Optiontimer's Project

[NeoTrader 10]

Hi Neo, I've been trying to discipline myself to check the charts at the end of the day (5pm EST/EDT). What rules/strategy are you using for chart checking?

 

I find myself checking the charts in the morning around 9, around mid day as well as at 5. I know that I need to cull it down to checking only at end of day. I've been able to resist making changes in the morning or mid day, but I find it hard to break the habit of peeking at not only my open positions but scanning through charts looking for other new budding setups. It doesn't help my discipline much that i can check my charts at will from my 9 to 5 job.

 

I know part of it comes from excitement. I'm anxious to look at anything and everything through the perspective of this trading system. Wanting to spot the beginnings of a Kroll like 16 month trend.

 

To sum it up in a nutshell i need to settle down

[optiontimer 10]

...It's called risk of ruin,

 

Yes, and if I calculated correctly, I am looking for a 1/10000 risk of ruin, with the "Tilt: GAME OVER" level coming in at $8K capital remaining.

 

-optiontimer

[optiontimer 10]

... I find I struggle with emptying my head of all the short term trading habits i had developed over time....

 

SIUYA said to me once that what he finds most interesting in all this is how the same principles we discuss here apply to short term trading as well.

 

I was in the office this afternoon, and took advantage of my proximity to a computer to do a some day trading in the project account: Short the YM mini-Dow at 10970, stop loss 11027 (risk $285 + commish/fees), covered at 10718 (had ten ticks of slippage on my stop on the exit). Put our indicators on a 5 minute of the YM, and you will see how right SIUYA is (you will see that after entry, price came within 11 ticks of the stop loss).

 

 

No matter what the context - whether an afternoon game of whack-a-mole, or a long term march toward negative long-term yields as the world unwinds, the principles are the same (except that on a day trade, the market closes, and so must your position).

 

It would be nice never to take heat, but in the real world, the only way not to feel the heat is to trade in a disciplined, patient manner with strict money management rules so that stop outs really mean nothing more than a cost of being in the game.

 

-optiontimer

[optiontimer 10]

Congratulations! 1st & 2nd Wow - must run in the family - great job Dad!

 

They get all the credit. They decided that this is what they wanted to accomplish this summer, and they have spent the last six weeks training for it.

 

And the last time I ran a 5K, I did it from behind the wheel of a '72 Camaro and I was being chased down by the uniformed pilot of a Ford Crown Victoria.

 

The Crown Vic won.

 

Oh, to be 18 again ...

 

-optiontimer

[PWP 10]

Position Update:

 

Short Eur/Chf Stop BE (Currently unrealized gain at +1390 Pips)

Short Eur/Nzd Stop 1.7800 (-720 Pips) (Currently unrealized Loss at -400 Pips)

Long Nzd/Usd Stop .7960 (-434 Pips) (Currently unrealized Loss at -290 Pips)

 

Order to Short Eur/Gbp at .8750 Stop .8890 (-140 Pips Risk)

 

There were some setups I didn't take yesterday because the 21 & 65 had merged. Wasn't sure how to look at that so didn't trade those pairs (Aud/Cad was one of them)

 

I'm thinking I should start reviewing the other pairs that OT mentioned in the beginning of thread. Does anyone have a good practice account to recommend for futures?

 

Thanks All - PWP

[russellhq 10]

Hi PWP, I've been using Mirus Futures for my Futures demo account (it's only valid for 30 days though) and execute trades through Ninja Trader.

[paulrico 10]

Hi,

Here is the Silver:

 

[russellhq 10]

Hi paulrico, I had been looking at Silver but the risk was far too high for my account.

 

I read the chart as showing approximately a 2.5 point risk for both Silver and Mini-Silver, and at $5000 and $1000 a point respectively, this was too high for me!

 

I have been looking at other instruments to trade and noticed "Canola". It has an ATR of 10 points (spikes of 20) and a contract value of $20 per point. This looks a good candidate for small accounts using this system. Thoughts anyone?

[Avarice 10]

It's been said over and over again that, in order to make a dime in the markets, you need to stick with your system. Pretty easy, innit. Well, this mantra is hard enough to follow during winning streaks, and anyone who's had real money on the line knows the gut wrenching feelings of helplessness, disgust and despair that show their ugly faces when your supposedly good system generates loss after loss, day after day. These feelings - this fear of further losses - ultimately make you lose faith in the viability of your system, you start tweaking around, you change things. This is the turning point: this is where your system becomes worthless and you become a loser. It's a self-fulfilling prophecy - trust me, been there, done that. The ONLY thing that keeps you from falling into this trap is utmost discipline and trust in your system. And in order to trust your system you need to know its inherent risk.

 

So let's talk about risk.

 

(There's some math ahead. I know this is a downer for some but bear with me, it's not overly complicated and pretty straightforward once you get your head around the general concepts.)

