OK, it looks like I am set for my next Combine, starting next week. I am going to do the $150K, 20 Day Combine this time, since getting funded at $30K (assuming I pass) just would not make sense for me.

I am going to be trading 4-5 unique strategies. From this point forward, I'll probably refer to them as my "Combine System," and the individual strategies I'll call "Combine Strategy #X." So, the 4-5 strategies make up the whole Combine System. Hopefully that will make the journal easier to follow.


Here are short descriptions of each strategy:

Strategy #1 - trades overnight. High win %, small wins.

Strategy #2 - trades day session. Goes for big wins, holds profitable trades until 3 PM ET. Primary money maker.

Strategy #3 - trades late day. High win %. Does not trade frequently.


Theses first 3 strategies are the exact same ones I traded in Combine #1. They really started to do well after the Combine was over (isn't that always the case?). I do not trade these with real money yet, but I may start in Fall (these are currently in "incubation.")

Strategy #4 - a brand new strategy that I have traded with real money for a few weeks. It is mainly mechanical, with some discretion involved (for example, when does one leg end, and another start?). I actually trade the same approach on EC, ES GC, and CL. This strategy will just trade EC.

Strategy #5 - depending how things go, I may need to add another strategy (if strats 1-4 don't trade enough days, or if they do not give enough profit). If that happens, I may trade strat #4 with CL or GC. I'd prefer to avoid this, since then I have to worry about satisfying more metrics for the additional instrument.


For position sizing, I am going to employ an intraday adaptive position sizing technique. That is a fancy way of saying I will be doing some things to maximize the profit, while still respecting the Daily Loss Limit and Max Drawdown rules. For example, I'll start each day with a base of 6 contracts. That will keep me out of harm's way with the Daily Loss Limit. Let's say my overnight trade is a winner. In that case, trades the rest of the day will be with 6-10 contracts, depending on the stop loss for those trades. In all cases, I will still respect the DLL.

My goals for this Combine:

1. Pass the Combine, or at least avoid a spectacular failure!

2. Continue test drive "incubation" of strategies 1-3, to see if I should allocate real money to them

3. Hopefully pass along some words of advice to newer traders



Here is the performance chart I will be using. I expect to be around the navy blue line, but of course there will be a lot of variation in my actual equity curve.






I plan on posting updates every day I trade, and maybe some posts in between to discuss a trading related topic.


Please feel free to post questions, comments, criticisms, etc.

Great stuff, totally looking forward to your Combine.

Kevin, just an observation about your plan.

I would probably scrap Strategy #1, because there is a 99% chance they wouldn't let you trade it Live. It is overnight trading and my understanding is that they probably only let very senior traders to do that, if at all. It also doesn't give too much to your bottom line, so unless you just want to test it (but you already did that) there is no point in running it.

Also you could go over the other strategies and see if they somehow violate their rules (or rather preferences), like averaging down for example. Again, averaging down is a viable strategy if used in a restricted way, but they wouldn't let you trade that way Live, so there is really no point in using such an approach in a Combine...

Otherwise good luck....

Kevin,

Good luck on your next combine!
Will you be trading 6-10 contracts per strategy or 6-10 contracts total anytime of the day?
In other words it was not clear to me if multiple strategies could have working orders at the same time...

Since I started Combine #2 tonight, after this post I will only be posting those results.

So, here is the final chart for Combine #1 (thru trading day 20), and the month or so since then (up to June 15, 2013).

I will still be tracking this for my own benefit, since I may trade these with real money soon.

For what it is worth, if I had to decide today whether or not to trade these with real money, I'd probably say "not yet," even with the excellent recent performance. Why? Well, for the first 25 days, the combined strategies underperformed my expectations by quite a bit, and for the past 10 trade days, those same strategies have radically out performed expectations. I don't like trading based on extreme behavior like this - I'd like to see it more closely mimic the navy blue "average" line.

So, I'll give it more time, and see what happens...

With only about $2,500 left before the max drawdown is hit, I will be trading only 3-4 contracts for the next few trades, until (and if) I get some cushion.

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

Fixed fractional?

Mike

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

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.

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

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.

Hi Mike -
Can you explain this comment in more detail? Are you referring to maybe turning on and off an algo system via discretion, or that how discretionary systems could be a ton better than this algo system, or something else entirely?

