The "Flipper" strategy

You are absolutely correct jaan. Thanks for pointing that out.

So, of the last three columns on the right, the total at the bottom of the first one (K) is incorrect and the totals of the last two are correct.

I didn't catch that as I didn't even pay a whit of attention to that column since I can't afford the 15million dollar account that it takes to buy that many shares.

Thanks again.

JB
 
Oh, when I said "losses that occurred before current flip" I mean profits also which sometimes reduces the capital exposure.
Cheers,
 
Quote from abogdan:
If you have reached Max amount of flips (in our case it was 11) you are not looking to make profit anymore rather your target is the losses that you encounter so far.
More...
that does not make any difference, because after 11 flips your loss is several orders of magnitude greater than your target profit.

in other words, you are suggesting that after being hit with a $10000 loss, you should "just" aim for making that 10k back, and not worry about making the $300 profit on top of that.

- jaan
 
Quote from jaan:

that does not make any difference, because after 11 flips your loss is several orders of magnitude greater than your target profit.

in other words, you are suggesting that after being hit with a $10000 loss, you should "just" aim for making that 10k back, and not worry about making the $300 profit on top of that.

- jaan
More...

Roughly, after 11 flips your shares are at app. = (1.1^11)*InitialShares = 2.9*initialshares. Your loss is about 0.06*11*2.9*InitialShares = $1800 on 1000 initial shares. Your target was 1000*0.6 = $600.
Cheers,
 
Hi abogdan, thanks for weighing in.

>Ok, I have 15 minutes. First of all, it is really hard for
>me to follow your code but I'll try to make general
>comments that jump out right away.

Not sure what you mean by "code" since I didn't post any. I'm assuming you mean my formulas.

You detail your share formula and though I didn't just now go through and test it, I have no doubt that you can and did construct one that does the job. I am also confident that I have done the same. I'm unsure if you are saying that mine is wrong, but for the sake of clarity I will walk through an example using mine and someone point it out if I've gone wrong somewhere.

Assumptions: (numbers chosen for ease of use)

1.111% guaranteed price move
$50.00 open value (OpenVal)
1000 initial shares
penny per share commissions
3 cent spread

So...

Profit target = (50 * 0.0111 * 0.9) +/- $50.00

Our ProfitTarg(s) are 50 cents on each side of our OpenVal or $50.50 for longs and $49.50 for shorts.

and...

>ExpectedProf = abs(OpenVal – ProfTarg)

So...
Expected profit = (50.50 - 50.00) times initial shares

Or: Our ExpectedProf is $500 bucks per winning day

Any problems so far?

For the first set of calcs lets assume it's the open and we have no trades yet and thus no cumulative losses.

>Needed Prof = ExpectedProf + CumLoss + 2xCommish

Our NeededProf is $500 + CumLoss (0) + 2xCommish (unknown until shares are set)

We just use the $500 number to start and calc commish later.

Our short and long flip triggers are set 3 cents off center so when our smoothed bid average crossed the upper line (50.03) we lift and offer and go long. With our 3 cent spread our TradeVal is 50.06

>AvailableRange = abs(TradeVal – ProfTarg)

So the AvailableRange is 0.44

>SharesNeeded = NeededProf / AvailableRange

So the SharesNeeded are 1136

Now we must calculate commissions...(as you will see this ends up not quite perfect but very close with just one round of calcs)

1136 * 0.01 = $11.36

Divide the 11.36 by the AvailableRange and you can see that you must purchase 26 more shares to cover the cost of commissions

So SharesNeeded = 1136 + 26 (or 1162)

Using the above assumptions and formulas, my code will purchase 1163 shares @ 50.06 and hope to sell them at 50.50 for a ~$500 profit after commissions.

At each successive flip the code just adds in the losses so far (including commissions) and recalcs the shares.

If there is a flaw there I'll happily correct it.

