Optiontimer's Project

[Avarice 10]

Have a look at the chart I post here, and let me know what you think. I am trying to be objective so please don't see this as criticism by any means, mate. I know how that can hurt when you are already doing your best.

 

Ingot I value every constructive help I can get and I appreciate your input. Don't worry about expressing criticism or pointing out possible errors, that is precisely why I am on this forum

 

OK on to the beans trade - have a look at the first attachment. This is my screen from today, approx 15h00 GMT+1, price is currently at 56.59.

 

The previous bar (the one with the triangle above it) is my signal bar, ie. yesterday's bar. Interpretation:

(1) EMA65 > EMA21, so only shorts are allowed

(2) the candle is touching an EMA line and

(3) MOM8 was positive and has ticked down.

 

So we are go for an entry.

 

The entry price then is the low of the signal bar minus 0.1ATR10 (this is the wee green line under the signal bar). All of this was calculated yesterday evening, after the close at 20h15 GMT+1. After I got those numbers I created a stop sell short order with my broker and attached the buy to cover stop loss order and went to watch some telly. As you can see from today's bar I got filled on the way down, sometime during today's early electronic session.

 

The second screen is oats where I just got filled too; manipulation was the same as above. I should add that both contracts are December, open interest was just that much higher than with previous months although volume for oats is still kinda crappy.

 

I hope this shows when / how I got my fills, if not -- or, if I made some stupid mistake -- do tell me

 

A

[russellhq 10]

I just completed the following trade today:

 

29/07/11 Oats September Future (ZOU11) sell 1 unit @ 348.50

04/08/11 Oats September Future (ZOU11) buy 1 unit @ 336.00

 

Profit 50 Pips

MAE 5 Pips (I believe it's important to highlight MAE as this illustrates the risk taken)

Risk 46 Pips ($575)

 

Finally, the reason I closed this trade was because of the low volume in the market. I was not comfortable with the wide spreads and not being able to close when I wanted (this was only the 4th ever trade I've made i my life!).

[russellhq 10]

OT, earlier in this thread, you said for longer term trading you expected 2 in 3 trades to be losers. For the one winner, what would you expect the average win to be compared to the initial risk.

 

e.g. You've set the initial risk at $600 (IIRC) per trade, what would be the average profit of the winning trade to be ($1200 is break even)?

[NeoTrader 10]

Russell HQ

 

I am no math and or excel wiz. But I plugged the well known expectancy formula into an excel file. This forumla will take your average win, loss, and winning percentage and tell you the average expected gain/loss per trade. Makes it easy to plug in numbers and get a rough idea of what you need to be shooting for as far as risk / reward.

 

The figures will be approximate in the case of uneven percentages like 33%. If you add more decimal places it will be closer. (i.e. 33.33% instead of 33%)

 

My apologies ahead of time if this is obvious and already in everyones toolbox so to speak.

expectancy_calc.xls

Edited August 4, 2011 by NeoTrader

[russellhq 10]

Thanks Neo, but what I am after is the "Average Win" for this type of trading. To quote OT from earlier:

 

The money loss for a longer term trend following application of this system, given the size of this account and an approx. 33% win rate, would dictate a max loss per trade of $961, with a preferred level around $653.

 

The money loss for a short term swing trade application of this system with an approx. 55% win rate would dictate a max loss per trade of $1666, with a preferred level around $1133.

 

What I am asking is: If the average money loss per trade must be $961 ($653 preferred), then what is the expected average money win.

 

With that info I can then go on and calculate the average win per trade.

[optiontimer 10]

OT, earlier in this thread, you said for longer term trading you expected 2 in 3 trades to be losers. For the one winner, what would you expect the average win to be compared to the initial risk.

 

e.g. You've set the initial risk at $600 (IIRC) per trade, what would be the average profit of the winning trade to be ($1200 is break even)?

 

 

My actual win rate over the last twelve years on position trades is 65.21% with an average profit of $2027 per contract and an average loss of $1023 per contract. For every $100k in net profits, I probably stroke about $40K in losses.

