Trading as a hobby

[galvinlee888]

If someone believes such...wouldn't it seem obvious that a trend trader should only trade markets that are trending instead of staying with the same market that will have those durations of sideway markets ?

I wonder about this because I actually saw someone trade the same market for 12 years and although profitable by points...he was actually a losing trader when commission and slippage was added in.
.

The million dollar question is how could you know in advanced if the market is going to trend, or if the trend will end soon ?

This is easy to say from hint sight that but impossible in practical. A lot of smart people and super mage size institutional have tried this, and non of them ever success to make this happen in consistent for long term.

The BS answers from the ET "professional" (LOL, those fail traders that pretend to be successful trader with serious physo problem, or the paid professional posters with the purpose to promote day trading to amateur traders in internet) to look for trend/sideway will be some BS chart or indicator such as X MA cross Y MA, some secret source indicators, price action such as wait for the breakout confirmation and etc. Believe me, they all are BS and never work in real time.


Simple question, could anyone know if the market will trend next week ? None of the ET "professional" can answer this simple question, but I can expect excuses from them such as wait for confirmation, wait for define chart pattern and all other BS.

 

[Handle123]

Are you referring to me? Most of the volatility in my account is coming from the futures that I'm holding. The ETFs I'm holding generate less fluctuation in the account liquidation value. ETF liquidity is not really an issue for me as I only selected the "mainstream" ones.

You started the post, so yes. Volatility is cause of the leverage for one and perhaps a market that has larger margin, margins go up/down based on volatility or anticipation. The ETFs don't have a great deal of fluctuation because their value compared to total value of one contract of a commodity is generally less, plus also the stocks for like corn might have other crops or producing . Like one contract of March Corn is 5,000 bushels times Friday close 3.585 = $17,925, so unless you have this much corn in your account, the values will show less overall movement if the ETF only has corn stocks within. But that is the thing, ETFs might have some involvement of a commodity but so much other expenses of companies dealing with the commodity come into play, for me, trading commodities is easier to trade. I do trade ETFs, but prefer to general short them, don't have to consider paying out dividends if going to be a long term trade.

I have a different approach, I generally going against the grain in all my trades in commodities, trading new contacts highs/lows for reversals and all add on trades-dailies will show trend has changed, but I am going off probabilities of what is too high/low and due for Major reversals, using options to hedge, try to stay in all that system trades, sort of SAR, stop and reverse and going for 75% of 9 year range, does have one target before 75% but recently reduced percentage takes off at target. Longest Commodity trade so far as been Eurodollars, it been over 8 years of rolling over, been doing it so long, forget it been that long. But if you learn about using options, you can make little extra while waiting for turns doing credit spreads. System has gotten decent at finding areas market will have a retracement, so then hedge open profits, will come close to what losing on the open profits of the future using the options, then when system signals resumption of trend, lift the hedge, add to futures position, and wait. System was programmed mid 1990s, and had developed in 1992, automated 2012 and ongoing. As your skills increase, always tweaking something.

But never the less, you are doing well, nice change from most who come to this forum as newer trader, I still believe if most who start trading went to longer term first and earn all they can before going into day trading, and did much backtesting to find out how much effort it takes to erk out profits day trading, could do better.

 

[wrbtrader]

The million dollar question is how could you know in advanced if the market is going to trend, or if the trend will end soon ?

This is easy to say from hint sight that but impossible in practical. A lot of smart people and super mage size institutional have tried this, and non of them ever success to make this happen in consistent for long term.

The BS answers from the ET "professional" (LOL, those fail traders that pretend to be successful trader with serious physo problem, or the paid professional posters with the purpose to promote day trading to amateur traders in internet) to look for trend/sideway will be some BS chart or indicator such as X MA cross Y MA, some secret source indicators, price action such as wait for the breakout confirmation and etc. Believe me, they all are BS and never work in real time.

Simple question, could anyone know if the market will trend next week ? None of the ET "professional" can answer this simple question, but I can expect excuses from them such as wait for confirmation, wait for define chart pattern and all other BS.

Trend traders don't need to GUESS when a trend will happen.