JB
 
Turok,

I'm not sure how hard it would be, but if easy for you I would love to see the results of the following changes to your test (shown in your spreadsheet):

1) Start every initial trade with a fixed 1000 shares.
2) Use a fixed multiplier of 1.1. In other words, have the net position AFTER the first flip be equal to 1100 shares, upon a second flip the position will be 1210 shares, etc.
3) With these changes, the share size doesn't ramp up nearly as quickly, thus you can more safely use the suggested "max 11 flips" as the stop loss exit criteria for trading during that day, and see what the results are.

If this is relatively easy to do, and you don't mind, I would be interested to see the results of this in the same spreadsheet format as you have posted the latest results.

I just found this thread and the prior linked thread today, and I sure appreciate all of the thought and discussion that has gone into it so far. This is the kind of thoughtful discussion that makes ET worthwhile, despite having to frequently dig though a lot of crap (on other threads) to get to this sort of interaction. I don't think this ongoing thread would have been thought stimulating if it weren't for abogdan's willingness to share his overall idea, as well as to welcome the views of 'opponents' of his idea and the occasional ET idiots that never have nothing worthwhile to contribute. In addition, this thread would not have been nearly as useful without Turok's valuable thoughts and healthy skepticism to continue the discussion (in a non-threatening way, no less) for the benefit of all.

My hat is off to both of you. Thanks for providing a very stimulating discussion. I wish there was more I could contribute to this discussion from the backtesting point of view, but this is just not one of my strengths.

Thanks again,
-Eric

Quote from Turok:

Hi abogdan, thanks for weighing in.

>Ok, I have 15 minutes. First of all, it is really hard for
>me to follow your code but I'll try to make general
>comments that jump out right away.

Not sure what you mean by "code" since I didn't post any. I'm assuming you mean my formulas.

You detail your share formula and though I didn't just now go through and test it, I have no doubt that you can and did construct one that does the job. I am also confident that I have done the same. I'm unsure if you are saying that mine is wrong, but for the sake of clarity I will walk through an example using mine and someone point it out if I've gone wrong somewhere.

Assumptions: (numbers chosen for ease of use)

1.111% guaranteed price move
$50.00 open value (OpenVal)
1000 initial shares
penny per share commissions
3 cent spread

So...

Profit target = (50 * 0.0111 * 0.9) +/- $50.00

Our ProfitTarg(s) are 50 cents on each side of our OpenVal or $50.50 for longs and $49.50 for shorts.

and...

>ExpectedProf = abs(OpenVal – ProfTarg)

So...
Expected profit = (50.50 - 50.00) times initial shares

Or: Our ExpectedProf is $500 bucks per winning day

Any problems so far?

For the first set of calcs lets assume it's the open and we have no trades yet and thus no cumulative losses.

>Needed Prof = ExpectedProf + CumLoss + 2xCommish

Our NeededProf is $500 + CumLoss (0) + 2xCommish (unknown until shares are set)

We just use the $500 number to start and calc commish later.

Our short and long flip triggers are set 3 cents off center so when our smoothed bid average crossed the upper line (50.03) we lift and offer and go long. With our 3 cent spread our TradeVal is 50.06

>AvailableRange = abs(TradeVal – ProfTarg)

So the AvailableRange is 0.44

>SharesNeeded = NeededProf / AvailableRange

So the SharesNeeded are 1136

Now we must calculate commissions...(as you will see this ends up not quite perfect but very close with just one round of calcs)

1136 * 0.01 = $11.36

Divide the 11.36 by the AvailableRange and you can see that you must purchase 26 more shares to cover the cost of commissions

So SharesNeeded = 1136 + 26 (or 1162)

Using the above assumptions and formulas, my code will purchase 1163 shares @ 50.06 and hope to sell them at 50.50 for a ~$500 profit after commissions.

At each successive flip the code just adds in the losses so far (including commissions) and recalcs the shares.

If there is a flaw there I'll happily correct it.

JB
More...
 
>I'm not sure how hard it would be, but if easy for you
>I would love to see the results of the following changes
>to your test (shown in your spreadsheet):

Hi Eric,

Thanks for the kind words toward abogdan and myself.