 

Most traders will not hit 65%, because most are going to fiddle with things - move stops to break even after an hour or two, close trades early because they do not like the pit hours, skip trades that go against their personal fundamental thesis, place stop losses too close, fail to pyramid, panic close on the first 50% reaction, take entries before price confirms momentum has shifted favorably, and they will not take the second signal because they have already been stopped out of that market in the last week or two, and they do not trust the system, etc. and so on.

 

There will be losing streaks. Sometimes, of that $40K in losses, I may take $10K in a row. Many will give up in the middle of the drawdown, losing the nerve to trade through it.

 

For those few who will patiently await the proper set-ups, and then manage the trade for maximum profit by disciplined trailing of stops, then 65% with a near 2:1 will be in reach.

 

For the many who do everything possible to game the system, then 35% win rate and 2:1 will likely be the best they can hope for, which means they will come out of the operation with a net loss after transaction costs are factored into account. But, from those many self-saboteurs, a few more will rise to the level of discipline and patience required.

 

Then there will be the few who manage somehow to have a win rate of about 25%, while winning 1 dollar for every 3 dollars risked. They are out there.

 

I used the 35% win rate as a "worse case," because even over the short term, I rarley have a period where I'd do worse. Also, it is safer for those following along at home to trade their accounts as though they expect to win only one half of what they should actually win. It makes for a smoother equity curve while learning.

 

Have you read Curtis Faith's book about his experience trading with Richard Dennis? He talks about the disparity in trading results among ten or twenty traders who were all trading the same system on the same markets. I can tell you what my results are, but that will not tell you what you can expect.

 

-OT

[optiontimer 10]

Here is an update - three new short positions today in Bean Oil, Cotton, and Coffee, still long ten year notes:

 

 

-optiontimer

[russellhq 10]

I stayed out of Cotton, the risk looked too high. What did you take as the risk for that trade?

 

I've still got the 10yr Note open too

[optiontimer 10]

My risk is 4 cents - too high, and if it weren't for notes doing so well, I'd have skipped the cotton. I would have rather seen cotton up around 113, but I'm trying to live by my own rules here. If stopped out, I'd like to see a rally to 113 before shorting it again.

 

-optiontimer

 

EDIT: Sorry, my risk is 5 cents. I still have about 4 cents before I am hanged from cotton, but the total risk is 5 cents

[SIUYA 11]

[quote name=optiontimer;124825 Many will give up in the middle of the drawdown' date=' losing the nerve to trade through it.

...........

Have you read Curtis Faith's book about his experience trading with Richard Dennis? He talks about the disparity in trading results among ten or twenty traders who were all trading the same system on the same markets. I can tell you what my results are, but that will not tell you what you can expect.

 

-OT

 

very topical as currently trend following is starting to have what looks like a few good months after a few bad years.....I follow some funds and systems that do this, and while 08 was good, generally 09 and 10 have been pretty bad but 11 is looking good in the last few months.

 

Now the point here is this......and OTs above post puts it very bluntly but very well and timely.....

the win loss ratio is bad, and you will go through periods of losses and wins and frustrations....but if through those periods you only loose a small amount or break even, and stay in the game and stick to the strategy......you will make money. (big call I know) but dont get all excited when it works to get bitterly disappointed when it does not and then go on to over tweak the system, or drop it and move on to the next search for the holy grail.....

[optiontimer 10]

Now the point here is this......and OTs above post puts it very bluntly but very well and timely.....

 

the win loss ratio is bad, and you will go through periods of losses and wins and frustrations....but if through those periods you only loose a small amount or break even, and stay in the game and stick to the strategy......you will make money. (big call I know) but dont get all excited when it works to get bitterly disappointed when it does not and then go on to over tweak the system, or drop it and move on to the next search for the holy grail.....

 

And when I say $2027 average profit per contract over twelve years, that includes a number of campaigns where my profits averaged over $30,000 per contract in a pyramided position. So, as SIUYA says, small losses and small wins, managed properly, will make sure you are in for the big wins.

 

-optiontimer

[PWP 10]

Hello All,

 

No real trade setups tonight (currency cash market that is) - I took off my orders for Aud/Usd & Usd/Cad as they were not triggered. Looking at possible setups in Gbp/Nzd, Eur/Nzd, & Nzd/Usd for tomorrow night. We'll see if they pan out. Eur/Chf Short is still active with stop at BE - Currently up 897 pips. I was hoping for another setup in Eur/Chf or Gbp/Chf so I could reenter but no such luck yet.

