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Kevin's TST Combine Journal
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Kevin's TST Combine Journal

  #311 (permalink)
Market Wizard
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Big Mike View Post
Hmm. My first reaction would be that too much leverage (size) being used to begin with, if you have to make this adjustment after 1 day. Thoughts?

Mike

Relative to the Max Drawdown metric , I would agree with you.

I'll explain how I came up with my initial size.

My initial size of 6 was a calculated risk I took, based on the Profit requirement, Daily Loss Limit and Max Drawdown. Instead of all metrics for the $150K Combine being 5x of the $30K Combine, they are 3x (max DD), 6x (Daily Loss Limit) and 8x (Profit). That means to use my existing strategies (which were designed for the $30K Combine), I had some position sizing decisions to make - and I knew they could backfire on me.


My initial size was 6 contracts. This is based on the higher Daily Loss Limit for the $150K Combine, which is 6X of the previous $30K Combine ($3,000 vs. $500).

The downfall to this logic is that the Max Drawdown for the bigger Combine is only 3X larger, not 6X.

I took all this into account, and determined if the first trade was a loser, I'd have to scale back. Of course that is what happened. So, the next trade will be 3-4 contracts, and if that loses, maybe even smaller size (depending on the next trade's required stop loss).

The plan will be to go back to 6 contracts if/when the overall account gets back to breakeven.

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  #312 (permalink)
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Fixed fractional?

Mike

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  #313 (permalink)
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Big Mike View Post
Fixed fractional?

Mike


It is pretty much as many contracts as I can trade, and still respect the Daily Loss Limit (DLL) and Max Drawdown (MD). I am trying to maximize profit, given the DLL and MD constraints. So it is not a fixed fractional based on account equity, but it is based on DLL and MD.

So, for the first trade, the stop was around $450 per contract (which I assume could hit $500 after slippage). That is also my max stop loss ever on any trade with any of the strategies.

Daily Loss Limit = $3000 divided by stop loss $500 = 3000/500 = 6 contracts (note that this will be the maximum size, regardless of future performance. As long as my stop on a trade is $500 per contract, I can't go above 6 contracts and still meet the DLL rule).

Tomorrow, the max Drawdown will be the limiting factor, since I have $2500 left. If I allow a $1500 loss fo the next trading day, that will still leave me $1000 cushion.

So, 1500 / 500 = 3 contracts for the next trading day.

If I lose the next trading day, I will go down to 1 or 2 contracts. If I win, depending on the winning trade amount, I will attempt to increase my size the next day.


I typed this fast, so if it is unclear, please feel free to question my logic. It is tailored to the Combine requirements, and that makes it a bit strange.

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  #314 (permalink)
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Combine #2, Day 2

One medium size loser today...


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  #315 (permalink)
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All Downhill

Back about a week ago, I wrote this:

Right now, things are going better than expected. Long term, performance should revert to the average line. So, I consider the current performance a "hot streak" that will not last.

https://futures.io/trading-journals/26542-kevin-s-tst-combine-journal-30.html#post335547


And that, my friends, is precisely what happened in the past 3 trading days (including today). The 3 strategies are reverting back to the mean.

Normally, this would not be a problem. It happens, and I fully expected it.

BUT, it just so happens that I started the Combine #2 right at the peak, and it has been nothing but losers ever since!



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If I was a discretionary trader, I'd be convinced there was something wrong with me - that the Combine was messing with my brain and impacting my trading:

A. Trade Combine #1, barely break even. Everyone can see the reports.
B. After Combine #1, my performance took off. I'm trading great! No reports, so only I know the results.
C. Combine #2 starts, trading is awful. Everyone can see the results.

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That sure makes it seem like the results are due to me. Or that I am cheating. I know that is what I would think if I saw someone else post it ("Sure buddy, it is just coincidence that you trade great when no one is watching, but when your results are tracked by a 3rd party, your equity curve just goes down. Sure, just coincidence...").

But, since I am trading mechanical signals here, I can assure you the results are 100% legit. It is just some incredibly bad timing...

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  #316 (permalink)
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Thank you!

Love reading this thread and your experience in the combine.
Keep it up!

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  #317 (permalink)
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kevinkdog View Post
The 3 strategies are reverting back to the mean.

Normally, this would not be a problem. It happens, and I fully expected it.

BUT, it just so happens that I started the Combine #2 right at the peak, and it has been nothing but losers ever since!


But, since I am trading mechanical signals here, I can assure you the results are 100% legit. It is just some incredibly bad timing...

Kevin,

thanks for the journal. Very encouraging to see mechanical system in the making, hopefully gets me going too.

I've been sort of developing a mechanical trading system and have been studing the anatomy of losing streaks through lower time frames. I guess I am trying to ask if you have done such a study in a way that you could reduce or eliminate your losing streak and/or turn the losing streak more into a flat line in your equity curve rather than a steep drawdown?

Regards,
Tihfa

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  #318 (permalink)
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tihfa View Post
Kevin,

thanks for the journal. Very encouraging to see mechanical system in the making, hopefully gets me going too.

I've been sort of developing a mechanical trading system and have been studing the anatomy of losing streaks through lower time frames. I guess I am trying to ask if you have done such a study in a way that you could reduce or eliminate your losing streak and/or turn the losing streak more into a flat line in your equity curve rather than a steep drawdown?

Regards,
Tihfa

Thanks for the comment.

Here is my opinion on your question (please realize others may have valid opposing viewpoints)...

When you create a system, look at the equity curve, and then spend a lot of time trying to improve the weak spots (drawdown periods, flat periods, etc), you are starting to descend a slippery slope. By that I mean it is fairly easy to make backtests better, but it comes at a cost - more rules, more parameters, more filters, etc.

What makes you think those additional rules will work in real time? They may, or they may not. But your mind will think there will be an improvement, since your backtest is much improved. This can trick you into thinking you have something "better" when in all likelihood you really have something that probably is worse.

It is also a slippery slope because once you do it the first time, now another part of the equity curve will look poor. Do you try to fix that, too? How many times do you repeat this process? Done enough times, you'll have a great looking backtest, but when you go to real time, the system will probably fall apart.

My general experience is that you can make adjustments like this 1 or 2 times to a strategy, as long as you leave plenty of data out of sample. Beyond that, it is probably better to just drop the strategy.

Just be very careful.

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  #319 (permalink)
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kevinkdog View Post
My general experience is that you can make adjustments like this 1 or 2 times to a strategy, as long as you leave plenty of data out of sample. Beyond that, it is probably better to just drop the strategy.

Just be very careful.

This doesn't only apply to an automated strategy; a fully discretionary trader has exactly the same issues, just expressed a little differently.

Say you are looking at patterns, or trendlines, or levels, or some signal, anything that you look at over time to decide whether they are "reliable" -- you've got exactly the same situation. If you fine-tune to the past, you only know for sure that it "would have worked" during that period, not so much about any other time (like your next trade.)

So you hope you find something that is general enough that it applies to the market all the time; you have better odds of that, the simpler it is and the less tinkering you've done....

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  #320 (permalink)
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And this is exactly why traders that seek algorithmic trading as a way to solve their own shortcomings on psychology or lack of understanding in the market will still fail.

They think they can program their way out of their deficiencies, but your post #315 shows a good example of how discretion is still the #1 rule in the game. And that means you have to actually be good at it.

Trade first, program later. That's my recommendation for all. Once you are a consistently profitable trader, then you can start to program strategies.

BTW Kevin, none of this is aimed at you which is why I didn't quote your post. I am just speaking in generalities.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
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