Thanks

Kevin, I meant the discretion in when to turn a system on or off, when it starts or ends, whether to stop it after a run up and wait for a pullback, whether to continue it after a drawdown, etc etc.

All discretionary decisions and ones that traders will deal with, usually in the wrong way, in my experience. I think this thread is great and that it shows how traders should be dealing with all those issues, more or less collectively called consistency, and how to measure it.

In other words, you are doing a good job

Mike

The flip side to the argument about when to start trading a system is that "it should not matter."

Can I take a trade that loses $500 during the trade (which would take me under the max drawdown equity limit), but then closes with a profit? That answer might change how I work in "survival mode."

So, I feel bad I did not take it, but then again I don't, because my objective right now isn't passing the Combine, or making winning trades - it is surviving to fight another day.

Before I go further with calculations, does anyone know ( @Pedro40 probably knows) if they turn you off at the max drawdown for open trades, or just on a closed trade basis? For example, let's say I have $145,501 in equity ($1 above "kill" point). Can I take a trade that loses $500 during the trade (which would take me under the max drawdown equity limit), but then closes with a profit? That answer might change how I work in "survival mode."

Doesn't really make sense, but that is how it works....

Hmm.

I would feel bad.

I am just an outsider looking in, so take that with a grain of salt naturally. But, it seems to me the strategy was overleveraged from the start which is causing these issues.

Being forced to skip a trade because of risk management, account sizing, etc, is a flaw in the original strategy, in my opinion. And trying to cherry pick which trades are worth taking, trying to manipulate the size of the trade on the fly, etc -- well, none of it was part of the original backtest, based on my understanding. So you are greatly altering the results.

If I can be so bold, and hopefully not piss you off because I like you, this thread, and want you to come do more futures.io (formerly BMT) webinars --- I think the issue here is a bit of ego. You have a sense of needing to prove yourself publicly and don't want to fail a combine. This is affecting your decisions.

Normally, I am all for public accountability. Most people in that situation are struggling traders that need the accountability to stop making really stupid decisions (to be frank). But in this case, I think you are a good trader already, and are feeling some pressure to publicly demonstrate that, which is leading to some bad choices.

I hope it somehow helps.

Mike

It has to simply be a loophole due to technology implementation on the reporting side.

With only about $2,500 left before the max drawdown is hit, I will be trading only 3-4 contracts for the next few trades, until (and if) I get some cushion.

The first thing I notice is that your losing trades are bigger than your winning trades. To me that is lack of risk control.

The second thing I notice is whether you have the discipline to follow your plan.

On June 17 you wrote.
It looks like you traded 6 contracts the next 2 days. I’ll admit I just browsed quickly over the thread but did you comment on the change of plan.

Is there a planned risk reward ratio for your systems?

That being said, you are now down to 14 days remaining. You have to gamble.

I’m not familiar with the combine rules but does it make any difference if you hit your max drawdown or if you finish a few dollars short of your target?

Thanks for the comments - it helps keep me accountable. Here are some replies...




I'm not sure why you say that. Would winning trades > losing trades imply I did have risk control? I don't think that is necessarily true. Can you explain?

If you read through the thread, you'll see I have followed the plan pretty much exactly. I have made mistakes, and the plan might have flaws, but I have followed it. I think the one thing I do have is discipline. Maybe I am wrong, though - where do you see holes in my discipline?

No, since I am trading 4 strategies, all with different characteristics. Some are little profit, big loss (to get high win %). Others are big win, little loss (to get max profit). They all have positive expectancy, though




The Combine is 20 trading days MINIMUM. So no need to gamble. I agree it will be hard reaching the profit target trading small size. Even as it gets towards the end, I won't gamble - what is the point? That won't prove my strategies are good - it will just prove I can violate my plan.

Yes there is a difference. If you violate the max drawdown, you FAIL. If you are above the max drawdown, but negative, you FAIL. If you are positive but under the profit goal, you can ROLLOVER (try again).

I agree the goals are VERY tough. That is why I took the challenge when TST approached me about a webinar. Even though I am doing poorly so far, I really enjoy the challenge of the Combine.


Thanks again for your comments. I hope I answered sufficiently. If not, just let me know,

Relating to my own trading. I find that if I keep my winners greater than my losers I end up profitable. I’m neither a futures nor a day trader. I look for 1 to 3 risk to reward.

Like I said it was a quick glance and it was the first thing that I noticed. When ever I see a losing trader that is usually what stands out, big losses and small wins.

