Quick update today. What a day! OMG. Lol. I gotta remember to go on vacation on days like this.

I found myself looking at the chart a few times, wondering how to make money consistently on days like today. What are the 1 or two things I could do? Not much seemed to work.

I was profitable in 4 of the Leeloo bundle accounts (+4 to 8 pts ea), three only because I traded them in Globex and not today!*** One, which I traded in RTH, came on the heels of blowing two up (in RTH), so not much to brag about. My 4 PAs survived, I quit after taking -$150 losses on those. I am at 3 micros, will probably reduce just to one and try to figure out what can be done. Maybe just put them on ice until we get out of the current market funk. Dunno, gotta think it over.

***I think that may be my answer right there for now.

Done for today.

The good news is I got one account from each of the 3 new bundles to the required profit target for qualifying as a funded PA. The bad news is that I made a really bad choice with a trade I set up and left to work when I went to bed last night and my 4 funded PAs that were on life support are now possibly beyond salvaging. I'm not sure. I went from $500 - $600 trailing drawdown cushion to around $150. Even if I trade 1 micro, it's basically like trading an ES contract on a $1,500 account. My only thought is to try and find the multi-day breakout, try to catch a good entry spot, and let it run a couple of hundred points (Leeloo allows holding up to 3 micros). Did we just get that breakout? Maybe. Looks like it. One thing that is clear though, is I don't think that trying to scalp my way out of it is feasible at this point. Although... Yeah, last night before I did that stupid thing I was scalping 1 micro for 5 ticks at a time, getting about a 90% win rate. But how long would that take? Is it worth it? In any case, for now, I'll just focus on the good news for the day (and really, really gotta to stop doing trades like what got me to where I am on those 4 PAs. Gotta stop that!).

The trades & summary showing are for 1 account as all 3 were copied and are identical. The trade count is off because some (almost all) were 4 lots, or scaling up from 1, to 2, to 3 then 4 when I cashed out a couple of times and got back in gradually. The short trade was just an entry error that I immediately flattened.







For these three eval qualifications I played the breakout at 4168. Next area of resistance is 4175, both the USTL resistance and the prior month VAH. (Some of the levels and notes are dated, from the weekend).





And later in the session:

The other day I mused about only working in Globex, at least while I am operating in life support mode on my Leeloo PA accounts. Well, last night and today bore proof on that front. I mean, I have like $150 of room on my drawdown, right. So how can I possibly trade anything, even a micro, in RTH? I can't. Today I tried and you can see the results side by side.

Last night I worked Globex. Grueling, but easy. I sit there and for the price to move 2 ticks to my price target, with one micro, the trades were averaging more than 7 minutes each!!! Seven minutes to move two ticks. It doesn't get less dangerous than that, lol. My win rate is 77% (actually more, but NT8 doesn't group the one or two where I scale and have a small loser but the trade is profitable. Rithmic has me at 84%). The profit factor is 4.19, Sharpe ratio 9.29, etc.

RTH, on the other hand, was essentially a mess. It ended up being profitable, but at what risk? 60% profitable. profit factor 1.31. Sharpe ratio 4.65. I'm more than twice better in Globex. Of course, not if I put on a trade at a level with no stop and go to bed But better for sure.

I traded the 3 new bundle accounts that got to $3K profit in Globex too, but nothing worth talking about. The point here was to log a couple of trades quickly to meet the trading days requirement and not lose any money.

Now, the only thing about putting on 1 micro / 2 tick trades (my Globex trades), is that this is not going to get me to a million dollars very quickly. Last night I calculated that it would take roughly 330 years at last night's rate. Okay, so I have 4 accounts. So that means I could do it in 82 years. I was planning on 6 weeks. I may have to rethink my goals.

In the meantime, I guess I just have to keep plugging away.



Globex trades.






RTH Trades




Both RTH and Globex




Scalping during Globex, relaxed, just watching poker tournament reruns, 7 minutes plus per trade for 2 ticks profit. Oh year, more than 50% commissions!!!

Done for the week.

I retired my 4 PAs with $150 +/-left on the trailing drawdown. They are coming up for renewal at $99 each and while it has been a fantastic learning experience (and a real distraction), I can't justify the 2 tick micro trades that will take 330 years to make a million (82 yrs ea for 4 accts), let alone just trying to get my drawdown back to $2,500 before I can hope to do anything meaningful. I have 3 bundles with an account from each currently over the $3K eval profit requirement. These will be activated as PAs in the next few days. I am going to take my lessons learned, see if I can apply them to making a million (or a fraction thereof) on the new ones, and leave it at that.

Have a great weekend!

The ongoing ChatGPT 4 trade sizing conversation. I have this conversation with myself on an ongoing basis. Now I have ChatGPT to bounce off, all hours of day or night.

ME

For an ES futures day trading strategy, assume that the loss limit on the account is $2,500. The trading strategy has a 65% win rate and is structured with a 1:1 risk / reward trade configuration. The goal is not to risk more than 6% of the $2,500 each day. Which of these options would achieve the highest return and give the account the best chance of long term survival:

a) Size the trade with a $25 stop / target so as to have a maximum of six consecutive losses to reach the $150 max daily loss, but also subject the trade to a lot more risk due to more frequent exposure to the market, plus only make $25 profit per trade.

b) Size the trade with a $150 stop / target and stop trading after the first loss each day, whether it happens on the first trade or the 6th trade (or whatever number it happens to be, this is just an example).

