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Day Trading Stocks with Discretion
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Day Trading Stocks with Discretion

  #201 (permalink)
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2 losers. -$80.

3rd day of full losses. Been a while since I have seen that.

Trade 1 was a break out. It was also straight into the EMA21. Should have been more defensive with my exit. On the 7:15 bar I had a big battle with myself. Should I close out on what looks like a losing trade or let my initial risk run its course. I let it run.

Trade 2 after a failed push up into the EMA21. I thought it was my second entry for the next move down. Was "right" for 3 min. Stopped out, which was more the right thing to do than in Trade 1.

I really need to consider how long I wait after a losing trade. These two-loss-in-an-hour days are a drain on emotional capital.

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  #202 (permalink)
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Watching VFC in real time, November 13, 2012

2 losers. -$80.

3rd day of full losses. Been a while since I have seen that.

Trade 1 was a break out. It was also straight into the EMA21. Should have been more defensive with my exit. On the 7:15 bar I had a big battle with myself. Should I close out on what looks like a losing trade or let my initial risk run its course. I let it run.

Trade 2 after a failed push up into the EMA21. I thought it was my second entry for the next move down. Was "right" for 3 min. Stopped out, which was more the right thing to do than in Trade 1.

I really need to consider how long I wait after a losing trade. These two-loss-in-an-hour days are a drain on emotional capital.

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Last edited by bijeremiad; November 14th, 2012 at 09:52 PM. Reason: No attachment
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  #203 (permalink)
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Watching VFC in real time, November 14, 2012


2 winners, 2 losers. Net $144.

Broke the losing streak. I am always amazed at how few losing trades it takes for self-doubt to creep in. "Last month was luck, I've lost it, this is the end."

Trade 1 was after a strong push down that I wish I had gotten in on. It was a counter trend trade - not the best kind to try to break a streak, but I was very aggressive on the stop pretty much trailing behind each closed up bar.

Trade 2 was exepcting a retrace and test of the lows of the day. Got in a little late.

Trade 3 was another risk, with a possible double stop, but the price action had bounced twice off of prior-day support. It wasn't the run down I was envisioning, but a small profit came of it.

Trade 4 was looking for a test of prior-day resistance, perhaps I had gotten stopped out too soon.

I did look for trades at the end of the day (purple boxes). One would have been early. One would have run.

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  #204 (permalink)
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A couple of your recent posts mirror my feelings precisely.


bijeremiad View Post

For me I have found the lost tail of a 2R trade that runs past my exit for another 4R weighs on me mentally more than a trade that runs 1.5R in my favor and then retraces for a scratch. [/INDENT]


bijeremiad View Post
2 winners, 2 losers. Net $144.

I am always amazed at how few losing trades it takes for self-doubt to creep in. "Last month was luck, I've lost it, this is the end."

<--- This one especially. It's insanity how swiftly that shadow of doubt comes in...not to mention how quickly it leaves upon hitting your stride once again.

Great journal, keep it up.

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  #205 (permalink)
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Watching VFC in real time, November 15, 2012

3 winners 1 loser. $100.

Trade 1 was a bit of an anomoly. My stop was broken around 7:51a. Two trades happened above my stop, but the offer came back in so quickly that I decided to let it run. I got stopped out right at the end of a push.

Trade 2 I got back into the same trade, but only 100 shares since vol had picked up since the trade started. Was actually thinking that a reversal may be coming up, so i got out close to prior swing low.

Trade 3 I was looking to play the test of resistance. Got trapped.

Trade 4 reentered for the reversal. I thought this had the potential to run, so I was loose with the stop. Gave up 2R.

I wanted to catch the pop at the end of the day off a multi-day low (green horizontal line), but I was waiting for the fake break down. Never happened and market popped fast. Left watching....

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  #206 (permalink)
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Equity curve as of November 15, 2012

The gross tally for this week is a grand $8. Beats losing money, but commissions would take sub-zero. I don't know if I will count this as my 11th consecutive positive week. We'll see. Here is the equity curve updated for this week.

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  #207 (permalink)
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Hey @bijeremiad. How's the trading going? You were making some really good progress but haven't posted to your journal in a while.

Im envious of your equity curve

Diversification is the only free lunch
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  #208 (permalink)
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@DarkPoolTrading, thanks for asking. Your simple question may have been the kick-in-the-pants I needed to get going again.

I did another week of trading after my last post, but I got behind in posting. The more I put it off, the longer the task of catching up seemed painful. Just like cutting a trade that is going against you...

Then work changed on two fronts 1) becoming more demanding during market hours and 2) discussion arose of changing our compliance rules for personal trading where every trade would have to be approved by our general counsel, as well as a 15- to 30-day minimum holding periods. For my methodology with 3.3 trades per day and an average holding time of about 55 minutes that would require some major tweaking to accommodate.