How many days can you trade?
You might want to consider a gamble as you get near the end if you are not profitable. If you fail by not being profitable then what do you have to lose?

Is there a reason that you use 4 strategies? Are there not enough set ups with just one strategy in the time allowed?

... I find that if I keep my winners greater than my losers I end up profitable. I look for 1 to 3 risk to reward.

Like I said it was a quick glance and it was the first thing that I noticed. When ever I see a losing trader that is usually what stands out, big losses and small wins.

I also noticed that one of the additional performance requirements are for an overall average win being greater than the overall average loss. I would think this would lead to a consistence position size. I should also take the strategy that has a few big losses and many small wins out of play.

You might want to consider a gamble as you get near the end if you are not profitable. If you fail by not being profitable then what do you have to lose?
The plan for completing the combine profitably should probably trump following your trading plan. Depends on your objectives I guess.

So far so good, but.....

.... I have observed is that this ALWAYS backfires.

I am still of the opinion that good trading and adhering to the process of trading well keeps you afloat instead of trying to beat parameters. This is assuming that your process has already been tested and found to be adhering to the parameters of course!


And I can vouch for @kevinkdog's iron discipline - he is my role model as far as discipline is concerned!

So far, my position sizing technique has made my performance worse. That makes sense, since most of my losing trades had 3 or 6 contracts, and most winning trades were only 1 or 2 contracts.

Yes, if you were to reprogram your strategy to duplicate your behavior here it would undoubtedly perform worse.

I've found that any momentum or trend strategy always performs worse with stops or dynamic position sizing (such as anti-martingale, decreasing risk on trades that go against you, increase on trades in your favor).

So question is, what will you do about it going forward - now that you are back to breakeven?

Mike

How do you determine your position size?

Do you have a formula that calculates the size depending on what you perceive as the risk?

Because of the Combine constraints, I am doing something a lot different than if this was a real money account:



Based on the stop size I am using ($425 per contract), for a $150K starting equity Combine...

>=$150K -- 6 contracts

<$150K -- 1-5 contracts depending on how close I am to the max drawdown limit ($145,500)


There are also a few little contingencies that I won;t bore you with (for example, how does size change if I take 2 trades in 1 day?)

So your risk as a percentage of your account is 0.28% per contract and if you trade 4 contracts it is just over 1%?

Your max drawdown is 3%. So 3 losers in a row with 4 contracts and you're out of the game?

You haven't mentioned strategy, but is there a reason why $425 per contract is your risk?

I ask this because I don't have a defined dollar risk when I trade. (Stocks not futures) I use a percentage of my account, determine the risk per share depending on where I enter and place my stop and calculate the position size based on the percentage of my account.

When I developed the strategies I use, I allowed up to $425 per trade loss (leaving room for slippage and commissions, for a total per trade loss less than $500). It turns out that $425 had the best performance.

Is that $425 per trade or per contract.

Enjoyed your interview on TST, Kevin. Have you considered the issue that once you pass combine with your overnight systems you won't be able to trade them in LTP and Junior trader phases? They only allow to trade from 7 AM to 3:10 PM CST.

Have you considered adding size as equity shrinks?

Your aim with trading size off the get go is to maximize profit. What about minimizing your losses?

There is a calculated stop of $425 a contract. The starting size is 4 contracts. If you take a loss on the first trade then size is reduced. Lets say to 3 contracts, then 2, then 1 and there is a deep hole to dig out of. 3 losses in a row almost takes you out of the game. Even with a win on the 4th trade you are still in trouble. In the 4 trades you have traded 10 contracts.

Trading those same 10 contracts in reverse order; start with one and got to two if you have a loss, then 3 then 4. After taking 4 losses in a row you’ll be in the same position that you were if you start with 4 and work your way down to 1. The difference is that if you get a win in any of those 4 trades you are back to even or close to it.

I know that doubling down is a terrible idea for your own account but for a combine where you are out of the game after a very limiting max draw-down it might work. Minimum size can be increased as the account grows.

You haven’t addressed the risk reward ratio of your strategies. Are you expecting the wins to be much larger than the losses? Do you have stats on a per contract as opposed to a per day basis?

Sort of. First the max drawdown is calculated based on starting equity, not peak equity. So the requirement is really never to have closed equity drop below $145,500. I could theoretically run equity up to $300K, and then have a drawdown of $100K, and not violate the rule.