 

The first thing you need to know about your system is its probability of producing winning trades. If you've been trading it for a while this is easy to calculate: count your winners, then divide this by the total amount of trades. If you're implementing a new system you'll need to backtest it (or papertrade, whatever) until you've got a significant amount of trades (so don't stop counting after 5 trades eh). Let's call this p (probability of winning): p will be between 0 (0% winners) and 1 (100% winners). And once we know p, we can calculate the probability of producing losing trades: that'll be 1-p.

 

The second thing you need to quantify is your willingness to lose it all. Yup, that's right; you need to know at what level of risk your trading is going to keep you awake at night. We'll call this piece of info s (for sleeping point) and we'll express it as a number: are you comfortable with a possibility of 1/100000 of going broke? s equals 0,00001 for you then. 1/10000? s = 0,0001. What about 1/100? s = 0,01. This is where your personality and your risk tolerance comes in and only you can pick the number that's right for you.

 

What we need to do next is calculate the probability that our system does indeed generate enough subsequent losers in order to wipe out our account. This is not complicated: remember 1-p, the probability of producing a loss? For the sake of simplicity, let's say p equals 0,5 (50% winners, 50% losers). So here goes:

 

Probability of 1 loss: 0,5 (50 %)

Probability of 2 consecutive losers: 0,5 * 0,5 = 0,25 (25 %)

Probability of 3 consecutive losers: 0,5 * 0,5 * 0,5 = 0,125 (12,5 %)

...

 

Let's generalize: the probability of n consecutive losers for a system that has a winning ratio of p is: (1-p) ^ n. Let's call this r for (probability of) ruin, it's a serious event so let's use a serious name. By the way, notice how r becomes smaller over time?

 

What we want to do now is find the number of consecutive losers it takes until the probability of ruin equals our sleeping point. After all, this is the whole point of this exercise. Remember that r = (1-p) ^ n; I'll save you the mumbo jumbo, trust me when I say that n = ln(s) / ln(1-p).

 

This is it. You now KNOW FOR A FACT that you can stomach NO MORE than ln(s)/ln(1-p) losses - one more and you're broke! Example? Sure. Let's stay with p = 0,5; I'd say an s at a healthy 0,0001 (0,01 % risk of ruin) would be a probability I could live with. So, this gives us n = ln(0,0001)/ln(1-0,5) = 13 losers in a row (rounded). Is it probable to have a streak of 13 losers in a row? Not really. Is it possible? Of course! Has it happened to guys with good systems? I'd bet my arse it has.

 

Notice how none of our calculations here took our total equity into account? We didn't need to - what we did was, we calculated the maximum length of a losing streak that we are comfortable with. Is 13 not enough for you to sleep at night? Your sleeping ratio needs to be lower then. Reconsider it!

 

So where to go from here? Well, the first thing you could calculate is the ABSOLUTE MAXIMUM amount you can risk per trade. It's your account equity divided by n. If you risk more you're taking on too much risk in regard to your strategy's performance and your risk tolerance (sleeping level).

 

Next thing you could do is calculate the minimum payoff you need your winners to generate in order to break even. (Hint: breakeven(in $) = (1-p) * maxRiskPerTrade(in $) / p. Divide this by maxRiskPerTrade(in$) to get the R/R payoff you need to break even.)

 

Do these calculations help you minimize risk? No, of course not, risk cannot be mathed away. Last time they tried AIG needed to order red pens by the truckload. Neither do they prevent you from doing stupid mistakes like betting against the trend or placing your stops too close. Or overextending yourself (someone asked about silver this morning. Before you enter that trade I sincerely hope you thought about all this, leverage is huge there and so is risk.) But they do further the understanding of the behavior of your system and thus help you trust it more. Which is, after all, key on the journey from loser to trader.

 

Oh, one last thing. PLEASE don't trust me on this - do your own calculations. NEVER take anything you read for real unless you've tested it out by yourself, even if you got it off the TL forums

 

Best of luck all,

A

[NeoTrader 10]

I threw the Risk of Ruin calculator into excel, to expand on Avarice's math.

 

Simply modify the winning percentage box to see the resultant probabilities in the table.

 

Please use as a reference only, and as always verify figures for yourself before use.

RiskofRuinCalc.xls

Edited August 11, 2011 by NeoTrader

[russellhq 10]

Avarice, I'm not sure I am in complete agreement with that particular method to calculate RoR.

 

I've been pondering the notion that if, in your 13 losses and out example, one were to have 12 losses, 1 win and then 2 losses, Ruin will also occur. This led me to the following (after much head scratching!).

 

Take again, for example, the coin flipping game, where if we sustain 13 losses we're out. Now if we were to flip the coin 27 times, what is the probability we would be Ruined?

 

To work this out, I did the following:

 

Counted how many permutations there were in the game, this turns out to be 2^27.

 

Next I counted how many combinations of the permutations would result in my Ruin. To do this I started by saying I had to have at least 13 losers, and once I had at least 13 losers I would need 1 additional loser for every winner. This then led me to count all the combinations from 0 winners out of 27 flips, to 7 winners out of 27 flips (after 7 winners there are no combinations that will Ruin me).

 

Adding all the combinations that would ruin me and dividing by all the permutations in the game led to a Risk of Ruin of 1 in 100. 2 orders of magnitude higher than our initial 1 in 10,000!