The goal is maximizing income and account longevity. The latter takes precedence. We can also set a maximum daily profit target, although from my own trials I find that some days will strike out on the first trade with a $150 loss, but some days will go much further (six or more consecutive wins). Thus, if to set it at $300 profit target per day it only takes 2 consecutive wins to reach the daily profit goal versus 12 consecutive $25 wins, which is rare indeed, though it is possible to reach the goal given the positive expectancy. However, reaching $950 with strategy a) is not out of the norm, either.

Weighing all these options, what do you see? Feel free to recommend any insights or share what I might be missing.


ChatGPT4

When comparing these two trading strategies, there are several factors to consider:

Win rate: Your strategy has a 65% win rate. Given this high win rate, a strategy that allows you to make more trades (Strategy a) may benefit from the high win rate, providing you with more opportunities to profit.

Risk/Reward: Both strategies have a 1:1 risk/reward ratio, but the dollar amount at risk and the potential profit per trade are different. Strategy a has smaller potential profit and loss per trade, but you're making more trades, whereas Strategy b has larger potential profit and loss but fewer trades.

Exposure: Strategy a subjects you to more market risk because you're making more trades. This increases the potential for loss due to market volatility. Strategy b, on the other hand, limits your exposure to the market by limiting the number of trades.

Account longevity: Strategy a, with its smaller stop/target, gives you more "buffer" against a string of losses due to the lower dollar risk per trade. It might result in more consistent but smaller profits. Strategy b is more susceptible to a string of losses, potentially resulting in reaching the daily loss limit quicker. However, it also has the potential for higher individual trade profits.

In terms of maximizing income, Strategy b, with a higher dollar profit per winning trade, would likely produce a higher return if the win rate holds up. However, it comes with higher risk and potentially less account longevity, especially if you encounter a string of losses.

Strategy a, on the other hand, might be a more conservative approach that provides better account longevity. It allows for smaller, more consistent profits, which over time could add up. This approach might be less likely to hit the daily loss limit due to the smaller dollar risk per trade.

From a risk management perspective, Strategy a seems better aligned with the priority of account longevity. However, it's crucial to note that past performance doesn't guarantee future results, so it's essential to monitor and adjust your strategy based on actual trading results.

To aid decision making, consider running a backtest on historical data for both strategies to see which would have performed better under past market conditions. It might also be beneficial to consider other risk management tactics such as a daily profit target or adjusting stop loss and take profit levels based on market volatility.


ME

If I were to find a middle ground and size it for $30 / risk - reward. Based on the 65% win rate and between 4 and 7 trade opportunities per session. What would be a realistic daily profit goal to set?


ChatGPT4

First, let's start by determining the average net gain per trade based on the 65% win rate and 1:1 risk/reward setup.

For each trade, there is a 65% chance of gaining $30 and a 35% chance of losing $30.

Average gain per trade = 0.65 * $30 - 0.35 * $30 = $19.5 - $10.5 = $9

Therefore, on average, you can expect to net $9 per trade.

The number of trading opportunities per session varies between 4 and 7.

Therefore:

On the lower end, with 4 trades, your daily profit expectation might be around 4 * $9 = $36.
On the higher end, with 7 trades, your daily profit expectation might be around 7 * $9 = $63.
These calculations are based on averages and probabilities, so they may not reflect your daily returns accurately. Some days you might exceed this target, and on others, you might fall short or even make a loss.

Remember that setting a realistic profit goal is important, but it's equally crucial not to force trades to meet your daily target. The quality of trades matters more than quantity. If you don't see a good opportunity, it's often better to not trade.

As always, please consider your risk tolerance, market volatility, and overall financial situation when making trading decisions

ME

So far we have considered trade a) vs b). These are exactly the same in terms of market exposure, as they have the same size stop loss / profit target. The only difference is that one is the larger ES contract, just one, versus the smaller MES contract, two in the last instance.

Given the average $50 day profit target based on trade opportunities and conservative sizing, there is a third option, we can call trade c), which is to go with the ES contract and aim for a 2 tick profit of $25 (minus $5 commission). This one has a 90% success rate, but the loss is still $150. However, only 2 to 3 trades are needed to match the realistic profit for option b).

How does trade c) fit in to the overall goal of longevity and profitability?

ChatGPT4

The option to pursue trade (c) with the ES contract seems attractive due to the high success rate of 90%. However, it also carries a risk. The risk/reward ratio is skewed. While you might win $25 90% of the time, the 10% when you lose would result in a $150 loss.

Let's compute the average gain per trade for option c), assuming $25 gain, $150 loss, and a 90% win rate:

Average gain per trade = 0.90 * $25 - 0.10 * $150 = $22.5 - $15 = $7.5

Although the success rate of trade (c) is higher, the average net gain per trade is actually less than in trade b) due to the larger loss when a trade does go against you.

Additionally, the larger potential loss for a small gain might affect your trading psychology, causing stress and potentially leading to rash decisions if you encounter a string of losses.

In terms of profitability and longevity, option (c) appears to be less ideal than option (b). But these are all statistical expectations and actual outcomes will depend on market conditions, trade execution, and other variables.

Remember that individual trades may deviate significantly from these averages. What works best for you also depends on your risk tolerance, trading style, and market conditions.


ME

What is the average trade gain for trade c) if the stop is set to $100 instead of $150? How does it compare now?