So, the 3 losers in a row would just be at the start, or any time I had $150K or less equity.

BUT, I'd never trade 4 contracts all the way down. I'd reduce to 1 contract to maximize my chances of staying in the game.

If equity <= 150000 Then lotsize = 1

If equity > 150000 Then lotsize = 2
If equity > 152000 Then lotsize = 3
If equity > 154000 Then lotsize = 4
If equity > 156000 Then lotsize = 5
If equity > 158000 Then lotsize = 6


Add Size - 3 to 6 model

If equity <= 150000 Then lotsize = 3

If equity > 152000 Then lotsize = 4
If equity > 154000 Then lotsize = 5
If equity > 156000 Then lotsize = 6

Have you considered adding size as equity shrinks?

Your aim with trading size off the get go is to maximize profit. What about minimizing your losses?

There is a calculated stop of $425 a contract. The starting size is 4 contracts. If you take a loss on the first trade then size is reduced. Lets say to 3 contracts, then 2, then 1 and there is a deep hole to dig out of. 3 losses in a row almost takes you out of the game. Even with a win on the 4th trade you are still in trouble. In the 4 trades you have traded 10 contracts.

Trading those same 10 contracts in reverse order; start with one and got to two if you have a loss, then 3 then 4. After taking 4 losses in a row you’ll be in the same position that you were if you start with 4 and work your way down to 1. The difference is that if you get a win in any of those 4 trades you are back to even or close to it.

I know that doubling down is a terrible idea for your own account but for a combine where you are out of the game after a very limiting max draw-down it might work. Minimum size can be increased as the account grows.

You haven’t addressed the risk reward ratio of your strategies. Are you expecting the wins to be much larger than the losses? Do you have stats on a per contract as opposed to a per day basis?

I missed that this is how the draw down was calculated for the combine. I have been trying to calculate what sizing I should use to ensure I don't hit the daily loss limit and this changes the calculation once again.

Thanks for pointing this out


I also like your analysis on position sizing as I'm trying to work through this for my coming combine too.

@deaddog -

I haven't tried this approach, mainly because I do not know what exactly you'd like to do on the upside. Do you want to add a contract at every $1000 gain in equity?

Yes, what TST calls a "drawdown" in NOT the traditional definition of a drawdown:

Drawdown - uses peak equity for calculation

TST Drawdown - uses initial equity for calculation


TST's drawdown should more accurately be called "Drawdown From Initial Equity."

I think really it is the Ruin amount, the way I've understood it anyway.

Risk of Ruin I'd like to start a discussion on Risk of Ruin. The general concept of a Risk of Ruin analysis is to determine if you will go bust over a statistical number of trades. For example you may have a probability edge of 65% but after factoring commissions, …

Mike

It will depend on the R/R ratio to some extent. How much do you plan to make for your $425 of risk. It would also depend on the expectancy of the strategy and the frequency of the trades.

I would increase size when I could have 4 losing trades in a row and not put myself out of the game. Once you are over the initial capital you increase your size so that after 3 losing trades you are still in a profit position.

You go to 2 contracts at initial account size plus 6 times your risk per contract.
You go to 3 contracts at initial account size plus 9 times your risk per contract.

Once I increase size I would also change my position size calculation.
If I’m trading 2 contracts I would stay at 2 after the first loss the increase to 3 then 4.
If I’m trading 3 contract then I would stay a 3 after the first 2 losses then increase.

The reason I keep asking about R/R is that I’m assuming that the strategies employed will produce bigger wins than losses.

In theory with a 1 to 1 R/R you depend on the system having more wins than losses and requires either a large number of trades or more dollars be risked per trade. A R/R greater than 1 to 1 means you can take fewer trades or risk less per trade.

Kevin, I commented on this thread after seeing your performance on the fist few days. I’m new to futures.io (formerly BMT) and didn’t realize your credentials. I am appreciative that you are even taking the time to respond. Thanks for humoring me.

It will depend on the R/R ratio to some extent. How much do you plan to make for your $425 of risk. It would also depend on the expectancy of the strategy and the frequency of the trades.

I would increase size when I could have 4 losing trades in a row and not put myself out of the game. Once you are over the initial capital you increase your size so that after 3 losing trades you are still in a profit position.

You go to 2 contracts at initial account size plus 6 times your risk per contract.
You go to 3 contracts at initial account size plus 9 times your risk per contract.

Once I increase size I would also change my position size calculation.
If I’m trading 2 contracts I would stay at 2 after the first loss the increase to 3 then 4.
If I’m trading 3 contract then I would stay a 3 after the first 2 losses then increase.

The reason I keep asking about R/R is that I’m assuming that the strategies employed will produce bigger wins than losses.

In theory with a 1 to 1 R/R you depend on the system having more wins than losses and requires either a large number of trades or more dollars be risked per trade. A R/R greater than 1 to 1 means you can take fewer trades or risk less per trade.

Kevin, I commented on this thread after seeing your performance on the fist few days. I’m new to futures.io (formerly BMT) and didn’t realize your credentials. I am appreciative that you are even taking the time to respond. Thanks for humoring me.

Hi



Some of the things I have to do with a Combine, that I don't do with real money:

1. Small per contract per trade loss ($425 before slippage and commissions)

2. Daily loss limit

3. Trade 1 strategy almost entirely because it has a high win percentage (in order to meet the Combine win % goal)

4. Trade another strategy in order to ensure I have 20 trading days in a 2 month Combine

5. Position sizing based on a very small initial equity drawdown (ruin point).

The list could go on, but you get the idea.

I guess the point is that you have to trade to the rules of the "game" whether the game is a Combine, trading your own money, trading in a contest, trading friends and family accounts, etc. All of those "games" will have different rules, and the key is to trade so that you don't fail any of them.

I tried to implement your idea the best I could. Here are results:




Your scheme does a really good job at avoiding ruin, but not so good a job at passing the combine.

So, I made one modification - I kept your downside scheme, but made the upside scheme such that once I had positive equity (>150K), I "floored it" and put on 6 contracts.

Here are those results. Not a whole lot different than what I am using (Cut Size 6 to 1). "Deaddog Modified" has better chance of not failing, but worse chance of passing.:

Thanks for the work. I guess I won't be applying for a combine anytime soon.
Firstly I'd have to master trading futures and secondly I'll wait until winter when I don't mind sitting inside all day. Might be an interesting way to test a strategy.

Why are you limiting yourself in this manner? Increase your stop size per contract and decrease your position size. It's a percentage of capital at risk that should matter. Doesn't it come back to risk reward per trade?
Do you not have a daily loss limit trading your own account? How do you handle multiple losses on the same day?
. Trading a strategy that has small wins and big losses will probably get you in trouble considering the size you want to trade. Are you risking more than your calculated reward to show more wins than losses?

I would think you'd have to have a minimum of 2 strategies even in your own account. 1 for trends and 1 for chop.

Consider that this is set up to take other peoples money. Were it your money I was trading where would you draw the line. Isn't the first rule of trading to cut your losses short?


The thing with the combine if I understand correctly is that you don't fail as long s you are profitable. You don't pass but you are still in the game.

The short answer to your replies is that most of these things occurred because I created a brand new trading system specifically for the $30K Combine, which I am still using here, just with position sizing.

What makes you think those strategies will work on a 150K combine when they only had a less than 50% probability of working on a 30K combine?

With a 20 day 30K you are only required to make 7% of initial capital. With a 20 day 150K you are required to make 11% of initial capital. The requirements are 50% higher for the 150K.

The max drawdown is 5% of the initial capital for 30K and 3% on initial capital for 150K. Again the requirements for the 150K are much greater.

3 or 4 trades, 2 mistakes made which kind of balanced each other out. But overall another losing day...

I apologize for this thread turning into more of a joke ("like you'll ever pass this Combine! Ha Ha Ha!") than an inspirational journey to Combine victory...

BUT, there are still plenty of days left, and you never know what might happen!


Happy 4th of July everyone!

Hey, it is no joke.

Here is the fact: in order to be a good trader, you have to be great at losing!

Even if you do fail this combine the thread is still full of extremely valuable information. And thanks to the research and number crunching you've done, you already knew your chances were less than a "sure thing" to pass the combine.

So I don't want you to get discouraged. First, you are helping many others by showing them "the other side" of algorithmic trading. And I don't mean the losing side at all --- what I mean is the research and analysis side that is outside and completely disparate from any kind of code to buy and sell. This is the side that so often is completely disregarded by most algo traders, and frankly the side that makes all the difference in my opinion.

So keep going, don't get discouraged, and good luck!

Mike