm action.

Sure I would be happy to.

Let's use the last trade as an example. This is how the trade is setup on the InfinityAT platform. There are 4 different ways to setup the trade on the platform. In this case I use 'Multi Trailing'. This setup has 3 settings, trailing, stop loss, and distance.

Trailing - set for 12 ticks (trailer gets activated when the trade hits 12 ticks)
Stop loss - set for 12 ticks (stop for both contracts)
Distance - set for 20 ticks (actual trailing stop amount)

We get filled 2 cars (long) at 1232.50. Lets say now the trade has moved to 1233.00. Since the move has been only 2 ticks, the stop is still set for 12 ticks at 1229.50. Same if the trade moved to 1232.00.

Now in our example the first target sell gets hit at 1235.50. Since we have set the distance at 20 ticks, our trailing stop is now at 1230.50 and now just 1 contract since we sold our first target. The reason for this is because the trailer was set to activate at 12 ticks. We could change this to another number, 16 ticks, for example. If that was the case the stop would stay at 1229.50 until the trade reached 1236.50 and then the trailing stop would move to 1231.50 (20 ticks).

The only downside that I see is that the software does requires a target for the second contract. What I did was put that target at 20pts away (in this case 1252.50). When we got close today I started dragging it up so it would not get hit.

I see this as a downside because I might not be in front of the computer. At worst though, we would get 20pts and then the computer would cancel the trailing stop. If I happen to get the first target filled but then need to go away, I can use the 'Trailing Stop' vs. the 'Multi Stop' after canceling the target and stop momentarily.

Hope that helps.