Trading Winning Positions - The optimal approach

When applying it to a trend following system:

Entering 2 Contracts at trade initiation:
Net Profit: $205,440
Max DD: $29,640
Net Profit/Max DD: 6.93
Profit Factor: 2.95
# Trades: 66
% Periods Profitable: 61%

Entering 1 contract at trade initiation, 1 when trade becomes profitable:
Net Profit: $194,550
Max DD: $28,960
Net Profit/Max DD: 6.72
Profit Factor: 3.01
# Trades: 126
% Periods Profitable: 61%

Entering 1 contract at trade initiation, 1 when trade enters draw down:
Net Profit: $199,390
Max DD: $27,380
Net Profit/Max DD: 7.28
Profit Factor: 3.21
# Trades: 125
% Periods Profitable: 64%

Notes:
1. These two systems are always in the market and are long term in nature - not day trading.
2. They may or may not have an edge, although I suspect from some statistical tests run on the range bounded system as described by Acrary, that the first one has an edge.

Observations:
1. On this example, doubling the number of trades and increasing the profit factor did not improve my % of profitable periods. This may be because I am taking the 'Global Profit Factor' ove the life of the system rather than on a period - by - period basis.

I am suspecting there is something I am missing.

2. Entering added positions when in a draw down did improve the risk adjusted results.

This is against conventional wisdom and other results posted on this thread.

What am I missing?
What could be a faulty assumption that I am adhering to?

Granville



1.
 
Acrary,

Great stuff. I was wondering if you can share your views on systems that have a stable profit factor but unstable expectancy. Say for example a system has a stable profit factor year after year but the expectancy is declining. The number of trades is more or less the same every year.

If I understand correctly, the stable profit factor will keep the system consistently profitable, but the actual $ profits will decline each year (assuming no money management for now).




Quote from acrary:

To evaluate improvement I'm going to look at the profit factor of the system. (I made a case for judging a system by profit factor and trading frequency in my system devel. thread.) I know if I increase the PF while keeping all else equal, I'll make more money and more consistent performance.
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Hello,

I am relatively new to trading. Well, my advantage is that I lost (and learned!) a lot in 2000 and stopped until this year. I am more careful, objective and disciplined now and determined to make a comeback. Did a lot of reading and all that. Liked Livermore the most although in my opinion he took big risks.

No daytrading and I let the market decide how long to hold. I trade long on high volume breakout after stock has been consolidating (downs must have low volume) but ma200 is going up significantly and the general market is positive such as right now. I buy at market about one percent above resistance which then becomes support. I do not wait for pullback because some of the most profitable stocks do not pullback and if there's a pullback usually it's minor. I buy one third of my intended maximum. I like to have a good start because then its almost sure I will not lose money which is the main objective. Usually trading on breakout I have few percent profit the same day already. On the next days there may be a pullback until buying price but I don't care.

My stoploss depends on the resistance and the maximum I want to lose. I don't want to lose more than 1% of total capital. Also I always place stoploss a few percent under resistance which has become support after breakout. My experience is that stoploss is almost never touched trading on breakout and it can be tight, 5% or so but I do not hesitate to place it at 3% if possible.

While finding the optimal approach I used to trade not on breakout but when stock was going down and near to ma200 with ma200 going up. Results are not as good and sometimes stoploss was hit. This is not the way to select winners I found.

I double up after first trade has shown a good profit and after next breakout from consolidation. Very important to have a good profit because if price goes down after second trade I lose money quickly. Then I repeat the same trick. So I have two stoploss levels. One for the first trade and one for the second trade. If I am stopped out, I will still have a good profit from the first trade. If it looks good: price does not fall back to second stoploss and second trade shows a profit, I move the first stoploss to the level of the second.

This I repeat one more time.

While stock goes up I widen the stoploss so I will survive a natural drawback of 15 or even 20%.

It has been working well on last 25 trades or so but I am still building up experience like everyone.

regards,
Ivo
 
lundy said:
I read Jesse Livermore book once and he always added to winners, thus his losers were small, and winners big. But he used higher highs and higher lows when buying, and added on specific breakouts. Thus, if he was wrong on adding, he figured he was wrong or ready to get out completely. eg. stock makes a "lower low". In this way he would exit his entire position.

This seems like the best strategy to me. It is more active, and requires more analysis.
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Jessie committed suicide and died dead broke and deep in debt.

..but maybe that was for reasons other than his stellar trade management.
 
Nobody gets out of life alive, so what if he shot himself at the age of 63, he had already lived beyond the avg male life span for that era. He is still the greatest speculator/trader of all times. He left behind $5M, in trusts and real-estate - inflation adjusted for 2017 that is $88M.

Livermore is the greatest trader of all times period. He had been up and down a few times - the thing is nobody has ever been up as much he was. He bet big & lived big, he went out with a bang. What do you expect - some tight wad like Buffet that worries about how much he spent on his Egg Mc Muffin?
 
comagnum said:
Nobody gets out of life alive, so what if he shot himself at the age of 63, he had already lived beyond the avg male life span for that era. He is still the greatest speculator/trader of all times. He left behind $5M, in trusts and real-estate - inflation adjusted for 2017 that is $88M.

Livermore is the greatest trader of all times period. He had been up and down a few times - the thing is nobody has ever been up as much he was. He bet big & lived big, he went out with a bang. What do you expect - some tight wad like Buffet that worries about how much he spent on his Egg Mc Muffin?
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I agree with you. The $5m he left behind makes him a big winner despite the suicide. $5m during his time was a huge huge sum of money. His suicide had less to do with his trading performance. It had more to do with mental depression. I would say his later years of trading which turn out to be poor were probably related to depression. The best thing he could have done would be to stop trading, given his unfit state of mind. Anyone who feels depressed with tendency of suicide despite having $5m is highly suspected to suffer from some form of mental illness.
 
Only add to winners if you have a different entry point that is more profitable than the first, and if that's the case, don't bother adding on the first one.

if you add to winners and price goes against you, you will lose more. If you think price is going to go up, why not go long with your entire position other than in cases where:

If you add to a loser a small movement makes it easier to make money. Presuming you are sure of your initial direction, going all in at once or adding to losers makes the most sense.
 
IronFist said:
Only add to winners if you have a different entry point that is more profitable than the first, and if that's the case, don't bother adding on the first one.

if you add to winners and price goes against you, you will lose more. If you think price is going to go up, why not go long with your entire position other than in cases where:

If you add to a loser a small movement makes it easier to make money. Presuming you are sure of your initial direction, going all in at once or adding to losers makes the most sense.
More...


The standard advice on adding to a profitable position is to wait for a new valid entry signal and enter there. Traders are usually advised to move their stop on the first trade to at least b/e and possibly reduce it at the same time.

I go against these rules. I always add a duplicate trade to every winning trade as soon as the first trade reaches b/e. I don't wait for a new entry signal - rising price is the entry signal. If b/e is say 87pts above entry on a long trade, then I keep adding a new trade every 87pts up and moving all stops 87pts higher. I never reduce a winning trade. The maximum capital risk trading this way can never be more than 87pts' worth.

This is contra most rules on pyramiding and if you're going to try this demo it first.
 
B/e means break even? If so what do u mean when u add at b/e when it is above entry? Surely your entry is b/e?
tomorton said:
If b/e is say 87pts above entry on a long trade, then I keep adding a new trade every 87pts up and moving all stops 87pts
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