Instead, they need to only trade in markets that are "currently" in a trend. Yeah, it doesn't mean the markets will continue in a trend because as you noted...the market can go "sideways".

Thus, I think most veteran traders can look at a market and decide if its in a trend or if its just going sideways. Therefore, as soon as they decide the markets are sideways...the one solution I mention is that they move to another market that they've decided was in a trend.

Also, seems obvious that if they're with a broker in which the commissions is making the trader turn from a profitable trader to a losing trader...its time for a new broker that offers cheaper rates.

By the way, if someone doesn't know if the market is in a trend/sideways markets...probably best to just stay on the sidelines and just watch...that solution seems to work well for some in real-time and nothing wrong with it.

As for ET itself, I see lots of people posting charts and talking about the current price action as a trend or sideways or Up or Down or nothing amusing. The real issue is will such continue as such...

That's market analysis and everybody does it.

 

[HobbyTrading]

I have a different approach, I generally going against the grain in all my trades in commodities, trading new contacts highs/lows for reversals and all add on trades-dailies will show trend has changed, but I am going off probabilities of what is too high/low and due for Major reversals, using options to hedge, try to stay in all that system trades, sort of SAR, stop and reverse and going for 75% of 9 year range, does have one target before 75% but recently reduced percentage takes off at target. Longest Commodity trade so far as been Eurodollars, it been over 8 years of rolling over, been doing it so long, forget it been that long. But if you learn about using options, you can make little extra while waiting for turns doing credit spreads. System has gotten decent at finding areas market will have a retracement, so then hedge open profits, will come close to what losing on the open profits of the future using the options, then when system signals resumption of trend, lift the hedge, add to futures position, and wait. System was programmed mid 1990s, and had developed in 1992, automated 2012 and ongoing. As your skills increase, always tweaking something.

But never the less, you are doing well, nice change from most who come to this forum as newer trader, I still believe if most who start trading went to longer term first and earn all they can before going into day trading, and did much backtesting to find out how much effort it takes to erk out profits day trading, could do better.

@Handle123 thank you for explaining your approach. I hope that it works satisfactory for you. And for your kind words in the last sentences. It is not my intention to go into day trading as I don't like it. I have done several trading experiments over the last couple of years with various time scales (weekly, daily, hourly, minutely) and noticed that in general I like the daily systems best.

 

[HobbyTrading]

@galvinlee888 and @wrbtrader Can I kindly request you to continue your discussion about trending markets and sideways markets elsewhere, not in my log? Thank you for your cooperation.

 

[wrbtrader]

@HobbyTrading
No problem and there's several threads for that type of discussion. Take care and good trading.

 

[Overnight]

Handle, good GOD man.

...it been over 8 years of rolling over, been doing it so long, forget it been that long.

Your middle name is "cajones"... I can't imagine your first (or last name), but I am sure it is not family-friendly.

 

[HobbyTrading]

As described in the two opening posts am I running two trading systems. One is using futures, the other one ETF stock.
I have just completed an experiment related to the ETF stock system. A reminder: this ETF stock system looks at a list of some 40 ETFs and selects the "top performers". A position is then entered in these top performers.
I started this experiment at the beginning of December and it is about testing the following hypothesis: if the selected ETFs are considered the winners, would it make sense to buy call options in these to further increase the profitability (besides the profitability of the stock position)? I don't know for sure whether this assumption is correct as my understanding of how the price of an option is determined is limited. The option price does not only depend on the underlying stock price, but also has a time premium. At the start of the experiment I guessed that the holding period of the call option would be one month or longer. I don't know how to simulate this, so I decided to run a small scale test case and see how it works out. I buy one call option of each of the ETFs in which I hold a stock position. I only do this if the option seems liquid and has a large open interest. I buy a call option which is slightly in the money and has approximately two months to expiry. If my system considers the ETF stock to be no longer one of the top performers I close the call option (i.e. I sell it). Doing so will increase the account value volatility but by how much I don't know. I can only assume worst case: lose the total investment in these call options. This is why I run this experiment only for a limited time and buy only one call option per ticker.
The results are not very encouraging. Initially the open positions seem to increase in value substantially. But as time passes by I notice the profit go down. Holding these options for weeks seem to have negative influence.
I decided last week that I have seen enough and decided to stop this experiment. One call option (on DIA) had a large profit and this compensated for some other options which closed with small losses. The ones that made profit only had "meh" results. Not convincing enough for me to continue doing this activity.
So for the time being will I focus on only the futures and ETF stock systems.

