Trading Plan

[Hendrix]

The other thing that I believe is very important is to explain all aspects of your trading to your wife, particularly the drawdown aspect.
The last thing you need, after a string of 15 consecutive losers, is added pressure from this quarter.
If you sit down and make her aware of the likelhood (very high) of a string of losses such as this, it can accomplish a couple of things. First, it can eliminate the likelihood of added pressure that you don't need, and second, it can provide you some support when you start to second guess or doubt yourself. A comment or reminder from her along the lines of "But you told me this was likely to happen at the outset, so lets stick with the plan....." can do wonders for your confidence when you start to doubt yourself or your plan after a string of losers.

 

[metooxx]

Originally posted by Hendrix
The other thing that I believe is very important is to explain all aspects of your trading to your wife, particularly the drawdown aspect.
The last thing you need, after a string of 15 consecutive losers, is added pressure from this quarter.
If you sit down and make her aware of the likelhood (very high) of a string of losses such as this, it can accomplish a couple of things. First, it can eliminate the likelihood of added pressure that you don't need, and second, it can provide you some support when you start to second guess or doubt yourself. A comment or reminder from her along the lines of "But you told me this was likely to happen at the outset, so lets stick with the plan....." can do wonders for your confidence when you start to doubt yourself or your plan after a string of losers.

Rule #1; Never, ever tell your wife about trading gains/losses.

Qualifications: Married almost three decades ...

 

[traderkay]

you sound well Mr., but this gambling doubling up tactique might break you..

 

[Rigel]

IMO Metooxx has the right idea.

 

[sempai]

Originally posted by 40yotrader
...I'll be starting with one Emini and plan to trade small during the month of November. This will give me enough trades to verify the slippage estimates. Once done, I've got to ramp up and see if this is going to work. Unfortunately, I don't have the luxury of lots of time to do this. My heart started thumping when I started drawing down my savings last year. I view this as an opportunity to see if this is something I can make a living doing...

Just a couple of observations:

You said you were going to start small in November and then ramp up. Be very careful during the holidays and on Fridays before long weekends. I would suggest that you not trade at all during the week of Thanksgiving or during the last 1-1/2 weeks of December.

Also, you mentioned you don't have the luxury of lots of time to do this. That kind of pressure can make things more difficult. This is just another form of forcing the market give you something that may not necessarily be there yet - sort of like trying to make back losses, but in reverse.

I think that unrealistic expectations of how long it takes to become successful at trading ranks right up there with undercapitalization as one of the most common mistakes that new traders make. Try to take it slow and keep your size small until you get comfortable.

 

[mr roboto]

Originally posted by Hendrix
The other thing that I believe is very important is to explain all aspects of your trading to your wife, particularly the drawdown aspect.
The last thing you need, after a string of 15 consecutive losers, is added pressure from this quarter.
If you sit down and make her aware of the likelhood (very high) of a string of losses such as this, it can accomplish a couple of things. First, it can eliminate the likelihood of added pressure that you don't need, and second, it can provide you some support when you start to second guess or doubt yourself. A comment or reminder from her along the lines of "But you told me this was likely to happen at the outset, so lets stick with the plan....." can do wonders for your confidence when you start to doubt yourself or your plan after a string of losers.

The key thing is that you have your wife's support and that she understands that there are risks of losses involved. After that, the less you talk about your results (good or bad) with her in "real time", the better. When I went out on my own and started trading, my wife agreed to not even ask me how things were going for at least 3 months. And then, (and to this day) after that, I only discuss my results up to the previous month. I would agree that the last thing you need is having to give your spouse who may not understand what you are doing a daily P/L update.

 

[40yotrader]

Originally posted by formikatrading
In case anyone is interested in how I set up my Trading Plan, here's a brief outline:

2. 2nd page outlines my general trading plan and includes the following: (a) Investment Vehicles; (b) Monthly Goals; (c) Annual Goals; (d) Additional Goals; (e) My Trading Edge; (f) Self-Evaluation; (g) Objectives; and (h) Words of Wisdom.

3. 3rd page outlines my Schedule for the day, including when I do scans, etc.

Thank you for sharing your outline. I like the schedule for the day idea so I'll add that to mine as well. One question, you have (g) Objectives and several sections for goals. What kind of things do you put under objectives that aren't part of the goals?

Thanks again

 

[40yotrader]

Originally posted by AAAintheBeltway


You have made $75k paper trading the ES in less than 6 months? What is the nominal capital base you have achieved that on? For a system basically trading one lots, that should give an extraordinary ROI.

I'm flattered that you'd go through the trouble of posting such thoughtful questions. I may be way off base and I'd love to hear your thoughts after reading my reply.

I used the same amount as I have in my funded account, 200k.
I wasn't doing one lots, so the ROI isn't any big deal. Most of the profits come from the loss progression money management.

How does the loss progression work? Am I correct in thinking if you had 10 losers in a row, you would be trading a 10 lot at that point? I've never tested that method, but I see the attraction. Have to say it seems dangerous. Most traders would want to cut back when their system is not working. I frankly don't understand how you can be trading a progression system, anticipating up to 26 losers in a row, and think you can hold your drawdown to 20%, unless you are using a huge account base.