ChatGPT4

Let's compute the average gain per trade for option c) with a $100 loss, $25 gain, and a 90% win rate:

Average gain per trade = 0.90 * $25 - 0.10 * $100 = $22.5 - $10 = $12.5

This average gain per trade is significantly higher than the $7.5 average with a $150 loss. By reducing your potential loss, you improve the average outcome of your trades despite the high success rate. It's still less than the $15 average gain from option b), but the difference is not as stark as before.

However, bear in mind that this assumes your win rate stays the same after adjusting your stop loss, which might not be the case. Tightening your stop loss can sometimes lead to more losing trades if the price action just touches your stop loss before moving in your desired direction.

Also remember, reducing the stop loss increases the risk of getting stopped out prematurely. The balance between having a stop loss that protects you from significant adverse price moves and not getting stopped out prematurely is critical to the success of a trading strategy.

I continued the conversation in the previous post with the aim of working on a risk management plan and setting daily profit goals on these $2500 trailing drawdown combines (I left out the ChatGPT disclaimers such as "past performance is not indicative of future results."):

ME:

To develop a risk-managed trading process, my thinking is that rather than to try and determine the "average" number of opportunities on any given trading day (as they can vary quite a bit), it would be better to have an iterative process that surveys the fist hour of trades so as to set that day's profit target based on the opportunities obtained in the first hour. This can be reviewed on an hourly basis. That way there is a constant back-and-forth between results and goals for any given day.

Thus, taking strategy (b) revised to a $30 risk /reward setup with an average of $9 profit per trade based on a 65% win rate (let's call this one (b2), I would check my progress after an hour and depending on the day type, set my daily profit expectation. If I was losing then potentially it might be better to slow down and give myself more opportunities to be wrong by going to strategy (b) and see how that goes for the next hour.

Based on this type of plan, do you have a suggested more precise plan I could undertake?

ChatGPT 4

It sounds like you're thinking in terms of adaptive risk management, which is a smart approach. Your idea of reassessing your strategy based on the first hour of trading and adjusting it hourly can be beneficial. However, keep in mind that intraday market conditions can change rapidly, and sometimes the first hour's performance may not be indicative of the rest of the day.

Here's a more detailed suggestion based on your plan:

First Hour Assessment: Begin the day with your revised strategy (b2). After the first hour, evaluate your performance. If you're doing well and the market conditions seem favorable (steady trends or volatility within your comfort zone), then continue with this strategy.

Set Daily Profit Expectation: Based on the performance and opportunities in the first hour, set a realistic profit target for the day. However, don't make this a fixed target – it should be adaptable to changing conditions and performance.

Hourly Review: At the end of each subsequent hour, reassess your performance and the market conditions. If the market is becoming more volatile or your performance is declining, consider switching to strategy (b) to reduce risk. If you're doing well and the market conditions are still favourable, then continue with strategy (b2).

End-of-Day Review: At the end of the trading day, review your performance and strategies used. This can provide insights for future trades and strategy adjustments.

Remember to consider all aspects of your performance and the market, not just the profit/loss. Also, don't forget to factor in trading costs when setting profit targets and consider the psychological aspect of trading. Sticking to a plan can sometimes be difficult, especially during periods of losses. But a well-thought-out and flexible plan can significantly improve your trading performance over the long term.

ME:

Based on the maximum daily loss, the account size, all the parameters discussed, what would you suggest as far as actual numbers of losses that would warrant going from (b2) to (b1), or pauses in trading, say 1 hour after 4 losses or some such. I know this will vary on evolving market conditions and my own emotions relative to what is happening. I just wonder if from a probabilistic and pure money management perspective you have a suggested detailed plan.

ChatGPT 4

You're correct that these determinations will vary based on evolving market conditions and your own responses to them. However, based on the parameters we've discussed and a probabilistic approach, here's a suggested detailed plan:

Start with Strategy (b2): Begin your trading day with strategy (b2), which involves trading with a $30 risk/reward setup aiming for an average net profit of $9 per trade based on a 65% win rate.

First Hour Assessment: At the end of the first hour, review your trades. If you're profitable and the market conditions seem favorable, continue with strategy (b2).

Four-Loss Rule: If you hit four losses in a row while using strategy (b2), it may be a good idea to pause trading for an hour. This could help to mitigate the impact of a losing streak and also provide a mental break.

Switch to Strategy (b1) if Necessary: If after the break, market conditions seem more volatile or challenging, or your performance is declining, consider switching to strategy (b1). This strategy involves reducing your risk/reward to $25, which may help to manage risk in more difficult market conditions.

Daily Loss Limit: If your losses for the day reach $150 (which is 6% of your $2,500 account size), stop trading for the day. This rule helps to protect your account from significant losses in a single day.

End-of-Day Review: At the end of the trading day, review your performance. This could provide insights for potential strategy adjustments.

Please remember, this plan is a general guideline. It's important to continuously monitor market conditions and adapt your trading plan accordingly. It's also critical to remain disciplined in following your risk management rules to preserve your trading capital. Lastly, as I mentioned before, all trading involves risks, and past performance is not indicative of future results.

ME:

OK, thank you.

The strategy to my mind does better than 65% win rate and I arbitrarily took that as an estimated average, but let's say that I am overestimating, and let's take a 53% win rate and apply it to trade setups (a) and (b) and calculate the value per trade for each trade setup accordingly. I'd like the calculations you just did for the following risk/reward parameters with a 53% win rate, keeping the other parameters intact:

1. $15
2. $30

ChatGPT4:

Sure, let's calculate the average value per trade for both risk/reward configurations with a 53% win rate.

