As for Big Mike's question, it's a really important one (not just here but for any systematic approach) - when is it time to pull the plug? My thinking is that you look at how the system is performing versus its historical performance, with some idea of what represents "normal" vs. abnormal drawdowns, based upon the standard deviation and frequency of losing trades. You have to define what an abberational (is that a word?) string of trades would look like before you start trading and either reduce or stop trading once you see a series of trades that meet that definition.

Big Mike 

At what point do you acknowledge this method is a failure? A pre-determined "stop" period to prevent you from just continuing until the account is blown, should the method not be fruitful? Comparing live results to your backtested results, comparing MAE, MFE, avg profit, avg win, expectancy, drawdown, runup, etc --- at what point would you say the results have diverged in such a bad way that the method is not sound? Mike

I don't know. Not yet. Not after a few bad days in one market. I've studied and traded this method extensively in real time, over a variety of markets and conditions. It's normally pretty profitable, though it does have its ugly periods. That's about the best I can give you. Five losses in a row is frustrating but it doesn't ring alarm bells.

By the way ES has moved above 1360 this morning, allowing me to move my stop to the 1350 entry point. At least the losing streak is over.




Meanwhile the March soybeans have moved to 1270, enabling another stop move to break even (well, very close at least):

Bit of a tough break this morning in the beans, when the market dropped down to my stop at 1260 and knocked me out of that trade for a break even. Sometimes our stops are just hit, sometimes they are just missed. After that the market rallied, putting me into a new long position at 1270:




S&P, meanwhile, can't hold its Sunday night gains and is bouncing around 1360:

Current position: long March soybeans from 1270.

Made an unusual move for me in the S&P. My last trade was a buy at 1350. Sunday night the market got as high at 1369.50, tantalizingly close to signaling to move my stop from 1350 to 1360, thereby locking in 10 points of profit. I held off as the market went lower Monday and Tuesday. Yesterday afternoon, with the market sitting around 1360, I decided to move my stop up 5 points to 1355. I figured one, the market looks like it is on its way back down to 1350, which would not only take me out of my long postition but would also initiate a sell position. Two, I decided to take some profit after I was up over 19 points, even if just for a minute. It's very unusual for me to be up 19 points and have little or nothing to show for it, but it does happen sometimes. I've learned and continue to learn that anything can happen in the markets sooner or later.

Normally I would wait for the market to go to 1370 and then move the stop to 1360, but that it couldn't hold the highs from Sunday told me to go ahead and take something. The market hit my 1355 stop a little while ago so I'm out with five points profit, or $250 per contract. Currently I'm set up to sell at 1350. Where ES goes next is anybody's guess.

Currently long from 1270 in the March soybeans. With a move up to 1280 this morning, this allowed me to move my stop from 1260 to 1270 thus insuring at least a break even on this trade:




I caught a huge break this morning in the ES. I had a sell order working at 1350 and the market got within one tick of hitting it, down to 1350.25. That order not getting filled saved me from a 10-point loss as the market rallied over the next 90 minutes, as I would have naturally placed a covering stop at 1360:



Pretty quiet week so far. That's fine. As I've said before, the fewer trades made the better.

Although I don't trade crude, here's a cherry-picked but totally accurate example of what my method can do in a sustained trending market. This is the April CL since last week. Just like with the markets I do trade, I would enter and exit crude on the numbers ending in 0--100.00, 101.00, etc. Actually in this case it would be numbers ending in 00. I'd place my stops $1 from my entry point, so a buy at 100 would have a stop at 99, or a sell at 102 would have a stop at 103. Crude's volatility requires the greater risk. Then for every dollar of profit I would move my stop one dollar. Simple as that. Here's CL on a 30-minute chart with a 180 WMA. The same rules apply. Watch for a close above the WMA, then a move above that closing bar's high to the next number ending in 0 to buy. I didn't show this part, but on 2/13 the market set up for a buy at 100 which, if the rules were followed, would have resulted in a $1,000 profit per contract. A rebuy occurred on 2/15 at 102, and that is where the chart picks up. The result so far would be $4 of profit, or $4,000 per contract, and we're still in the trade looking for more.

Initiated a long position in the ES toward the end of the day. I missed the setup when it occurred (and you can barely see it on the chart) so instead of entering at my customary number ending in 0, in this case 1360, I went ahead and just took a market order at 1361. I get uneasy waiting for the market to come down if I'm buying, because sometimes that one more point you're waiting for never comes. Something told me to just get in and don't worry that I'm a little bit off. Turns out that may have been a prescient move because ES hasn't looked back since.

Long 1361 w/stop working 1350: