Just registered here, and decided to start a trading journal.
My goals is to get some discussion about my system and similar type of trading systems, for mutual benefit of all of us.
I am presently trading part-time, because of typical limitations like full-time job, family, age in my 50's, etc, ... but have a growing interest in trading.
I have given myself time until next summer to see how I succeed, and I will then make decisions if I could put even more effort on these activities.
I first traded german DAX and Nokia options early 2000's, continuing the next 10 years every now and then, mostly losing money, having breaks in between.
Three years ago, 2012, I "restarted" and since then I have tried various techniques with German DAX index, like PSAR, MACD, Bollinger Bands, also direct price action trading from 5 min charts. The financial results for these last 3 years are about break-even, which is actually quite good, considering the numerous stupid mistakes which I have made...
Spring 2015, for the first time in my life, I downloaded a proper backtest data with Sierra Chart and started constructing a trading methodogy which I have now applied for 6 months, and after some fine-tuning, I now think that I may have something solid with which I can continue for longer time.
The basic methodology is simple, described below: BUT: this "raw system" as I call it, does not produce very great results. It is profitable in 6 year backtest + 1 year live follow-up, but the drawdown may be even -1500 dax-points, and -600-800 points may happen several times a year. Quite "raw", indeed...
DAX, 2 h candles, "raw system":
LONG ENTRY: closing 2h candle is green AND the 3MA is up between closing & previous candle => long entry at next candle open
SHORT ENTRY: closing 2h candle is red AND the 3MA is down between closing & previous candle => short entry at next candle open
Continuous system; no target, no stoploss, but keep the position open until the next signal
BUT: this "raw system" as I call it, does not produce very great results. It is profitable in 6 year backtest + 1 year live follow-up, but the drawdown may be even -1500 dax-points, and -600-800 points may happen several times a year. Quite "raw", indeed...
Therefore, I have several additional rules for entry and stoploss.
I also follow up a kind of time series analysis, as the backtesting shows that
1) after a losing trade, the expectation for the next trade is better than average.
2) after a winning trade, the expectation for the next trade is negative, or at least the profit factor is lower than average.
My main goal is to beat this mechanical system in the long run, by applying the additional rules.
The logic is that IF the system stays break-even or better in the long run, AND IF I can beat the system, I cannot make losses in the long run.
I will post an example picture of the "raw system" next.
The past weeks I have a good winning period: the latest 5 weeks are all positive by real results, and I have beaten the system with 500+ points both in October and in November.
I have learned that with this kind of moving average -based, trend following system, the following are important:
1) every trade with positive expectation must be taken
2) the "big wins" are an important factor to make the system profitable. It is very important NOT to cut the wins too early, but let it run to the very end!
3) I have an additional stop loss -rule, but actually I am not sure if that improves the net profit at all.
4) Stoploss rules are difficult to apply with this kind of system
5) "Win target" may improve the results in the long run. I have a version of the system where I apply +60 points win target. The results are more stable and the drawdown is less, but I am still not sure if the net profit would be more on the long run.
The "raw system" produces in average 1.7 trades per day but this journal I plan to update 1-2 times a week.