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Taking a Trading System Live
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Taking a Trading System Live

  #11 (permalink)
Market Wizard
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Minimum Funding Size

At this point, I have figured out 1) that I will begin live trading my failed Combine NGEC system and 2) I will quit trading if my single contract drawdown hits $5,000. Now, I will determine account size.

This point is pretty important. Too little capital to start, and I may run out of $$ before the quitting point. On the other hand, too much capital and I will have a lower rate of return, as well as an inefficient allocation of capital.

Currently, the exchange initial margin on Euro currency is $2,750. So, add this to my "quitting point" drawdown, and I get $7,750. This is the minimum account size I should start with. This will allow me to trade up until my max drawdown is reached.


A couple of important points to consider:

1. I am assuming my broker requires exchange margin, even for day trading. If I had access to day trading rates, I could get by with less.

2. Margins can and do change. If the exchange required margin goes up, I may be forced to stop trading before hitting my quiiting point.

3. I am assuming that I am trading a single contract all the time.


As it turns out, I will want more than $7,750 in my account, for position sizing reasons. I am going to use $8,500, for reasons that will be revealed in the next few posts, which discuss position sizing.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #12 (permalink)
Market Wizard
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System Is Turned On

I did turn on the NGEC system (2 strategies) today, but so far no trades.

My plan will be to show account updates every week, or when something interesting happens.

I still have a bunch of topics to cover in the meantime, so I'll be posting those in some sort of logical order.

One interesting thing already occurred - I had to change the code a bit to handle order placement. It doesn't impact results, but it could have had I not fixed it. That is one of those "have to be live to witness it events." There is another one (rounding issue) that I also have to track down and debug. I will describe these issues as we progress.

Of course, if you have questions, criticisms or comments, please feel free to contribute. If this is to be a good forum thread, it has to be clear what I am doing and why. Politely challenge me, and I'll return the favor.

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  #13 (permalink)
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Your last combine seemed to suffer from discretionary decisions on sizing because the first couple of times you ended up with losing trades on increased size.

I am still trying to understand how you intend to approach sizing this time, and how you have backtested that portion of the equation.

Thx for taking the time to document your process.

Mike

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  #14 (permalink)
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Big Mike View Post
Your last combine seemed to suffer from discretionary decisions on sizing because the first couple of times you ended up with losing trades on increased size.

I am still trying to understand how you intend to approach sizing this time, and how you have backtested that portion of the equation.

Thx for taking the time to document your process.

Mike

Good question, and I will post answers in my next 2 posts about position sizing. It will definitely be simple, and easier to follow than my Combine position sizing. During the Combine, in a futile attempt to maximize profit, I generally sized each trade as large as I possibly could. That led to changing size practically every trade. It was unique position sizing based on the Combine requirements, and I would never recommend it for a normal account.


Preview answer: Fixed fractional sizing

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  #15 (permalink)
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kevinkdog View Post



As it turns out, I will want more than $7,750 in my account, for position sizing reasons. I am going to use $8,500, for reasons that will be revealed in the next few posts, which discuss position sizing.

Some math to consider:

I took the annual return for 1 contract based on your reports and adjusted it for your position size.

Making the assumption that you have about a 50 – 50 split between the 2 systems with a 100K you will return $4780 per year. [(2890+6670)/2]

Based on your account size of $8500 it seems you are willing to risk $5000 to return $4780. A risk return of about 1 to 1 or no better than a coin flip.

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  #16 (permalink)
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deaddog View Post
Some math to consider:

I took the annual return for 1 contract based on your reports and adjusted it for your position size.

Making the assumption that you have about a 50 – 50 split between the 2 systems with a 100K you will return $4780 per year. [(2890+6670)/2]

Based on your account size of $8500 it seems you are willing to risk $5000 to return $4780. A risk return of about 1 to 1 or no better than a coin flip.

Let's say I started a business with unlimited personal liability and a projected 5-year average income after tax of X=$25,000,000/year, using Y=$5,000,000 of my personal savings out of my total net worth of Z=$100,000,000.

