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Taking a Trading System Live


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Updated January 6th 2016 by tturner86
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Taking a Trading System Live

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  #371 (permalink)
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kevinkdog View Post
Not silly at all, you bring up a perfectly valid question. Earlier in the thread I explain why I chose the position sizing I did, and basically up front I wanted to add a second contract as quickly as possible, after some reasonable profits were achieved.

You have hit on the flaw with the position sizing I am using - it is a straight calculation going up and going down. So, when I am over $10,140, I go from 1 to 2. If I fall back below $10,140, I drop from 2 to 1. This means that first trade after adding a contract has to be a winner, or I'll have to drop back down.

The alternative to this is to have 2 calculations - one for going up, and 1 for going down. In this case, maybe I would add 1 contract at $10,140, but stay at that level unless equity falls below $9500 (or some other number). Obviously, I'd have to adjust both numbers to meet any risk limits.

I have done exactly this with other systems, but I tried to keep things really simple in this case. That is not looking to be a good decision!

Thanks for the comment. You brought up a great idea!

I have found if I make a mistake on the first trade or two, if I have the room to make the third / next trade I usually do very well. Being able to survive to take the best trade is really helpful. Just like baseball, you may miss a swing or two but you should learn about the pitcher from each miss.

Not talking about home runs, but again sometimes just a solid line drive can save the day.

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  #372 (permalink)
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tihfa View Post
sounds to me your stop level for single individual trades is not adjusted based on some price action behavior and/or price structure but perhaps some type of MAE statistics including TopStep and personal account money availability?

if your stop loss amount cannot be modeled/"explained" through price 'action' then you will have frequently have MAE cases outside your static constant x sigma???

in any case, if this has been working out in your other models then like we established in prior discussions, then it is expected to see drawdowns and flat periods based on your historical curves. your true performance then is only to be accounted for over years not months.

tihfa


Yes, the stop for this system was not based on any price action or price behavior, except for volatility to a degree (if the volatility was really low, the stop would probably be below my 34 tick limit).

You bring up a good point!

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  #373 (permalink)
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I would look at the maximum number of losses in a row historically, and make the decision based on derivative of that (threshold + cushion).

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  #374 (permalink)
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Big Mike View Post
I would look at the maximum number of losses in a row historically, and make the decision based on derivative of that (threshold + cushion).

Mike


For the overnight system 3 losses in a row was the max, and for the day system, 5 losses in a row.


When I get some time, I probably will do a study of this sort of dual direction position sizing. The trick will be keeping it relatively simple.

Thanks to @tturner86 @tihfa and @Big Mike for the discussion!

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kevinkdog View Post
For the overnight system 3 losses in a row was the max, and for the day system, 5 losses in a row.


When I get some time, I probably will do a study of this sort of dual direction position sizing. The trick will be keeping it relatively simple.

Thanks to @tturner86 @tihfa and @Big Mike for the discussion!

Also just because you can trade the two, doesn't mean the current trade in front of you should be traded with 2 cars.

The way I am currently looking to increase my position size is: I will still enter the trade with my one contract and scale the second one in once price confirms the direction I am wanting. Or if I enter with 2, and my first contracts target is hit, my stop for the second goes to B/E until it's target is hit. Again which way I go will depend on what the market is doing and how much I can risk for the trade or the day.

I am still reading through your thread to fully understand your method, so my comments may not apply to you.

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kevinkdog View Post


The alternative to this is to have 2 calculations - one for going up, and 1 for going down. In this case, maybe I would add 1 contract at $10,140, but stay at that level unless equity falls below $9500 (or some other number). Obviously, I'd have to adjust both numbers to meet any risk limits.

I have done exactly this with other systems, but I tried to keep things really simple in this case. That is not looking to be a good decision!

Thanks for the comment. You brought up a great idea!

Position size increase suggestion;


The system seems to depend on a lot of small wins and the occasional homerun. Losses for the most part are larger than the wins. So even if you have a couple small wins right after you increase size a max loss will knock you back to one contract. What are the odds of hitting a big win right after you increase your position size?

With a starting capital of 8500 and quit point at 5000 you can withstand 8 max losses in a row.

At 10150 you can withstand 8 losses if you take 3 losses at 866 then revert to 433 max loss.

When you talk you are only repeating what you already know. When you listen you might learn something new
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Week 24 in The Books

Annualized Return = 23.7%

Max Month End Drawdown = 7.3%










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Position Sizing on The Downside

To make a long story short, I have incorporated some hysteresis in the calculation for number of contracts. This allows some leeway (losses in equity) after you add a contract before you drop down to previous level. I should have included it from the beginning.

The method is this:

As I hit new equity highs (UP), I use the original calculation method

As I fall back on the equity curve (DOWN), I adjust the number of contracts down more slowly than I added them going up.

The net impact of this is that I increase drawdown, and also increase median annual return. A fair tradeoff in my mind.

See details below...












So, as an example right now, I have fallen down the equity curve, after hitting 2 contracts maximum. So, I will stay at 2 contracts until I hit either $15,171 (when I will add a 3rd contract), or until I fall to $8,778, at which point I will drop back to 1 contract.

I basically can have 3 max losses in a row (-$1335 per contract and still trade the same size.


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kevinkdog View Post
GRRRRRR
So, after finally increasing account equity enough to jump from 1 contracts to 2 contracts (per the plan), this week I have been ready to trade 2 contracts for any trade, at long as my equity stays above the predetermined cutoff point.

Last night I took the week's first 2 contract trade. Guess what happened?


Of course, a full size loss occurred.


What makes it even worse is that I was 1 or 2 ticks from hitting my profit target, before price dropped, hitting my stop (but turning around only a few ticks lower) and then zooming up past where my profit target was! See the chart below.

Once again, I am left feeling like the market is out to get me...

Next week will probably be back down to 1 contract again.

(....)

Why would you care about the outcome of one trade? I can recall from earlier in this thread that you concluded, after multiple trades, that it was much too soon to abandon the strategy due to the low sample size.

So why is a sample size of 1 now given so much weight? Do you think this strategy suits your personality and trading style?

Edit: Just wondering how you perceive trading this system. As an outsider, it seems to me that you like the system (since you're trading it), but on the other hand you seem pessimistic about your own strategy and think the market is still out to get you. In such a case, it seems hard to me to confidently trade.

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Jura View Post
Why would you care about the outcome of one trade? I can recall from earlier in this thread that you concluded, after multiple trades, that it was much too soon to abandon the strategy due to the low sample size.

So why is a sample size of 1 now given so much weight? Do you think this strategy suits your personality and trading style?

Edit: Just wondering how you perceive trading this system. As an outsider, it seems to me that you like the system (since you're trading it), but on the other hand you seem pessimistic about your own strategy and think the market is still out to get you. In such a case, it seems hard to me to confidently trade.

You have pointed out something interesting. Although I believe in the system, and feel it fits my personality (or else I would not be trading it), I have found it an odd coincidence that at many times when one would expect the system to do well (first trade, first trade with adding on size, etc), it has failed.

Of course, the system (and the market) doesn't know when I went live, and it doesn't when I add size, and it doesn't know when I have order issues. But it sure seems it does, since most major milestones have yielded losers.

That's what I wanted to share with people. Most everyone has had the feeling of the market out to get them, and felt really disappointed when one particular trade was a loser. Discretionary traders probably know the feeling well, but the same feelings and emotions can be felt with an algorithmic system (which doesn't really seem possible).

A lot of people think algo systems are a way to avoid emotions. Unintentionally, I'm giving examples why emotions are still a part of automated trading.

Thanks for bringing this up. You made a great observation!

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