Lastly, I was struggling with the scalability of the method I was developing. If I were to violate my Chief Risk Officer's advice, which is

Tip
Never, never, never... never. Never! NEVER... never take positive performance from a recently short period and use it to forecast long-term



But ignoring that and say $7k in 5 months is possible on $20k and a little leverage. So $16K per year? Now I could change the initial risk parameters to 1% per trade, up from 0.4%, and that might double returns. And then I could allocate another $20k of capital and might double again. So that gets me to $64k/yr. But I would have to be trading 400-800 shares per trade, and I am not sure there is that level of supply at the points where I trade - at least from watching T&S. There would be a lot more slippage. So for kicks lets say income degrades to $50k. That is not quite what I would hope for from a trading income (ignoring the super high ROEs that are implied). Now I could put $120k of capital and start to get to something more compelling, but at that point I go from single and double lots to 1200-2400 shares per trade. I suspect there would be buckets of slippage if i were to try and exit on a trade running against me for a $0.20 stop; there are entire 3-minute bars that don't trade that many shares. It just won't scale.

But these are all excuses. I need to get to trading live. Right now, it's not about replacing income, it's about learning how to trade consistently at a small level.

So here is what I am going to do next.
1) Individual trade analysis - most analysis to this point has been on a daily level (equity curves, % profitable days, etc). I need to figure out what is happening at a lower level. So I have been going back to my charts and recreating trade-level data to
a) summarize data on a trade level
b) look at how aggregate trades performed during different market structures
c) look at profitability by time of entry and day of trade
d) look at trade profitability by type of day
e) consider MAE/MFE and how to optimize profit targets
f) look for biases in trades
2) Sim for 20 days to reacclimate
3) If the demo trading results for the month are > 2%, go live


Last edited by bijeremiad; February 16th, 2013 at 11:51 AM.
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  #209 (permalink)
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Trade Level Data

Attached is aggregate data for the 338 trades logged over 115 trading days. Previously I had only looked at aggregate data on a trading-day basis. But each of those days would include 2-5 trades - on average 3.3 trades.

I will admit that for the effort it took to recreate this data (I kept poor records, but records nonetheless) was painful and maybe not worth it, since I had to go back chart by chart and recreate the entry prices and time by hand. After 8/15/12, I started keeping a written log of trade data, so that was much easier (and more accurate).

The data are presented in three sections:

1) Equity curve
2) Aggregate trade statistics
3) Drawdown analysis

So what? Here is what I see. Any observations on your end are welcome. But like everything here, this is mostly for me to distill.

Equity Curve
Commissions! So the first big observation is the impact of commissions. Previously I assumed no commissions. It was only $2 round trip... But when I trade 200 lots sometimes fills would cost $1, sometimes $2 - depending if the order was filled in one order or two. So I assumed each 200 lot trade (62% of my trades) would cost $1.5 per leg, or $3/RT. But it could be as much as $4/RT. So even this estimate could prove to be $239 too optimistic. But either way $1005 of commissions lops off 5% from gross returns. I forgot how good it is to be the broker.

Slippage? Another number not really in here is slippage. At 100- or 200- lot trades that should be small. But I am scared to see what it really is...

Total R. Total risked capital during this time was $16,323. Every trade was $40 of risk ($0.40 on 100 shares in "high vol" environments or if vol was lower, $0.20 on 200 shares). So over the 5.75 months, I risked 82% of my capital. That seems like a lot, and was surprising to see. But I also managed to gain 0.8R, give back 0.38R in losses, and pay 0.06R in commissions, for a net R of 0.36.

So is that good? I have been curious to finally see what this looks like on a trade-level basis ever since I saw this table in VanTharp's Book Super Trader.

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And the answer depends on the volatility of the trades required to get to 0.36R. According to this table, if I could produce a 0.36R with only 0.72R standard deviation, I would have a superb system. But it looks like my StDev is more like 1.73R, which leaves me just eeking out an average system result. Part of what is driving that is my lower win ratio 35% and thus rely on larger winning trades. My best trade was 7.6R (a $1.65 run on a $0.20 stop with 200 shares).

Trades to break-even. The volatility of my trades can also be seen in how many trades it takes to break-even. This was a disconcerting number. If I rank all my trades by net profit/loss and start to add up the losers, and then the scratch trades, and then the winners, then I have to add up 93% of my trades to get to $0 net. Only the 7% (29) of trades that were greater than $140 (3.3R) added up to the $5,891 of net profit - averaging $203 (4.7R) per trade. I really have to let my winners run. While the percentages seem skewed, another way to look at it is that a $140+ trade comes along once every 4.3 trading days, so about once a week. In fact the opportunity set is larger than that; those are just the ones I was able to catch.

Part of this has to do with reliance on 1 trade, which doesn't seem too high. Even if I took out my top 5 trades, I would still come out with $4,464 or 3.9% per month. So I have mixed feelings about it at this point, but it doesn't seem to suffer like some system results where the top single trade accounts for 30% of the total net profits - if you miss that one big one, it doesn't work.