All trade sizing falls into either a martingale or anti-martingale strategy. The loss progression is a form of martingale gambling system. A system where you risk a certain percent of capital on each trade would be a anti-martingale system. Each has benefits and drawbacks. Both methods will add money to a account that has a positive expectency. I chose to use a form of martingale because I'm interested in creating a steady source of income. If everything works out, then after I'm up a couple of hundred thousand, I'll switch to a anti-martingale strategy.
For the loss progression method, I keep track of the average profit per-contract from the past 10 winning trades. Everytime I have a losing trade that exceeds the average winning trade, I increase the bet size. It stays at that size or larger until the account hits a new equity high. Once the equity high is reached, I reset the contracts back down to the base of the progression. If I have lots of small losing trades, the contract size wouldn't increment at all. The idea is to bet the largest during a drawdown, so that you come out of it quickly.

My cutoff point is a 40k drawdown. I don't know what you consider a huge base, but 200k in the account is all I have left after making living allowances.

I would also add that most volatility breakout systems don't come close to 50% win rate. I don't fully understand what you are doing, but I have serious doubts that an intraday vol b/o system using stop and reverse logic will make money, much less the kinds of returns you are anticipating.

When I first started testing the idea, I found it had 38% winners and made an average of $80 per-contract. When I looked at the trades on a chart I found some basic flaws in my initial logic and corrected them. Also, I don't trade everyday. For instance when there's been a large range the day before (like yesterday), then I don't trade the next day. I've found the selectivity was a big help.
The switch to a parabolic stop also helped improve profitability.
The basic idea was to find the lowest range for 5 days and use a percent of it for a breakout from the open.
For example, if the lowest range was 15 pts. and I wanted to use a 50% of range breakout, then the next open I'd add and subtract 7.5 pts. to find the initial buy/sell points. When I looked at a chart, I noticed the market might break down 4 pts. and turn and go up to the buy break point (11.5 pt. move). That would be a 75% of range move which is not what I wanted, so I changed the logic to a sliding window. If the market went down 4 pts., the upper breakout would drop by 4 pts.. This way I was sure the breakout would happen within a range of 50% of the lowest 5 day range. Also, the reversal point is never more than the 7.5 pt. range. If it hit the stop and reversed, I couldn't lose more than 7.5 pts. If it hit a stop and went through for 2 more points, then the max. loss would be 5.5 pts. Yesterday it had two trades. The first went long at 10am at 890.75. It was stopped and reversed at 10:15 at 882.75. Since the loss was larger than the prev. average 10 winning trades, the size incremented. The parabolic stop kicked in on the second trade and it was exited on 11:30 at 876.00.

Thanks for your questions. They're helping me make sure I've got this figured out the way I want it.

 

[40yotrader]

Originally posted by Hendrix
The other thing that I believe is very important is to explain all aspects of your trading to your wife, particularly the drawdown aspect.

My wife knows it well. Do you think I could've sold our house and convinced her were going to try daytrading for a living without her being 100% behind the idea? She's done as much of the papertrading as I have and knows the logic behind what we're doing. Both of us are MBA grads, so the concept of risk/reward is not foreign. She was entering the trades when we hit a period of 10 losses in a row in June, so we're both prepared for this. I wanted her to know everything so that if I get sick or go out of town on an interview (as slim as the odds may be), she can trade it with no problems.

I figured that if this works we'll be up 30-40k by the end of March. If not, we'll have time to buy two franchises, get them up and running and practice saying "what toppings would you like on your sandwich?", before we're in serious financial trouble.

 

[40yotrader]

Originally posted by sempai


Be very careful during the holidays and on Fridays before long weekends. I would suggest that you not trade at all during the week of Thanksgiving or during the last 1-1/2 weeks of December.

Thanks, I noticed some of this too. One of the things I noticed during papertrading was lots of losses during the Fall Jewish holidays. I went through my nine years of data and ranked the 20 smallest range days of the year. I found the days before and after Thanksgiving, the day before Christmas, the week between Christmas and New Year, and the Jewish holidays were all consistently low volatility. I've made a note to avoid taking any trades on these days to improve the performance a little bit.

I think that unrealistic expectations of how long it takes to become successful at trading ranks right up there with undercapitalization as one of the most common mistakes that new traders make. Try to take it slow and keep your size small until you get comfortable.

My wife and I figured there's only three ways this won't work:

1). Our 9 year tested method is flawed and we've created a pipedream.

2). We don't follow the system 100% and screw up because of our emotions.

3). The volatility in the market drops to below where it was in the early 90's.

If we lose 5k or 40k between Nov. and Mar., it makes little difference to us. In either case we have to move on to Plan B. There isn't enough time to come up with a new idea and properly test it, so this is our one and only shot at the world of daytrading. If it doesn't work out, we'll have to just move on. My 17 years as a Marketing Strategist was full of risk and in the end it didn't provide for a nice retirement, either.