 

[HobbyTrading]

January has ended so it is an appropriate moment to look back. Firstly, here is the graph of how my account's net liquidation value (nlv) changed since I started my current trading system in October 2016. The graph shows the normalised nlv, putting the starting value at 100%. It also shows how the high water mark (hwm) changed during this period. The horizontal axis starts in October and ends at the end of January 2017.

A new hwm, set early in the month, was retested near the end of the month. The whole month felt like a struggle, but the last few days have been brutal. The nlv dropped to a level comparable to mid December. My system responded by closing some positions, and reducing the exposure on some others.
Overview of the instruments in which I hold a position at the end of January (IB instrument symbol names):
futures, long: ESTX50
futures, short: 3KTB, GE, MJY, V2TX
ETF stocks, long: DIA, QQQ, SMH, SPY, XLI, XLK

I spent time this month to consider how to expand the account if the nlv allows to. Should I keep the number of asset classes unchanged and let the position size of each get larger? Or should I expand the number of assett classes covered while keeping the position sizes at their current level? My account is still small so the number of contracts per instrument is low, in most cases only one or two. @globalarbtrader has a good analysis on this topic on his own blog (March 2016). As can be seen from the list above am I currently covering five classes (STIR, bonds, equities, volatility, currency). I think that the best approach is to only add another asset class (e.g. agriculture, energy, metals) if I can hold at least two contracts in each of the classes I currently cover. Then add one asset class (the one having lowest value volatility), rebalance, and wait again until the portfolio has expanded to at least two contracts in each of the covered classes before I add yet another class.

Another topic I spent time on this month related to margin requirements. I bumped my head a few times this month as my program wanted to increase a position. IB rejected the order line because I had not enough margin available. This made me analyse how much margin each of my positions uses and "how much bang I get for my margin buck". I made an analysis of value volatility versus margin requirements for each of the instruments. I noticed that V2TX was an outlier: it requires a much higher amount of margin per USD of value volatility than the other instruments I monitor. My approach is to use an equal weight for each asset class, but this analysis result made me reduce the V2TX allocation. Once I made this change, and the V2TX position size was somewhat reduced, was the desired order line executed by IB. Of course does the ETF stock system also use some margin but I didn't want to switch this off just yet.

 

[HobbyTrading]

February has ended so here is the graph of how my account's net liquidation value (nlv) changed since I started my current trading system in October 2016. The graph shows the normalised nlv, putting the starting value at 100%. It also shows how the high water mark (hwm) changed during this period.

The result is that I ended the month higher than where I started (137% vs. 126%). However, I did not retest the high water mark which was achieved in January (148%). I remained in a drawdown during the entire month, which was worst at the beginning of the month, at approximately -15%.
Overview of the instruments in which I hold a position at the end of February (IB instrument symbol names):
futures, long: ESTX50
futures, short: 3KTB, GE, M6E, MJY, V2TX
ETF stocks, long: DIA, QQQ, SMH, SPY, XLK

I did not add instruments to the system as the nlv is not large enough to accommodate them, as described in my previous month's update. The ETF system rebalanced the portfolio only once during this month, when it removed XLI from it.

Now that I am running the system a bit longer is it possible to start analysing the volatility of the nlv. The futures trading system is based on an annual volatility target of 25%. On top of that am I also running the ETF system, which adds a few % to the overall volatility. For each trading day I calculated the % daily return. Of these I calculated the mean and standard deviation. The standard deviation is the daily volatility. I had one outlier with a very low daily return. This influenced the results, so I decided to exclude the worst day and the best day. The result was a daily standard deviation of 1.84%, which is approximately 29% per year (multiply by 16). I am satisfied with this result, as the account is still pretty small, the number of instruments low and the number of trading days ("number of observations") low. I had expected a much larger deviation from the intended value.