For a $15 risk/reward configuration:

Value per trade = (Win Rate * Profit per Win) - (Loss Rate * Loss per Loss)

= (0.53 * $15) - (0.47 * $15)

= $7.95 - $7.05

= $0.90

So, with a 53% win rate, the average net profit per trade for a $15 risk/reward setup would be $0.90.

For a $30 risk/reward configuration:

Value per trade = (Win Rate * Profit per Win) - (Loss Rate * Loss per Loss)

= (0.53 * $30) - (0.47 * $30)

= $15.90 - $14.10

= $1.80

So, with a 53% win rate, the average net profit per trade for a $30 risk/reward setup would be $1.80.

ME:

That means on a day when I am trading just over 50% profitably (i.e., 53%) and a I can on average, over many instances, expect to make $4 to $12 on the session, and if I am doing 65% or better then $35 to $63. If I am doing worse than 50% I am of course having loss days on those days.

All I am trying to do here is to set expectations for daily profit goals as I am surveying my results over the course of the session because the biggest threat to my trading is the dopamine "let down" effect from over-anticipation of positive results and the reality of what takes place, which causes me to double down and increase risk, thus making things worse. Can you elaborate on this concept for me?

ChatGPT4

It sounds like you're working to manage not only your risk in trading, but also your emotional reactions to your trading outcomes. This is a key aspect of successful trading and it's good to see you focusing on it.

The phenomenon you're referring to is indeed a major challenge for many traders. In simple terms, when you're anticipating a win, your brain can release dopamine, a neurotransmitter associated with feelings of pleasure and reward. When your expectations are not met (i.e., when you have a losing trade), the anticipated reward doesn't come and the dopamine levels drop, resulting in a sort of emotional crash.

One way to mitigate this effect is by managing expectations. Your strategy of calculating expected daily profits based on win rates and trade values is a good one. It allows you to set realistic expectations for your trading outcomes, reducing the likelihood of experiencing a dopamine crash when results don't meet overly optimistic projections.

Here are some other strategies that can help:

Practice mindfulness: Mindfulness is about being present in the moment and observing your thoughts and feelings without judgment. It can help you notice when you're becoming overly excited or distressed about a trade, giving you a chance to pause and respond more rationally.

Stick to your trading plan: Your trading plan should include your risk/reward configurations, your maximum daily loss, and your daily profit target. Once these are set, it's crucial to stick to them. Consistency in your trading approach can help reduce emotional reactions.

Embrace losses: Losses are a normal part of trading. Accepting this fact can help reduce the emotional impact of individual losing trades.

Continuous learning and adaptation: Trading is a constant learning process. The more you learn, the better you'll be able to adapt your strategies and manage your emotions.

Maintain a balanced perspective: Don't let individual wins or losses have too much influence over your emotional state. Instead, try to keep a balanced perspective and focus on long-term results.

Remember, trading involves not just managing your investments, but also managing your emotions. The better you can handle the psychological aspects of trading, the more likely you are to achieve consistent, long-term success.

OK, this is the third and final installment for the weekend. I took it all a step further, with a view to digging deeper into the trade sizing / adaptive risk management issue, plus exploring a betting system that I modified based on a comparative analysis of a trade performance data set.

ME:

In this discussion so far, I started off asking about trading sizing of $150, 1:1 risk /reward for a $2,500 account and 65% win ratio, versus a $25 sizing for all the same parameters (subsequently changed to $30). I also added one that was a $15 configuration after we determined that the $150 size was quite risky and I wanted to be "ultra-conservative." (for which we also explored a 53% win rate vs 65%)

We worked our way to an adaptive risk management program that would comprise the $15 and $30 sizes, jumping from one to the other after hourly reviews during the trading session.

I came across a betting system that I think addresses adaptive risk management more directly than the hourly reviews, whilst also allowing to take advantage of the larger trade sizing under the right circumstances, and also limiting downside risk. I would like to explore this together now.

It's the 1-3-2-6 Betting System and this is how it works. I should preface this by also pointing out that the trade sizing we previously discussed is based on units of $15 (that being the size smallest one we discussed), and "even money bets" (i.e., 1:1 risk / reward), which is what this system is designed for.

Start by defining your unit size ($15 in our case). This should be about 1/6 of what you're comfortable losing in a single hand (6 x $15 is $90, which is 3x bigger than the $30 size we discussed, but actually 60% of the $150 option at the top of our discussion) .

After any tie, repeat the previous bet.

Bet one unit.
If the outcome from the first bet is a loss, quit one unit down.
If the outcome from the first bet is a win, bet three units on the second hand.
If the outcome from the second bet is a loss, quit two units down.
If the outcome from the second bet is a win, bet two units on the third hand.
If the outcome from the third bet is a loss, quit two units up.
If the outcome from the third bet is a win, bet six units on the fourth hand.
If the outcome from the fourth bet is a loss, quit breaking even.
If the outcome from the fourth bet is a win, quit 12 units up.

Please take a look and let me know your thoughts.

ChatGPT4

The 1-3-2-6 betting system is a well-known strategy that some people use in games like blackjack or baccarat, where bets are roughly even money. It's a positive progression system, which means you increase your bet after a win.

In the context of your trading, it's an interesting idea. Here are some considerations:

Risk management: One of the key points of the system is that after any losing bet, you either start over or quit. This can be an effective risk management tool since it limits the maximum loss to 2 units.