[NeoTrader 10]

Its a good thing for me that statistical math isn't required to make a profit.....

[Avarice 10]

Its a good thing for me that statistical math isn't required to make a profit.....

 

Indeed. And the reverse is true too: I've just been stopped out of Oats, $600 loss ($200 slippage). Ca-ching!

 

Avarice's stupidity log -

Trade a security with abysmal volume and get raped in the process? Check! :doh:

[NeoTrader 10]

Yeah I probably won't even look at commodities until my trading account hits 100k

[russellhq 10]

Live cattle looks tradeable tomorrow but risk might be a little too high; approx $1600 due to todays jump.

[brownsfan019 17]

Just wanted to say nice thread guys, nice to see blotters for a change too. Keep up the good work!

[Avarice 10]

Trade update:

 

I went long on GBP today @1.6249, stop loss 1.6036 (risk $1,3k)

 

Soybean Oil is still short, stop loss 55.56 (no risk, stop > break even)

 

Got stopped out of my oats "experiment" yesterday, see above.

 

A

[NeoTrader 10]

Trade update:

 

I went long on GBP today @1.6249, stop loss 1.6036 (risk $1,3k)

 

 

I took that long in Spot last week. Took a ton of heat but hung on. I "got away" with a 1.5ATR10 stop. Just don't bring your bad oats luck with you.

 

Good to see that someone who knows what they are actually doing is taking a similar trade

[thalestrader 14]

Just wanted to say nice thread guys, nice to see blotters for a change too. Keep up the good work!

 

Brownie!

 

I had given up on seeing you back here, so I went looking for you in another neighborhood.

 

And I agree - this seems to be shaping up into a nice place to visit as it has attracted some dedicated and disciplined followers.

 

Keep up the good work, folks!

 

Best Wishes,

 

Thales

[brownsfan019 17]

Brownie!

 

I had given up on seeing you back here, so I went looking for you in another neighborhood.

 

And I agree - this seems to be shaping up into a nice place to visit as it has attracted some dedicated and disciplined followers.

 

Keep up the good work, folks!

 

Best Wishes,

 

Thales

 

Hey Thales, good to see you again too. Been busy here, these moves have been tremendous on the indexes, gotta focus.

[NeoTrader 10]

Decided to jump into the EURGBP

 

Short Entry @ .8759

Stop @ .8890 approx 1.5ATR10 and nicely tucked behind two swing highs

[Ingot54 13]

Just a quick heads-up for a charting package that includes Currency futures and Commodities futures.

 

It is a free download. Data comes free with the package.

Do not rely on the accuracy of the data - rather, this is simply for charting purposes.

 

Keep in mind that I strongly recommend AGAINST using MT4 for active trading.

There are good reasons NOT to use MT4 LIVE, but this is not the place to discuss that.

 

I was looking for a decent charting package for Futures based on the MT4 model, and this is what I came up with:

 

Forex | CFD Trading | Commodities | Futures | MetaTrader

 

Strictly for charting if you are having difficulties with other packages.

You will need to load the attached MT4 StochasticRSI indicator if you do go this way.

 

Best wishes

 

Ingot

Stochastic_rsi_forex-instruments.mq4

[NeoTrader 10]

So I've been keeping an eye on EUR/USD and I don't think I've seen such a clear cut example of consolidation. It seems to be compressing into an ever smaller range and the EMAs are nearly flatline. I could be way off here but I am betting it is gearing up for one heck of a trend/move.

 

Thoughts? :missy:

[optiontimer 10]

Not much to update, as all four trades are still in effect. Noes are consolidating (or reversing) but still show a 5K+ profit. Bean oil is stil profitable, coffee came within a few ticks or a point or so of taking me out, which is the second time the stop has been threatened but held since the trade was initiated, and cotton is showing a small open loss as well.

 

That is the nature of the game, however. I tend to give a lot back in pursuit of taking even more.

 

As I am using 20K+ initial margin, I feel I am maxed out on positions, so no new trades until I fold one or more of the current positions.

 

How are you all doing? Its been quiet around here, I see.

 

-optiontimer

[Ingot54 13]

Not much to update, as all four trades are still in effect. Noes are consolidating (or reversing) but still show a 5K+ profit. Bean oil is stil profitable, coffee came within a few ticks or a point or so of taking me out, which is the second time the stop has been threatened but held since the trade was initiated, and cotton is showing a small open loss as well.

 

That is the nature of the game, however. I tend to give a lot back in pursuit of taking even more.

 

As I am using 20K+ initial margin, I feel I am maxed out on positions, so no new trades until I fold one or more of the current positions.

 

How are you all doing? Its been quiet around here, I see.

 

-optiontimer

Hi Optiontimer

 

Well done on the trades.

 

Regarding the "quiet" thread recently - I found very few suitable trades worth taking. This week I can see a few beginning to set up. Maybe in the next 24 hrs.

 

Also, with respect to the GCI platform (in above post) - it is based on the time zone GMT +13 - unsuitable for me. I was unaware of that at the time of the post.