You're saying that my risk-reward ratio is Z/X, which is worse than a coin flip. Right, that's technically true... but that's as good as saying that everyone has a risk-reward ratio of infinity since the worst case loss is dying from pulmonary embolism since sitting behind a computer screen to trade for too long incurs such a possibility.

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  #17 (permalink)
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deaddog View Post
Some math to consider:

I took the annual return for 1 contract based on your reports and adjusted it for your position size.

Making the assumption that you have about a 50 – 50 split between the 2 systems with a 100K you will return $4780 per year. [(2890+6670)/2]

Based on your account size of $8500 it seems you are willing to risk $5000 to return $4780. A risk return of about 1 to 1 or no better than a coin flip.


Thanks for the analysis. Your assumptions, unfortunately, are off the mark, and that is leading you make some faulty conclusions.

1) The 2 strategies in the NGEC system are independent, and never trade at the same time. So, their net profit results are additive, not averaged. They are described here (strategies #1 and #2).

2) The performance reports time period (used to calculate annual return and annual profit) include some "start up" data, which is used to calculate indicators, etc. So, the annual profit in the strategy report is off the mark. That is one reason I don;t rely on annual numbers given in perf report - they can be misleading. The reality is the first trade date is 7/28/09. Counting results from then until 8/16/13 yields 4.05 years. $49,317 (from the performance reports earlier in the thread) in profit during this period divided by 4.05 years is $12,177 average profit per year.

3) So, following your analysis, I'd be risking $5,000 to make $12,177, or a Reward:Risk of 2.44. But this isn't a true reflection of the Reward:Risk of this system, since I am not going to quit if/when I hit the average profit of $12,177 (Think of my system as a "trade." In that respect, the stop loss of this "trade" is fixed at $5,000, but the profit target of the "trade" is unlimited, which makes Reward:Risk unlimited). The reality is that I can risk $5,000 of capital, and possibly have a 1 year reward much greater than $12,177 ( per contract). It could also be a lot less , too.

The true reward:risk of this system can be calculated by Monte Carlo analysis, by taking the median annual return divided by the median maximum drawdown. I will be presenting this very soon, I promise. I have already completed the analysis before I started live trading - I just have to document it.

Thanks again for the question.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread

Last edited by kevinkdog; August 19th, 2013 at 03:48 PM. Reason: spelling, grammar, I need an editor
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  #18 (permalink)
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artemiso View Post
Let's say I started a business with unlimited personal liability and a projected 5-year average income after tax of X=$25,000,000/year, using Y=$5,000,000 of my personal savings out of my total net worth of Z=$100,000,000.

You're saying that my risk-reward ratio is Z/X, which is worse than a coin flip. Right, that's technically true... but that's as good as saying that everyone has a risk-reward ratio of infinity since the worst case loss is dying from pulmonary embolism since sitting behind a computer screen to trade for too long incurs such a possibility.

Good explanation. I was having trouble thinking how to best explain it.

I wish I had your "Z" value of net worth!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #19 (permalink)
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Just wanted to say that I have a mechanical system that I am also working on, and after doing significant walk forward testing on it, it is now in its incubation period but I am also asking many of the questions you are going over in this thread, it is highly informative! Thanks for keeping this on the forum!

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  #20 (permalink)
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Trader Chris View Post
Just wanted to say that I have a mechanical system that I am also working on, and after doing significant walk forward testing on it, it is now in its incubation period but I am also asking many of the questions you are going over in this thread, it is highly informative! Thanks for keeping this on the forum!

Thanks. Please feel free to share whatever you are doing, and of course your comments, questions.

I should point out that the process I am laying out here is just how I do things. I can't say it is the best way, or the optimum way. I could be doing this all wrong, but then that could make for an informative thread, too.

It is different than I did things a few years ago, and may be different than I do things a few years from now.

I hope that by seeing how at least one person does it, people reading may get some do's and don'ts they can apply to their own trading.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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