Consecutive winners and losers. Six for both winners and losers. With a loss rate of 43%, I should expect to see 6 consecutive losses about five times during a trading year. Seven consecutive losses would be possible, and seen about twice a trading year. Eight would even be feasible, showing up about once a year. Nine would be more of a once every two year type of event. Now not all of those losses are full stops. But even 8 fulls-stop losses would be $320 or 1.6% of equity. Not an account killer. So five or six losers shouldn't be too worrisome; if I start to see 7-8 frequently something is broken.


Aggregate Trade Statistics
Long/Short bias 383 trades: 49.1% long / 50.9% short - a difference of 7 trades. I could pull out the binomial distribution to determine what the probability is that the difference is not due to statistical noise, but I am going to assume I am not exhibiting a short bias, which is a concern. I don't want my contrarian nature creating problems for me. Maybe they are, but they aren't showing up in the aggregate numbers.

Longs carrying the profits. Despite no bias in longs vs shorts. I did make 70% of my net profits from longs. Only 30% from shorts. This is probably from the upward bias of VFC during the time I traded it. I will leave that analysis for when I look at month-by-month statistics in another post.

Time in Trades. This was a surprising number: I spent almost 203 hours managing trades. That added up over time. That is 113 hours managing winning trades trying to figure out stops and where to take profits, 42 hours sweating through trades that closed for $0, and 37 hours in misery fighting the markets.

Another way to look at it is 747.5 hours of screen time, and I was only in that market for 27% of that. I would like to think that is because I was discriminating and only involved when the best opportunities presented themselves, but the reality is probably closer to the fact that if I stopped out twice (often within minutes) I would not trade for the rest of the day, so that kept my time in market down also.

I guess the wrong way to think about, but why not, is $7.88/hour of screen time.

I do appear to be cutting the losers short. Or at least the market is cutting me short - when I am wrong, it becomes apparent quickly. I am only in a losing trade on average 13 minutes vs a scratch trade for 30 minutes and a winning trade for 55 minutes.

As I look at the extremes of "time in trades", 4 hours is probably a little long to be in a trade for $100. An hour is probably too long for a scratch trade, but determining if is going to be a scratch is probably pretty tough. It will probably be tough to figure out what to do about time-based stops with this level of data.


Drawdowns
Here is where psychology and "am I going to stick with this" comes into play. The largest drawdown was not bad - 1.75% of capital. It took me 11 trades to get there and 5 trades to dig my way out.

One question that arises is "what constitutes a draw down?" Is one losing trade a drawdown? If that is the case, I had 41 drawdowns. I don't spend a lot of time at the top of my equity curve. In fact, I only spend 18% of the time at the peaks. The other 82% of the time is fighting my way back to the top.

If I filter out the brief drawdowns to exclude those less than 6 trades long, then I had 15 drawdowns, averaging 18.1 trades in length and drawing down about 1.1% on average.

As luck would have it, the longest drawdown I have been in is the current one: 33 trades, but not the worst from a $ or % amount; it's pretty mild at $207 or about 1%.

All this seems pretty manageable so far. Part of that is due to the fact that I only risk 0.4% per trade. If I were to up that to 2% per trade then the drawdowns would be more along the lines of 5% with a max of 8.75%. Not fun, but still not brain-threatening (I hope).

Well, I am coming up on 1500 words. I am already dreading having to proof read, which I think I will put off to another time. I think I have gotten out of this first exercise what I could. I think the closer I get to the trades, the more informative it will become.

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Last edited by bijeremiad; February 17th, 2013 at 03:45 PM. Reason: forgot attachment, editing
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  #210 (permalink)
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High Level Month Review


So, one of my surprises from looking at aggregate data came from seeing how much better my longs did than my shorts. 70% of my profits came from longs. My average long was 2.4x my average short.

One things I wanted to do was look at each month from a high level to see if that overall trend made sense in the context of what the market did over the 5.75 months I have records.

Attached is a file that shows the days that correspond to the 5.75 months of trades, as well as aggregate trade statistics broken down by month.

Each month provides enough trades to make some assumptions about the month. Months 1-5.75 have 68, 64, 59, 65, 75, and 52 trades, respectively.

Looking at VFC over the period traded, the series shows an upward bias. However most of that bias is realized in Months 2, 4, 5. Months 1, 3, and 5.75 were more of a trading range series.

So, looking at the months were the upward bias was most present (2, 4, 5) 76%, 109%, and 69% percent of my net profit came from longs, as I would expect. Whereas, looking at the trading range months, only 66%, 43%, 12% of my net profits came from longs. So during those trading range months, my short play a more relevant role.

I do see a higher loss rate on my shorts in the upward-biased months, which makes sense. I don't necessarily see a higher win rate in my shorts during the trading-range months.

My time in trades seems to be getting shorter in months 4-5.75, average holding time was 33 in months 1-3 vs 29 minutes in months 4-5.75. This would be concerning if I start to see degradation in profit factor, where the average winner is not much larger than the average loser. This concern arises in month 5.75, where the holding period is short and avg winner/avg loser drops to 1.5-2.1 vs high 2s or low 3s in other months. I need those larger wins - can't afford to take "easy" profits.

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