Winning streaks: The system tries to take advantage of winning streaks. If you have a period of successful trades, you'll increase your trade size, allowing you to maximize your profit during these good runs. However, remember that in trading, unlike in casino games, your trades are not independent events, and past success doesn't guarantee future results.

Breaking even: The third bet is designed to at least break even if it loses. This may help reduce the emotional impact of a loss, since even after a losing trade, you won't be in a net loss position.

Maximizing profit: The final bet is designed to maximize profit. If it wins, you'll be up by 12 units. But remember, this bet is also the riskiest, as it's the largest trade size.

There are some concerns to bear in mind:

Market dependency: The success of the system depends greatly on market conditions. It assumes that you'll have winning streaks and that these streaks will be relatively consistent. In some market conditions, this may not be the case.

Drawdowns: Like any system that increases bet size after a win, it has the potential to lead to significant drawdowns if a losing trade occurs after a series of winning ones.

Discipline: You need to be disciplined and stick to the system, which can be challenging. It's easy to get carried away after a few wins and start deviating from the plan.

Before applying this system to your trading, it would be beneficial to backtest it with historical data to see how it would have performed under various market conditions. It's important to remember that no system can guarantee profits or prevent losses in trading. The goal is to find a strategy that fits your personal risk tolerance and trading style, and that you can stick to consistently.


ME

Can you elaborate on drawdowns? It seems to me that the betting system quits on a first loss with the smallest unit and is designed to progress to larger sizes only if it can rest upon smaller wins, and downsizes anytime a large loss occurs, and the large losses essentially eat into the profit made so the "drawdown" is mainly from realized profit during the course of the session. A streak of losing days, each starting with one loss at the top is conceivable, as could be the case with any trading situation, and it would be limited to the smallest size unit, as compared to the one we discussed earlier, which starts with the $30 size and reduces to $15 if losses occur during the first hour of trading.

You also wrote, "However, remember that in trading, unlike in casino games, your trades are not independent events." I am at pains to see how each trade taken is not an independent event. The way I trade is to put on one trade in the ES futures, which is a zero-sum trade where I win or lose. Then take another, and another, and so on. Are these not independent events? It seems that each trade is very much an independent event. No?

ChatGPT4

Drawdowns refer to the reduction in your trading capital after a series of losing trades. Drawdowns can be both unrealized (open positions that are currently losing) and realized (closed positions that lost money). If you are following a system where you increase your bet size after each win, a loss after a string of wins can lead to a larger drawdown because your bet size may be larger at that point due to the previous wins.

Regarding the independence of trades, this can be a complex topic. On a basic level, yes, you could say that each trade is an independent event - you either win or lose each trade based on the specific conditions of the market at the time you make the trade. However, in a broader sense, your trades are not independent in the way that outcomes in games like blackjack or roulette are.

In games of chance like these, the odds are always the same, and each game has no influence on the next. In trading, however, market conditions are constantly changing, and these changes can affect the outcomes of your trades. For example, if the market is in a strong uptrend, it might increase the probability of your long trades being successful. If the market then starts to trend downwards, it could decrease the success rate of your long trades.

Additionally, the emotional and psychological aspects of trading can create dependencies between trades. If you are on a winning streak, you might become overconfident and start taking on more risk, which could affect the outcomes of your future trades. Conversely, a losing streak could make you more cautious and potentially cause you to miss out on profitable trades.

Finally, trading strategies often involve some element of forecasting based on past price behavior. This also implies a level of dependence between trades.

I hope this clarifies the points. Let me know if you have any more questions!

ME

Thanks for clarifying how trading is different in terms of the more strictly independent outcomes of pure chance games. To my mind, correct me if I am wrong, if I go into my trading day assuming that 65% of my trades will be profitable because I have a 65% win rate over the long term, I am setting myself up for failure, because, in fact, each trade is for all intents and purposes, an independent event and on that particular day I could have a string of winners or losers. At least, that's how professional traders are taught to think, that every trade has a 50/50 chance of going either way, because no matter what my win rate is, or my market analysis, or my ability to decipher trends, all it takes is one trader somewhere, one trader with the ability to move the market (or a butterfly effect), to negate my analysis. To some extent, I can see how input from my psychology and emotions could really impinge on the trajectory of successive trading events, such that if there is any inter-trade correlation, it's most likely more so to the downside.

I also understand the definition of drawdowns, but again, the reason this system seems suprior, at first glance, is that it only allows larger trades when those can be justified by accrued profits. Thus, as you can build sand castles and knock them down, at least you are not left with craters at the end, just the ground you started with, unlike a system based on emotional trading, where the reverse typically happens (increasing risk with losses, or adding risk due to over confidence then doubling down and so on). Without putting you in the situation of making risky recommendations, it does seem to me that this system tries to maximize potential gains when things are going well, while starting small and cutting losses off at the pass. Or am I missing something?

ChatGPT4

Your understanding of the trade outcomes is correct. Indeed, each trade is an independent event and can go either way. Overconfidence in one's win rate can indeed lead to increased risk-taking and potential drawdowns.

About the 1-3-2-6 betting system, you've understood its principle correctly. It attempts to harness winning streaks while limiting losses during losing streaks. In fact, it's a positive progression betting system where the amount of money wagered changes depending on whether the player is winning or losing.

