You've found a wordy way to say "I've been killed in the market because I trade with too much size", which is exactly what people have been warning you about going back to last year's journal. I wouldn't trade 1/10th your size with multiples of your account equity. Even your new and improved sizing rules are ludicrous. Just my opinion though, good luck.
Taking 410K to 4million by Year End 2010
- Thread starter neke
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WRONG your losses are due to crap risk management.
You're batting .523 for the year and you're losing money. That's terrible risk management. You'd need to be over .800 to make any dough with your risk management. So sad.
you should consider your edge temperature,if its been hot you trade a little larger,cold, you trade a lot smaller...,preserve capital til you get hot again,......look at yourself as a manager of a professional team,......if the QB,just got body slammed on his throwing shoulder, you are not going to send in a pass play,you play it safe, wait to you see if he's healthy or even replace him,....the coach is logical while farve and his ego may not be,....... posting this journal might make you think you have to produce to avoid embarrassment,you may feel you have to produce to get your money back.....niether thought has any concern for the market....i dont know what your thinking ,but i've been in your spot and had these thoughts... i would love to see you post 3 winning 3 k weeks in a row
Quote from neke:
Weekly Update for week 32/50 ended 08/21/2010
More of the same, down 7K (3.2%).
Was making some little gains and headed for a positive week until Thursday. Put in a trigger to buy SPY calls on pull-back. Did not realize a sell-off was happening. Closed later for a loss of 14K (Too much size for a day before expiration).
After due analysis of my transactions for this year, I came to the conclusion that leverage is responsible for 100% of the losses this year. Most of the bad leverage came through averaging down. I took all the initial entry prices and the final exit prices, and derived the average returns based on those prices (eliminating the intermediate averaged prices), and the result showed stocks had an average loss of 0.02% (ratio 0.9998), while options had an average gain of 0.5% per trade. Combined they were a little above break-even. The summary was that the cummulative effect of leverage handicap is responsible for the staggering loss.
[I gave this example before of the effect of leverage when the edge is too slim:
This is an example of what I call the "leverage handicap". You are shorting a stock in two trades. The stock goes from 120 to 100 in the first trade,
and then back to 120 in the second trade. You would think that is a break-even trade (minus commissions). But it is not, especially if you go with leverage like I do.
At the first trade, with a balance of say 150K in account and buying power of 300K (2Xaccount), you could short 2500 shares @ 120. You cover at 100, gaining 50K. You now have 200K and a buying power of 400K. You can now short 4000 shares @ 100. You cover at 120, losing 80K. On the whole you have lost 30K (20%) through pure stock volatility. Does not really matter whether the stock goes down first and up or the reverse.
So to make it in those times, your edge need to be stellar. ]
This year it has been close to 50-50 proposition on trades (excluding averaging down), so the negative effect of leverage has become too apparent. Going forward for the remainder of the year, size on stocks is being capped at 1Xacctvalue (currently $210K worth), while for options the value of the underlying should not be more than 3Xacctountvalue ($630K worth) - example maximum permissible SPY calls would be 58 contracts (with SPY @ 108). My position monitor will see to the enforcement of this. So yes, no more size of $778K on JWN with an account size of 213K!
Code:Opening Balance: 220,518 Net loss for the week 7,114 ------------------------------------------------ Net Balance: 213,404 Number of Trades 16 Number of Profitable Trades 10 Since Inception of Thread 01/10/2010 - 08/21/2010 Opening Balance: 410,000 Net loss(Less Margin Interest) 196,596 (Down 48%) ------------------------------------------------ Net Balance 213,404 Number of Trades 985 Number of Profitable Trades 518 BREAK-DOWN BY AUTOMATED/DISCRETIONARY Number P/L Best Gainer Worst Loser AUTO 7 1,188.60 2,659.30 -1,370.40 DISCR 9 -8,303.10 2,467.30 -14,037.70 TOP/BOTTOM DISCRETAIONARY TRADES SPYAUG212010107.0CALL 2010-08-19-09-52-39 2010-08-19-12-58-47 17800 35145 21360 -14037.7 OPOCOL-SPY
At what point does a system fail? Certainly there is a point where a trader must acknowledge that what he or she is doing is not working. With a nearly 50% (48%) draw down in eight months I would need a compelling reason to continue with the same method. Specifically, I don't think one exists in your case.
Shut it down, clear your head and come back ready for battle. Use this time for some back testing. When you do come back, start with much smaller risk per trade. We all know that real money and back testing are different animals.
I admire the way you post it all out there for the world to see and my sense is you're close. Don't blow your capital.
Darn, this is painful to see.
It seems like, edges can go away or get smaller or you can stray from your system. For any of those reasons you can start having a losing streak. Then you think about reworking your system or decreasing size. But right then you hit a small winner. So you think you are back winning, only to hit a new bigger loser. And so it goes.
At least I have to incorporate some hard rules to decrease size aggressively if equity decreases, because discretion cannot be trusted even for a very experienced guy like neke.
It seems like, edges can go away or get smaller or you can stray from your system. For any of those reasons you can start having a losing streak. Then you think about reworking your system or decreasing size. But right then you hit a small winner. So you think you are back winning, only to hit a new bigger loser. And so it goes.
At least I have to incorporate some hard rules to decrease size aggressively if equity decreases, because discretion cannot be trusted even for a very experienced guy like neke.
Attributing your losses this year to the leverage handicap will prevent you from making the changes to your trading that you need to make to turn things around. It seems that too much of your decision about position sizing comes from looking at the buying power in your account rather than evaluating the quality of each trade and using the amount of edge in the trade to qualify how much capital you are willing to risk a priori.
The one thing that will help you most is moving away from a percentage return goal and trying to grind out a given amount of profits for the quality of the trading conditions that appear each week for your trading strategies. Your trades lack scalability and shooting for some ridiculous ROI I think has contributed greatly to your losses.
A thorough evaluation of the quality of each of your trades setups, coupled with defining the amount of capital you are willing to risk on each setup, will go a long way towards moving yourself to become consistently profitable. Edges change over time and it is most important to always be redefining the setups that work best for you. I would also state that indiscriminate fading has long since been purged from my strategies. The process of purging it ended up fundamentally changing the way I trade and you may find a reevaluation of your setups may lead to new stratagies that will reinvigorate your trading.
I wish you all of the best and look forward to a profitable comeback.
The one thing that will help you most is moving away from a percentage return goal and trying to grind out a given amount of profits for the quality of the trading conditions that appear each week for your trading strategies. Your trades lack scalability and shooting for some ridiculous ROI I think has contributed greatly to your losses.
A thorough evaluation of the quality of each of your trades setups, coupled with defining the amount of capital you are willing to risk on each setup, will go a long way towards moving yourself to become consistently profitable. Edges change over time and it is most important to always be redefining the setups that work best for you. I would also state that indiscriminate fading has long since been purged from my strategies. The process of purging it ended up fundamentally changing the way I trade and you may find a reevaluation of your setups may lead to new stratagies that will reinvigorate your trading.
I wish you all of the best and look forward to a profitable comeback.
How do we know if its Neke to blame or the market conditions? Last year his journal did very well. maybe this is just drawdown, and he'll come back and kill it next year...
IMO he does take a lot of risk, but I've read about traders in Trader Monthly that took huge risks, and made huge sums. I personally wouldnt be able to handle it.
IMO he does take a lot of risk, but I've read about traders in Trader Monthly that took huge risks, and made huge sums. I personally wouldnt be able to handle it.
Yeah! lets all blame the conditions, instead of ourselves for not making our systems take into account conditions. Makes one feel so much better.
I'll be lucky if I can make 20% of what I made in 2008 this year. Sucks but that's what the market is giving me. I could try to make it up in leverage but then I'd probably be giving back 1/2 the money I made in 2008. Neke's job is to figure out that this market continues to get less volatile and more efficient and adjust accordingly.
I did look back last week and he was at 240k in Feb, so although he's taken some hits he's only down about 12% in 6 months. Not great, but he has ratcheted down the risk somewhat but he probably needs to drop the risk another 75-80% if he wants to make money.
I'd also suggest aiming for 20-30% next year (or not doing the blog at all since his risk issues may be easier to handle if he doesn't have a whole bunch of trolls ever Friday. 410k to 510k isn't as sexy as the current title, but +100k is a hell of lot better than -200k.
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