Trading approach adjustment needed

Mr.Richter

Mr.Richter

Hey folks,

I need your input on a trading approach:

I'm using a simple LONG-only strategy on the daily time frame. I buy at support levels, sometimes during a significant pullback, and other times during a minor pullback after a resistance break to the upside. I always keep it simple (KISS) with relatively tight fixed stop-loss (SL) and take-profit (TP) levels.

I've been paper trading this strategy for a few weeks in May with tremendous success. My winning rate is 77%. After a few weeks, I've achieved over 100% gains. I know this is highly unrealistic, but even if it were only 15% per month, it would be worth trading this way on a real account.

I've switched to my live account, adjusted the risk per trade from 2% to 0.5%, and started trading with real money. Currently, I'm down 8% in my real account and have stopped entering new trades.

I've tried to figure out what's causing this shift in performance and concluded that I'm mostly trading stocks listed on the NASDAQ or S&P. During my paper trading period, the NASDAQ gained roughly 7.5%. Just yesterday (my biggest losing day so far), it dropped 1.5% in a single day.

It seems like my trading results are acting like a highly leveraged future on the NASDAQ (or S&P). I believe my technical analysis is accurate as I can identify support and resistance clusters very well. On bullish days for the index, the support clusters work like a charm. But on bearish days, the same support levels rarely hold.

My thoughts on handling this:
  • The market (whatever index you might want to look at) tends to go up more often than it goes down. So, I only need to survive the down periods.
  • Reducing the risk per trade further from 0.5% to 0.1%. After a winning streak (e.g., 5 winners in a row?), I could increase it back to 0.5%.
  • Instead of trading only US stocks, I could add some UK or Indian stocks. However, UK stocks might also be too correlated with US stocks.
Thank you very much for your input, folks!
 
Well, the obvious answer is that your long only strategy will work very well when the market is moving higher and poorly when it's not.

My view is that most days the market moves fairly technically and orderly, but once in a while the market goes unhinged where players simply want to sell and technical levels will be insignificant except for extremes. Like yesterday and post FOMC minutes on Wednesday. These days dip buyers will get wrecked.

Maybe it could help you to do a back-test/study on those inevitable down days and see where they tend to occur and what characterizes them. Then you can possibly get better at identifying them and staying out of the market on those days.

Other suggestions could be to be more cautious after the market have made a great move higher and don't press the long side so much then, but be more aggressive after a larger pullback. Also important to be aware of key market events that could rattle the markets. Like the recent FOMC minutes this Wednesday.

For a long while news seemed fairly insignificant, but over the last two years the markets have certainly been much more news sensitive than I can recall they have been in the prior decade.

Just a few comments. No easy answers in this game, but I do believe the market holds the answer, so focus on studying that. While it may not be perfectly accurate, I do think (recent) history is our best chance at making sense of the markets while at the same time being aware of possible new changes in market conditions.
 
Your focus is on Long only strategy.

As such, you are not training your mind to look at various types of trends
(uptrend, downtrend, notrend, untrend, trendless etc etc etc).

So whatever chart you see, you are going to be biased and interpret it as an uptrend.
And you will be biased to press
BUY first, then
SELL later.
 
Paper trading is nowhere near actual trading. It is like trading in lalaland where you get good fills always, get out of your trades at the perfect prices, etc. You forgot to include, slippage which could be very huge and reduce your profits or even turn it into huge losses in the process. Market markers too are active daily in the stockmarket because that is how they earn their living. Most traders get skewered daily in real trading.
 
Mr.Richter said:
Hey folks,

I need your input on a trading approach:


I've switched to my live account, adjusted the risk per trade from 2% to 0.5%, and started trading with real money. Currently, I'm down 8% in my real account and have stopped entering new trades.

I've tried to figure out what's causing this shift in performance and concluded that I'm mostly trading stocks listed on the NASDAQ or S&P. During my paper trading period, the NASDAQ gained roughly 7.5%. Just yesterday (my biggest losing day so far), it dropped 1.5% in a single day.
More...
What was your max drawdown during your paper trading?
Could it be that your live trading just coincided with a drawdown period?
How many trades per day? Down 8% means at least 16 losing trades, in how many days?
 
You must log in or register to reply here.
Back
Top