The fact that it scales up only after wins and resets after a loss indeed helps in preserving the capital and limiting drawdowns. However, one of the potential drawbacks is that it could limit your profits in a scenario where you have a win-loss-win-loss sequence. Since you reset to the minimum bet size after each loss, you could end up with minimal profits or even a loss over such a sequence, despite having a 50% win rate.

That being said, each trading strategy, including the 1-3-2-6 betting system, has its pros and cons, and it often depends on the individual trader's style, risk tolerance, and trading objectives. If it aligns well with your trading philosophy and you're comfortable with its potential drawbacks, it could be a useful strategy to manage risk and strive for consistent profitability.

Remember to thoroughly backtest and paper trade any new strategy before applying it to your live trading account to understand how it performs over different market conditions and over a large number of trades. This will give you a better understanding of its strengths and weaknesses and help you make an informed decision on whether it fits into your trading plan.

ME

Okay, but in our earlier conversation we discussed starting with the larger size, the $30 risk / reward size, and trading that for an hour, then scaling down to the $15 size if things were not going well. In the best case scenario, it would be the win-loss win-loss scenario you mention, and in the worst case scenario, it would be successive losses with the $30 sizing. So either I would have lost more than if I had traded only the smaller size, or I would be even and scaling down to the smallest size.

However, with the 1-3-2-6 betting system, I start with the smallest size (where I end up best case scenario if things aren't going well with my conventional adaptive risk management) and increase if things go well, and end up back to square 1 at this size if things evolved less than perfectly.

So, yes, I can see how the conventional adaptive system can accrue more steadily than the 1-3-2-6 betting system which might lose everything won in subsequent larger trades. On the other hand, I could dig a deeper hole to begin with more easily with the conventional adaptive system, no? Not to mention that if one is following a very clearly defined system, such as the 1-3-2-6 betting system, the next action is always very clear, assuming one can execute it to the letter, whereas the conventional adaptive system is based upon hourly reviews, and a lot can happen to a trader's mind in the space of an hour (not to mention a few seconds...).

ChatGPT4

You've made a very insightful analysis here, and I appreciate your detailed thought process.

You're correct in highlighting that the conventional adaptive system can potentially dig a deeper hole if you experience a streak of losses right at the beginning with the larger $30 trade size. That's certainly a risk that needs to be carefully considered.

The 1-3-2-6 betting system starts from a smaller base and, therefore, limits the downside more effectively from the get-go. It also indeed presents a clear progression which doesn't rely on the somewhat arbitrary 'hourly review' or any subjective emotional factors.

The trade-off, as you pointed out, is that the 1-3-2-6 system might not accumulate profits as steadily in certain scenarios, such as a win-loss-win-loss sequence. However, in a scenario where you have a streak of wins, this system could work very well as it leverages the winning streak to take on bigger positions and maximizes potential gains.

Another aspect to consider is the psychological fit. Some traders may find the certainty of a system like the 1-3-2-6 betting system more comforting and easier to follow, as it provides a clear and unambiguous trading plan. Having a well-defined trading plan that you can stick to consistently is indeed a significant factor for long-term trading success.

In conclusion, if you're comfortable with the potential drawbacks and feel that the 1-3-2-6 betting system suits your trading style and psychological profile better, it could be a viable alternative to the conventional adaptive system. As with any strategy, testing it thoroughly on historical data and via paper trading before implementing it in your live trading will help you gain a better understanding of how it works and performs over a variety of market conditions.

ME

Taking into consideration what we discussed. Do you think there are other betting systems that might lend themselves well (or better) to my trading plan? Ones that I have come across are:

Oscar's Grind betting system.
Labouchere betting system.
Fibonacci betting system.
Martingale betting system.
Anti-Martingale betting system.
D'Alembert betting system.
Keefer roulette system.

But the question is not limited to these.

ChatGPT4

Sure, I'd be happy to provide an overview of the betting systems you've mentioned in the context of your trading plan. However, it's crucial to remember that all these systems were designed for games of chance and may not apply directly to trading. In fact, some of these systems can be quite dangerous when applied to trading because they involve increasing the trade size following a loss, which can lead to rapid drawdowns.

Oscar's Grind: This system is designed to make 1 unit of profit per cycle. After a win, the stake remains the same, but after a loss, the stake is increased. This method can be quite conservative, but can lead to large drawdowns in a losing streak.

Labouchere: Also known as the "Cancellation system," the Labouchere system involves increasing stakes following a loss. This can be highly risky, and I would not recommend it for trading.

Fibonacci: This is another system that involves increasing stakes after a loss. It can lead to substantial losses in a losing streak, and I would also not recommend it for trading.

Martingale: The Martingale system is probably the riskiest of all. It involves doubling your stake after each loss, with the idea that an eventual win will recover all past losses. However, a losing streak can quickly deplete your trading account. It's generally not recommended for trading.

Anti-Martingale: Unlike the Martingale system, the Anti-Martingale system involves increasing your stake after a win and decreasing it after a loss. This can be a more conservative approach, as it aims to capitalize on winning streaks and limit losses during losing streaks.

D'Alembert: The D'Alembert system involves increasing the stake by 1 unit after a loss and decreasing it by 1 unit after a win. This can be risky in a long losing streak, as the trade size can increase rapidly.

Keefer roulette system: The Keefer system is a less-known roulette strategy that involves placing several bets of different sizes simultaneously. This could be complex to apply to trading and could lead to high risk if not managed properly.

