Successful Trading and Compounding

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Advice:

I you're a good strategy developer you should have them completely automated. If you can't follow the rules your computer can. Just don't start trading your system (changing parameters when your not supposed to, entering/exiting trades manually).

If your problem is money management. Work in a prop office where the manager can help you manage your losses or write yourself a money management program.

If after trying all those. You're still making losses. Maybe your a good strategy developer and not a trader. Partner up with a trader that will give you a profit slit of your system.

HTM
 
Quote from traderslair:

Hello, hope you succeed.....

If you go above 5k, take it all out, you're one of those guys, the bigger account you give them the bigger they will lose.
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Very good points. Thanks, especially the point about bigger account, bigger losses. I think that might be true.

I looked at my largest daily losses from Journal start - over the last 6 weeks (33 days of trading). I see that on 9 days, I had >10% losses: ranging from -45% to -12%.

Reason for 2 big losses was that I traded ES and QM, in a very high vol environment with a small account size. So, lesson is I won't be trading another QM till my account equity is 10k and another ES till my account equity is at least 5k.

On 3 occasions, FX caused big losses, because I reversed position after getting stopped multiple times. Quiet often, this allows you to capture a breakout, but sometimes, it leads to repeatedly buy high and sell low (when price remains in a congestion). Going forward - "After 4 consecutive reverse losing trades, I won't trade that pair until complete clarity emerges".

Other two big losses were due to larger position size in a very volatile environment, e.g. trying to go long thinking that a multi-day bottom was being formed in EURCHF. I am going to work on better position size rules.

So, net net 3 take-outs from largest loss analysis:

1. No QM trade till 10k Equity, No ES Trade till 5k Equity.
2. After 4 consecutive reverse losing trades, stop trading the pair/correlated pairs till complete clarity emerges.
3. Have better position size rules - More on this in a later post.

Finally, on a positive note, out of these 9 big losing days, 6 happened in 1st 10 days which means only 3 happened in last 23 days.
 
Quote from gmst:

Very good points. Thanks, especially the point about bigger account, bigger losses. I think that might be true.

I looked at my largest daily losses from Journal start - over the last 6 weeks (33 days of trading). I see that on 9 days, I had >10% losses: ranging from -45% to -12%.

Reason for 2 big losses was that I traded ES and QM, in a very high vol environment with a small account size. So, lesson is I won't be trading another QM till my account equity is 10k and another ES till my account equity is at least 5k.

On 3 occasions, FX caused big losses, because I reversed position after getting stopped multiple times. Quiet often, this allows you to capture a breakout, but sometimes, it leads to repeatedly buy high and sell low (when price remains in a congestion). Going forward - "After 4 consecutive reverse losing trades, I won't trade that pair until complete clarity emerges".

Other two big losses were due to larger position size in a very volatile environment, e.g. trying to go long thinking that a multi-day bottom was being formed in EURCHF. I am going to work on better position size rules.

So, net net 3 take-outs from largest loss analysis:

1. No QM trade till 10k Equity, No ES Trade till 5k Equity.
2. After 4 consecutive reverse losing trades, stop trading the pair/correlated pairs till complete clarity emerges.
3. Have better position size rules - More on this in a later post.

Finally, on a positive note, out of these 9 big losing days, 6 happened in 1st 10 days which means only 3 happened in last 23 days.
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GMST, despite what the pundits on this site say, you would be better off not trading a single ES with only 5K in your account.
 
Quote from nokomisjeff:

GMST, despite what the pundits on this site say, you would be better off not trading a single ES with only 5K in your account.
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Thanks for feedback, I will take a closer look on it again, I am still far-off from reaching 5k in account equity.
 
I did more work on position sizing. As I said in a previous post, I have identified 15 different kind of set-ups that I am going to trade in a discretionary fashion. I have defined the risk I am going to take on each set-up 'as of now', based on my trading experience. I will start keeping detailed stats on each of the set-up from Monday and then after a few weeks/months, will fine-tune the risk on each set-up as I get some numbers. Till then, following risk will apply:

Set-ups, Risk, Risk per trade
1 Low 2%
2 Moderate 2%
3 High 1%
4 High 1%
5 Moderate 2%
6 Moderate 3%
7 Moderate 5%
8 High 5%
9 Moderate 8%
10 Untested 1%
11 Untested 1%
12 High 5%
13 V. High 6%
14 Untested 3%
15 Untested 1%

As a further loss-limit tool, I am establishing my max. daily loss limit as 15%. So, as soon as I hit 15% loss for a day, I will stop trading for the day and close all positions (other than multi-day/multi-week positions).

15% loss for a day sounds big - however consider a day when I lose 4 trades with 2% risk and lose 1 trade with 5% risk and am down 2% on a multi-day trend following kind of trade - adds up to 15% loss. When multiple intra-day set-ups interact with a longer-term set-up, on a few days in a year, total daily loss can easily breach 15% loss, as shown with above example.

Going forward, to make my trading process more systematic and 'more importantly sustainable' on a longer term basis, my aim would be to adjust my risk till I can have 95% trading days below 15% daily loss limit. I might get close to this objective within next 3-4 months, but to truly 'achieve' such a well-defined portfolio risk will take a few years.

Both the numbers - 15% daily loss limit being true over 95% trading days are subject to future revisions, when I have better understanding of individual risks on different strategies, how they interact and what level of max. daily loss will lead to optimum account equity growth rate with limited drawdowns. This will be achieved on a longer term basis - talking about years here.
 
Quote from HTmarket:

Advice:

I you're a good strategy developer you should have them completely automated. If you can't follow the rules your computer can.....

If your problem is money management. Work in a prop office where the manager can help you manage your losses or write yourself a money management program.