 

Cheers,

 

PWP

[Ingot54 13]

Ingot, maybe you should have printed check sheets, one for long trades, and one for short trades. Then, simply plug in the requirements as posted in post #8, or re-write them as a question that requires a positive response,

 

e.g. Has price rallied to the region of the 21/65 ema's or slightly above?

If yes, then proceed to question #2:

Has stochRSI registered a 100 reading on a closing basis?

If yes, proceed to #3:

Has stochRSI turned down and closed below 100 on a closing basis?

If yes, then place a sell stop below that day's low, with a stop loss above the reaction high.

 

If you use the check sheets, then you would not have considered the USDJPY any further after question 1.

 

You could also add a pre-question:

If you are considering a short, is the 21 ema below the 65 ema,

if yes, has price retraced at least to the 21 ema,

if yes, has stochRSI closed on any day at 100,

if yes, has the stochRSI closed below 100 on a subsequent day,

if yes ... enter on a sell stop below the low of the first day on which stochRSI closed below 100.

 

-optiontimer

For people like myself, this is exactly what I need Optiontimer - I have used written-down rules in the past - usually do ... but took it for granted this time - unsure why I haven't committed such rules to paper this time - maybe because of the paper trading, and not using a live a/c yet!

 

I am unashamed to disclose that I was remiss in doing this - covering up silliness only fools oneself. And I know I have made myself appear less than smart in this thread, but I am answerable only to myself and family, and I have gained immeasurably more through being open about my trading situation, than I might have through toughing ... or bluffing ... it out!

 

Thanks for your patience Optiontimer and the other traders who have replied with kindness.

 

Some people spot this stuff and it sticks. Others like myself need to visualise it before that happens, and that only happens when it is in a written form.

 

The week has been a bit slow regarding trades, but I am not impatient to trade - only impatient with myself to take on board the principles I need.

 

Thanks for you helpful response(s).

 

Best wishes

 

Ingot

[russellhq 10]

I've attached my progress for the last 3 weeks paper trading, I've been getting lucky with only one losing trade!

Edited August 5, 2011 by russellhq

[NeoTrader 10]

Excellent trading Russell HQ. What made you jump out of that YM trade might i ask? Did you exit at resistance?

 

Good thing you did too, price fell off a cliff since then.

[Ingot54 13]

I've attached my progress for the last 3 weeks paper trading, I've been getting lucky with only one losing trade!

Well done Russell - those are very nice numbers - congrats. for such a good record there.

 

You are setting a good standard there - and you show what can be done.

 

Thanks mate for sharing this with us.

[optiontimer 10]

I've attached my progress for the last 3 weeks paper trading, I've been getting lucky with only one losing trade!

 

On what basis are you deciding to close your positions? I'm not looking to criticize you at all, but I am curious.

 

-optiontimer

[optiontimer 10]

Here is the position summary as of today's close:

 

 

Total open trade equity is $6294.78

 

Four trades, each currently open.

 

 

-optiontimer

[Ingot54 13]

Here is the position summary as of today's close:

 

 

Total open trade equity is $6294.78

 

Four trades, each currently open.

 

 

-optiontimer

That is really inspiring, Optiontimer.

 

It shows what can be done with discipline and patience.

 

I am looking forward to the coming week, and the opportunities which will come for trading.

Good trends begin after huge Fundamental upheavals.

The EURUSD ran up to a high in July 2008, but then turned and created a beautiful down-trend, many segments of which were very tradeable.

 

We do not know, of course what will occur, but we do have a strategy to approach the opportunity.

 

Cheers

 

Ingot

[optiontimer 10]

That is really inspiring, Optiontimer.

 

It shows what can be done with discipline and patience.

 

Well, you know, don't count your chickens 'til they're hatched. If these all gap against me on Monday, it would not be the first time in my life I had four profitable positions simultaneously stopped for a loss.

 

But, if you don't bet, you can't win, and if you cash in too early, you can't win the big pot.