Given these systems and the inherent risk involved in some of them, it seems that your current approach of the 1-3-2-6 system, with its conservative starting point and clear progression, is a more appropriate choice. The Anti-Martingale system might also be worth exploring as it increases the stake following wins rather than losses, which is generally a safer approach. However, as always, it's essential to thoroughly test any system before applying it to live trading.

ME

If I provide more historical trading statistics on 122 trades I did, is it possible to run some probability calculations for the 1-3-2-6 system? If so, what would you need?

ChatGPT4

As a text-based AI model, I'm unable to directly perform complex numerical operations or manipulate data structures on actual data. What I can do, however, is guide you through the steps you need to do this yourself.

ME

OK, I did it myself manually and this is what I found.

1. If I make the wins and losses equal to $15 with a scale up to $30 when profitable for an hour, or back if I go back into loss, I get a total of $330 for the data set.

2. If I stick to the 1-3-2-6 Betting System exactly, I get $60 total for the data set. You are right, in on many days if I have a loser the first trade the system requires me to stop, whereas I grind forward under normal circumstances, with some wins, and some losses, but since it's overall around 54% wins, it would normally make progress whereas the 1-3-2-6 Betting System short circuits the process.

3. Given the 1-3-2-6 Betting System shortcomings, I made 2 changes: i) If I lose the first trade or any trade where I am at the nominal $15 amount, I continue trading with a $15 win/loss ratio. Then I continue following the 1-3-2-6 Betting System until the fourth bet outcome, moving forward if I win a $15 unit or staying at that first tier if I lose. Here, if the fourth bet is a winner (6x $15), instead of quitting for the day, I have a fifth bet which is 3x the price unit ($15), so half of 6x for the fourth bet. If this one is a winner I go back to the 4th bet of 6X the $15 price unit. But if it's a loser, I go down back down to the first bet of 1x $15 and start over. With the system structured this way, I don't cut my days short, but I get to scale up when things go well, or back down if not. Using this method, with the same data, I get $915 for the data set.
(Comparison PDF Attached)

Original Rules:

Bet one unit.
If the outcome from the first bet is a loss, quit one unit down.
If the outcome from the first bet is a win, bet three units on the second hand.
If the outcome from the second bet is a loss, quit two units down.
If the outcome from the second bet is a win, bet two units on the third hand.
If the outcome from the third bet is a loss, quit two units up.
If the outcome from the third bet is a win, bet six units on the fourth hand.
If the outcome from the fourth bet is a loss, quit breaking even.
If the outcome from the fourth bet is a win, quit 12 units up.

Modified Rules:
Bet $15 (1 MES, 12 ticks)..
If the outcome from the first bet is a loss, continue with $15.
If the outcome from the first bet is a win, bet $45 on the second trade (3 MES / 12 ticks).
If the outcome from the second bet is a loss, go back to $15.
If the outcome from the second bet is a win, bet $30 on the third trade (2 MES / 12 ticks).
If the outcome from the third bet is a loss, go back to $15.
If the outcome from the third bet is a win, bet $90 on the fourth trade (6 MES / 12 ticks).
If the outcome from the fourth bet is a loss, go back to $15.
If the outcome from the fourth bet is a win, go back to $45 on the fifth trade and alternate back to $90 then $45 as long as the winning continues until a loss occurs, then go back to $15..


ChatGPT4

Thanks for sharing your results! It seems like you've found a more profitable approach through your adjustments to the 1-3-2-6 Betting System. By adding these modifications you've managed to turn a system that wasn't working as well into something that generates a significantly higher return for your given data set.

The changes you've made allow you to capitalize on your overall winning rate and allow for more flexibility in your trading approach. Your modified system appears to be a better fit for the characteristics of your trading data.

While this revised system works well for your current dataset, it's important to remember to continue monitoring performance over time and across different market conditions. All trading systems have periods of drawdown and the key is to ensure that the system's parameters are robust and not overfit to past data.

Well done on your analysis, and I hope that your modified system continues to perform well in your trading activities!

Keeping a low profile today. I have 3 Leeloo $2.5K accounts from my last set of 3 x5 account bundles that reached the $3K profit target last week after 3 trading sessions and need 7 more trading days to qualify. Last Friday I made the mistake of trading them alongside new ones I am working on, went into a -($287) loss, and quickly got them back over $3K, but not without a moment of gripping fear as it was really unnecessary. Going forward I am just doing the minimum needed to get these over the finish line. As they are $67 over the $3K minimum, I figured the easiest way is to lose 2 ticks per day and so I have an ATM set up for 1 MES 2 ticks PT / SL. If I lose one trade per day I am guaranteed to pass. On the other hand, if I try to get even a small profit I expose myself to unnecessary risk. That's my MO for these accounts. I took one in Globex and it happened to be a 1 tick win.