It is not that difficult at all to code the changes you describe (it wouldn't be done in the spreadsheet actually as that is mostly just a display medium for me...the coding is done in Wealthlab)

I am currently working on my next post on this subject which I think will be of interest to you as it deals with abogdans 1.1 multiplier. After reading that post, if you still want me to do a run with 1.1 I will consider it (each run of 80 days takes an overnight period for WL since it is almost 30million candles of data to crunch)

Get back to me after.

Thanks
JB
 
thx for your work turok.

here is a small spreadsheet i made. i dont have access to bid/ask prices, but this is a theoretical sheet. i assume delta+commissions is $0.10, profit target is $0.55, and the multiplier is 1.15. as you can see, you start out with maximum profit if you win on the first trade, however as you progress, your winnings once you do get to your 1% target get less and less.

however, you can fix this by adjusting the flip multiplier, raise the flip multiplier high enough and you can win the same amount no matter which flip it is (or even more with each successive flip)....however, you're also exposing yourself to greater losses if it never gets to your target (see the cumulative loss column).

however, you were saying that out of 400 days, there were only 12 days that it didnt reach its target, so this seems ok to me :)

im only sending this because i noticed on your sheet that some of the multipliers were very high, around 1.5 to 2, which will ruin you, i've found 1.25 is about the highest you should go unless youve got a lot of capital and balls.

let me know if any of my calculations are incorrect.


just u/l a new copy of the attachment, i forgot to offset the loss columns up one row.
 

Attachments

Hi SimStim. Thanks for your contribution to the thread.

>im only sending this because i noticed on your sheet
>that some of the multipliers were very high, around 1.5
>to 2, which will ruin you, i've found 1.25 is about the
>highest you should go unless you've got a lot of capital
>and balls.

I haven't had time to review all your work (headed out for an evening with friends), but I do wish to comment on one aspect of your post.

We as traders don't get to dictate the multiplier. It's not a matter of picking a number that fits our "capital and balls". As is demonstrated by my posted and detailed formula, the multiplier is dictated by the delta,slippage and expected profit. The multipliers in the spreadsheet are the result of those factors and if you disagree with those numbers you are free to challenge any of the assumptions that are made there. (and I will happily show you screen shots of any trade you question)

Saying "i've found 1.25 is about the highest you should go" is equivalent to the statement "if the spread is too wide I don't take my stops". We don't decide the spread and we can't know the spread in advance. For this system to work one MUST continue adding shares at a rate that will cover previous losses, commissions and still end up with the expected profit.

So, I'm still happily entertaining any flaws in my formulas and assumptions, but setting a limit on the multiplier is a sure route to disaster (and as I noted to Eric, I will back that up with a code run if I don't convince you all otherwise).

Again, thanks for the contribution and I will review your work later this evening.

JB
 
Turok:

That is an excellent first step! Now I have to give you the rest to make it work! So, you can see from the algorithm that the winning days is not a problem its losses that erase everything. That is exactly how I started. Now, how many days do you think are there that do not meet 1% target within Max allowed flips? In my trading journal for KLAC it was 18% an average with 11 flips.
Agree? If after 11th flip you start minimizing your losses you'd see that the average loosing day is app. 2*winning day. So your win/loss is already 64%/36%. Adding trailing stop to the win days makes it roughly 72 - 76% success rate.
Now the good part! You can have 100% success rate! How?

Imagine you have a portfolio of stocks (we use 200 stocks per portfolio). You allocate your capital spreading it evenly through 200 stocks. Then you start flipping. You will quickly notice that some of the stocks go to the profit right away. So, you lock your profits and reapply the capital that you did free up to the stocks that are still struggling. Slowly you work through the stocks and on the end you'll end up with 18% of stocks that did not make it. But you already locked the profit to cover this loss by other stocks! So, 100% success rate (meaning that every day you end up being positive).
Cheers,
 
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