 

-optiontimer

[russellhq 10]

On what basis are you deciding to close your positions? I'm not looking to criticize you at all, but I am curious.

 

-optiontimer

 

To be honest, I have not developed a complete exit strategy yet.

 

The first 2 trades I made were Feeder Cattle and Aussie Dollar. I entered the cattle trade before I really understood the system or the method to assess risk. So my exit on that one was because I got a little scared about how far it had gone against me. That was the same for the Aussie Dollar but I was scared the other way (not wanting to lose profit). The next trade was the mini Dow and it was much the same story.

 

My Oats trade was closed because I wasn't comfortable with the low level of liquidity during the time of day when I was able to trade so I closed it when it made a small profit.

 

Finally, my last trade was bean oil. Now it's not really closed, I have just switched contracts from Sept to Dec where there is more volume. Both contracts gave the same signals so I figured it made no difference switching (apart from transaction fees).

 

So, here I am. I have 2 open positions, 10yr Note and bean oil. My exit for these are my initial money stop (nearest significant Hi/Lo) but will eventually become the 65EMA if they make it that far.

[optiontimer 10]

It is always a good idea to identify and trade whatever is considered the front month contract, and as you noted, volume & open interest will usually signal that it is time to roll forward.

 

-optiontimer

[russellhq 10]

Entered 2 trades today, GBP Future and USD Index.

 

The GBP entry point was BUY after price breaks 1.6394. Market opened with a gap above this and I entered at 1.6440. Stop Loss set at slightly below 1.6222. Risk $1362.

 

The USD Index entry point was SELL after price breaks 74.670. Market opened with a gap below this and I entered at 74.305. Stop Loss set at slightly above 75.645. Risk $1340.

 

For both these trades, the market opened higher than my entry point, this resulted in the risk being higher than initially assessed (Moving from $1000 to $1350).

 

Given this movement, would you still go ahead with the trade and chalk it up to slippage, or stay out the market?

[Avarice 10]

Given this movement, would you still go ahead with the trade and chalk it up to slippage, or stay out the market?

 

It all depends and only you can answer this question. But since you asked :

 

Going from $1000 to $1350 equals a 35% increase in exposure. Have you considered that the marked might also gap through your stop loss forcing you to eat even more that the current 2 x $1350 potential loss? Are you prepared to take it? Financially and psychologically?

 

My : My primary goal in trading is capital preservation. Since I want to live to trade another day even if I get stopped out of everything I do not risk more than 2% of total equity on any one trade with a total of 6% in total exposure. Those ratios are fixed and I don't make exceptions. Had this happened to me I'd be running for the hills, but I'm a conservative old git and I know nothing of your account size or risk strategy. So please take all this with a grain of salt

 

A

[Ingot54 13]

Entered 2 trades today, GBP Future and USD Index.

 

For both these trades, the market opened higher than my entry point, this resulted in the risk being higher than initially assessed (Moving from $1000 to $1350).

 

Given this movement, would you still go ahead with the trade and chalk it up to slippage, or stay out the market?

Hi Russell

 

Thanks for baring your trading soul for critique - takes courage, and I thank you for your openness.

 

Just my opinion here, but once the conditions I had set down to fulfill my trading plan have changed, I have to reassess whether the trade still fits the rules. If the reward-to-risk has shrunk, then should you proceed?

 

My own trading is based on the probabilities of the trade proceeding in a favorable direction.

What are the probabilities of losing more than 2% of your capital in these two situations?

Would you have entered these trades based on the exact same conditions being presented to you without the existence of those gaps?

Have those gaps really added to the likelihood off successful trading, or have they introduced further risk?

 

I know gaps sometimes get filled, but that is because of the swinging nature of price over time - it is not actually a set-in-stone event that must come to pass during the life of your own trade. What is most interesting and important, would be the case of the trade remaining within the rules.

 

If in doubt - get out.

 

Avarice has the right attitude, imho - preserve your capital - they won't let you trade if you don't have it. There is always another trade - and there will be other "good" setups.

 

Don't get attached to a trade - only trade the best setups ... or "true" setups.

 

Still learning these same things myself Russell, so I am in no position to preach - just a reminder of helpful considerations.