There was another 96% off sale on the 5 bundle accounts over the weekend, so I grabbed another 3x 5-account bundle for $11 each (less than $2 per). Figured I might as well line up a couple more PAs God willing. A short while ago I put on a really "dumb" trade with the first account on each bundle in spite of having told myself I wasn't going to trade them today (besides my ChatGPT sessions I had a busy family weekend, overslept today, and was not really 'there'). It was that trade I have told myself thousands of times I won't take anymore (hundreds of times, literally, if not thousands). The one where it dives down with a Huge Mother Bear Bar, "unmistakably" breaking down, but it's really just running stops to go back up. If you're trading the ES you know which one it was (7 am PST). I was "just trying to grab 9 ticks," and missed my trade by 1 tick when it turned around and shot back up (possibly for dopamine-hit-seeking reasons I have been thinking about since I had no stop). And of course, as I am in silly 8 lot ES bundle sizing it didn't work out so well The bundle trading approach is 'dumb' to begin with, but there are 'gradations of dumbness' (i.e., calculated vs ill-conceived) and this trade pattern is really one to avoid unless looking for failed breakdowns and trading them back up, or down only when we are in a serious HTF downtrend and even then perhaps only on a pullback. It's admittedly near impossible to resist though, which is why they keep doing it over and over, and over again. I hope that by writing it down here often enough I'll stop suckering myself into taking this particular trade in that manner -- and should add I actually trade it the other way frequently. Does that make my trade even worse? Lol. It seems that the first one in these bundles is always a bust like this. My $2 lesson for today. That's one of the reasons I really like them. 4 more chances on each of the 3 sets. That was my mini dopamine crash for the day and I will leave it at that.

Here's what the other extreme looks like (the ones with 1 MES, 2 ticks either way).

Hope everyone is having an easy-going Monday.

Done for the day. Things are going well, got past Ides of Monday, but I have to stop to do some other stuff right now.

I started a new set of bundle accounts. The second set of 3 accounts out 3 sets of 5 accounts with 1 allowable eval to PA qualification amongst them (3 bundles of 5 accounts, 1 PA per bundle allowed). The first one went bust yesterday.

On this set, I scalped last night in Globex. This is where I typically do better with large size. I did have a couple of big swings in and out of profit, so that skews the stats a bit. Then today, as things evolved, we were having a sort of slow, Globex-like session so I went ahead and started scalping again, as if in Globex, but not as large (up to 2 lots ES). Things picked up a bit and I went down to 1 lot with some scale-ins. Eventually, price hit the lower-bound target I thought it might go to this morning if it went down and this was a good place for me to call it a day.

On the 3 accounts that are already at the PA profit requirement of $3K, I continued my quest to lose 1 tick per day until the minimum 10-day trading requirement is met. Today was the second day. Contrary to my goal of losing 2 ticks, however, I won a second consecutive day on this front: 2-tick winner!




Then, this morning, before I went back to scalping, I started another set of 3 evals and with these, I worked on the 1, 2, 3, 6, betting system I outlined over the weekend, using my levels and order flow signals I work with. Very systematic. It was working really well until thing slowed to the Globex-like crawl. On this one I had 3 losers in a row, then two winners. With the bet sizing scheme, I broke even on the trades (i.e., zero total on 7 trades that included 2 scratches). No screenshots for this below.

Here are some images from the scalping SOC and my early AM primary target met at 10:30.











Added after the RTH session close: Today was basically a retest of the breakout and the weeks long chop zone top. If this goes any lower it dives right back into the chop zone. If FOMC minutes drive it down below, then the entire breakout is a failure and the other side extends to 4110. But maybe it just bounces right back up and continues! Guess we have a few surprises in store in the news besides FOMC. Tomorrow's ES expected move is currently 27.5 pts up or down. Is it underpricing?

Done for today. The move I had been waiting for happened late, as I was writing this, but not all that big, and in the end I make more just trading my system. It's tempting to look for big moves with these throwaway Leeloo bundles. But when the move failed to materialize by noon I didn't want to jump in. I don't like trading so late, especially on FOMC gamble trades and such, because there is no time left in the day to fix mistakes if they happen. Also, until it crosses 4147.5 right now, today, in RTH (not as a going forward level, just today, as in late pivot C up day, ACD parlance), I don't see any reason to get in on the move up. Because once it has happened it's too late to get in and unless it crosses 47.5 right now, it's not necessarily sustainable. It can just as easily turn right back down. There is no rhyme or reason to what is going on.

Onto today's trades.

First, the 3 that got to $3K profit last week, which I have been nursing with my plan to lose 2 ticks per day in order to assure getting to funded PAs. Well, sure enough, as fate would have it, I won a third night in a row! Two ticks again!!! I'm beginning to think I should do these with 8 lots ES




What else? on the scalping set of 3, I did some more Kindler Gentler Globex scalping last night (top of the Asia session). Screenshots of trades & entries on the chart below. Right now this is the most promising set of three from my Leeloo bundles. The ones I am trading more seriously (vs looking for big moves, momentum price surges, huge positions, etc.)






This was the FOMC trade with another set of 3 bundles. I got into that one at the 61.8 fib retrace on the entire recent move up, as this seemed like a good place to enter. I calculated that with 15 MES I could withstand a whiplash down and move back up (my expectation), and no sooner did I put the trade on than it sprang up. I was about to start celebrating when the 34 level promptly rejected and it came all the way back down. I got out even, but with an effective "$750 loss" on my trailing drawdown (now stuck at the high water mark of my P&L). So I did a quick 4 ES scalp and got most of that back. I then positioned for a limit buy on an extreme move down where I have a TA target and a possible stop buy above the morning breakdown (4092 with buy order at 4096 below and 4147.50 above), but I considered the one above iffy as there was a lot more room for it to go up and come back down to take out the low, so I put that one high up over the ACD C-up in case it really took off. In the end, however, we got the weakest FOMC minutes on record and I canceled everything.








This was my take on things as we were approaching the 61.8 fib level on the initial move down, 15 minutes after the open. We had just crossed the SPX expected weekly move down in the ES.




Hope everyone had a good day trading.