HTM
More...

Thanks, good advice. Actually, I have been following rules of my strategy very well and am also following the correct money management. With the amount of research I have done on my strategy, I have complete confidence in it and have also been following it correctly. I developed it last year, and one year out of sample performance has been way better than the actual back-tested performance. My problem has been the discretionary trades that I have been taking in an insane size.

When I started this journal, I was looking to just trade my strategy along with a few longer term macro trades. However, now the goals have changed. I have decided to trade intra-day/multi-day in a discretionary fashion also. Till now the biggest reasons for big losses have been improper position sizing and 'on-the-whim' kind of trades.

Having defined 15 different possible set-ups over this weekend, from tomorrow I will have a process to follow. Before entering any trade, I will match it to a particular set-up. If I can't match it exactly to a particular set-up, 'I won't trade it'. This process will allow me to completely eliminate the number of irresponsible 'on the moment' kind of trades, which is a huge drag on profitability. Also, having defined the risk alongwith leverage and stop losses for each set-up, I will simply look into the table and appropriately position size the trade.

In all honesty, what I have done over this weekend is that I have prepared a trading plan for my discretionary trades. I already had a trading plan for my systematic strategy but no trading plan for my discretionary trades. Having clearly established basic rules of the game and some limits should help me to function in a balanced manner during the trading day and should help me to do well, so that my trading performance is in conformity with the name of this journal!

Finally, before I started this journal, I had severe doubts in my mind about the usefulness of this journal. After 6 weeks, I think it was a very very good decision to start this journal. Even though I am anonymous on this journal, the great feedback and proper questions I have been getting and simply showing my performance before all the readers is forcing me to be more systematic and rationale in my trading. I think in some sense, having this journal is like having a boss/control system which can only make my trading more sustainable longer term.

Thanks everyone!
 
Update for week 7 ending Sep 17, 2011 :

-1200$ for the week. Mistook a trade, thinking it was a strategy trade, when it was not. Error on my part, bigger error was that I didn't close the trade immediately when I discovered the error. Cost me 600$ or so. Account equity below 2k again. very scary.

Started record keeping, overtraded, biggest mistakes were:

1. reversing positions too often, before touching stops and
2. changing the day's bias multiple times during the day

Stats keeping is showing me on which set-ups, I need to push size and on which I need to cut size and cut # of trades as well.


Weekly Stats:

1. Week PL: -1200$
2. Start Equity: 3.2k
3. End Equity: 1.9k
4. Maximum equity run-up: 3.2k
5. Max Win day as % of that day's start equity: 8%
6. Max Loss day as % of that day's start equity: -23%

Below stats are from Journal start day:

1. Total PL: -5k
2. PF: 0.52
3. RoI: -74%
4. Max. DD: 82%
5. Current DD: 76%
6. # of winning days 46%, # of losing days 54%
7. Av. win day: 11%
8. Av. Loss day: -14%
 
Update for week 8 ending Sep 24, 2011 :

+500$ for the week. 3rd profitable week out of 8 weeks. It was funny - developed a new momentum kind of strategy, while working on a mean reversion kind of strategy - took 1st trade and proved very profitable. This strategy trades less - like once a month or so.

Gave back a lot of profits next day when doubled up a discretionary trade that had gone in my direction but didn't cut the doubled part when trade went against me - starter level mistake - cost me a lot of money. While I was in the trade and it was going against me, I decided to give this trade a larger room and risk a high % on this trade - this kind of thinking is alright but must be used very very selectively and should be allowed on a trade only when win probability and win amount is very high - typical examples would be a crash situation. This trade definitely didn't belong to such a high win probability/win amount category - so it was a mistake to allow larger loss on this trade. Took away more than 700$ from my equity high.

I was very doubtful about the Gold priceaction for last 2 weeks, and I was intermittently shorting it, catching 5$-10$ moves on the way down. But on Friday, I missed the greatest move of all - 100$ down move. Had I captured that move, end results would have been much better. Need to be more alert looking for potential large move situations in the market.

Weekly Stats:

1. Week PL: +500$
2. Start Equity: 1.9k
3. End Equity: 2.4k
4. Maximum equity run-up: 3.6k
5. Max Win day as % of that day's start equity: 45%
6. Max Loss day as % of that day's start equity: -35%

Below stats are from Journal start day:

1. Total PL: -5k
2. PF: 0.61
3. RoI: -68%
4. Max. DD: 82%
5. Current DD: 71%
6. # of winning days 48%, # of losing days 52%
7. Av. win day: 13%
8. Av. Loss day: -14%
 
Few points on where I am after 8 weeks:

1. I have started keeping stats - but need to be more rigorous.

2. I have now 3 fully developed systematic strategies and one semi-developed systematic strategy which is showing a lot of promise. I have one more semi-developed strategy that trades once few months. At the start of the journal, I had only 2 fully developed systematic strategy.

3. I have been able to identify 15 different kind of set-ups that might offer some edge, and am keeping records for them.

4. I also have one discretionary strategy - this is one of the above 15 set-ups that I am very confident upon and have been successfully trading it, with large leverage :)

5. Main culprits behind my losing money has been frequently changing direction of the trades without it hitting the stop - basically not being choosy enough in my trades. I have identified this problem and am working on it.

6. Last 2 weeks, I had 3 day when I lost more than 15%. One mistake was that I had previously identified - of reversing positions too often. Other mistake was taking a trade w.o signal mistakingly and not rectifying the mistake when I became aware of it. 3rd mistake was adding to a position going in my favor but not cutting it back when it moved against me. It was a classic beginner level mistake.

Hopefully, next few weeks will be better and I will be able to hit 7k before end of year.
 
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