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V Modus' ESA Trading Journal V1.0


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V Modus' ESA Trading Journal V1.0

  #1 (permalink)
 
vmodus's Avatar
 vmodus 
Somewhere, Delaware, USA
 
Experience: Intermediate
Platform: MultiCharts
Broker: Barchart.com
Trading: Everything, it all tastes like chicken
Posts: 1,271 since Feb 2017
Thanks Given: 2,958
Thanks Received: 2,853

So today is my first day trading my first formal rules based (mechanical) system. I've been a pretty successful speculator scraping the bargain bin as a value trader, but nothing to make a living on, especially on this incredibly long bull market. My heart is in futures, though this system is not built for futures (though backtesting shows it could work).

This system is a derivative system from a system my wife, a futures trader, developed. It is hard to describe, but I use triple moving average (TEMA or TRIX, if you prefer) for entry and stop loss point calculation. I basically spent about 3 weeks developing, backtesting, and forward testing the system. At this point, this system is quite different from hers, as I was looking to get something implemented as quickly as possible. It is essentially an end of day system.

I built a database that allows me to do a large volume of backtesting over a 12 year period (2005-present). This backtesting allowed me to test through the housing crisis, flash crash, and stocks that were bearish, bullish, and ranging. The database also allows me to produce a daily End of Day Trade Suggestions report, which provides my new stops for the next day on existing trades, plus potential trades to enter for the next day.

I am trading two Coverdale ESA accounts (in the US, this is a custodial account for education expenses for children, with tax benefits) on this system. The key requirements for my system were:
  1. Able to setup at the end of day, or before next trading day; I can't and don't want to be a day trader at this point
  2. Can only take long positions (broker restriction)
  3. Entry order expire at end of day
  4. Must be low maintenance; no more than 1 hour per day to maintain
  5. Allow stops to serve as market exits

My process is as follows:
  1. Import end of day data into the database (NASDAQ and NYSE, select equities)
  2. Calculate trade suggestions and generate report
  3. Record the day's entries and exits into my trading log
  4. Load the top suggestions into my trading log (an Excel workbook) and prioritize suggestions based on volume, risk, and other factors
  5. Set position size for orders (following Van Tharp's suggestions) and record emotions and other thoughts that might cloud my judgement
  6. Create orders

I don't babysit the orders, but rather trust the system. I even wrote it on my hand so that I don't get emotional about anything that might happen. The average time in market for any given stock is 7 days, so I just need to be patient and let it run.

I'll update this periodically as the system runs. I liquidated all positions I had open this morning, so I'm starting fresh and fully funded. I will review the system after 30, 60 and 90 trades, as I will have a large enough sample size to assess the system's health.

My main issues now are:
  • How to get my data more efficiently, including calculating my indicators
  • The inability to set my stops until an order is confirmed (current broker is of the 'buy and hold' variety, so we will change brokers eventually)
  • And about a 100 different improvements I want to make to streamline the process.

So that's where I'm at. I have to be very patient, calm, and trust the system. Any feedback is welcome!

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  #3 (permalink)
 
vmodus's Avatar
 vmodus 
Somewhere, Delaware, USA
 
Experience: Intermediate
Platform: MultiCharts
Broker: Barchart.com
Trading: Everything, it all tastes like chicken
Posts: 1,271 since Feb 2017
Thanks Given: 2,958
Thanks Received: 2,853


So I'm not even through my first day and had my first surprise. I was placing my stop-limits for the entries that were made, when I was warned that if the stop-limit was filled, I may be in violation of the Federal Reserve free-riding regulation (T).

It caused a little initial concern (panic is probably too strong a word), partially because of how my strategy for trading is laid out. The last thing I need is The Man gettin' me down. After reading through the finer details, I realized I will be okay. Basically, because I unloaded all of my securities at the beginning of the day, the cash is not available yet from those sales, and I was potentially entering new trades with unsettled monies...essentially creating a credit (as in borrowing money) situation. That is where the Federal Reserve comes in.

Anyhow...breathing a little, I will be okay. The main thing is I just cannot flip through a lot of equities with quick turnaround. Thankfully, as mentioned in my initial post, the average number of trading days in a given equity is 7. I will need to keep on eye on my cash balance to assure I can have both my stops and open orders covered at the same time.


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  #4 (permalink)
 
vmodus's Avatar
 vmodus 
Somewhere, Delaware, USA
 
Experience: Intermediate
Platform: MultiCharts
Broker: Barchart.com
Trading: Everything, it all tastes like chicken
Posts: 1,271 since Feb 2017
Thanks Given: 2,958
Thanks Received: 2,853

Since running into the Regulation T issue, it has been a lot of wait and see. I'll be able to safely work with my stops tomorrow, but one equity has gone rogue and I can't get out until Thursday. That's okay, because of how I manage my position sizes. It just is not the way I wanted this week to start. It is what it is and I won't cry in my coffee about it.

What I did today:
I didn't want to, but I traded anyhow, as I had signals to enter. I placed my limit orders and am watching them. In this system, affectionately code-named Pinako, orders get filled only between 33-50% of the time. Once I settle into a rhythm, in about a week or two, I can stop babysitting. Since this is a new system, I want to see how trade execution is going with this broker. I have been getting favorable entries thus far.

What I did right:
  • Managed my emotions, stuck with the plan.
  • Trusted the system
  • Monitored the system to make sure execution
  • Added some tools for streamlining my end-of-day and beginning-of-day (pre-market) activities
.

What I did wrong
  • Checking intraday P/L. I mean, what's the point of that? It does nothing, it is not needed, and provides temptation to deviate from the system. I don't consider myself up or down until I exit a trade. And speaking of:

My current closed P/L is -$7.26 after commissions. This is good, as it shows that my risk management is working. It only reflects one position, so we shall see what it looks like after the first 30 positions have been closed.

That's it for today. Going to assemble some lunch and find something else to do other than obsess over open orders and positions.

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  #5 (permalink)
 
vmodus's Avatar
 vmodus 
Somewhere, Delaware, USA
 
Experience: Intermediate
Platform: MultiCharts
Broker: Barchart.com
Trading: Everything, it all tastes like chicken
Posts: 1,271 since Feb 2017
Thanks Given: 2,958
Thanks Received: 2,853

I haven't posted in a few weeks as I've been exceptionally busy. But I'm closing this particular journal/diary because the system I built didn't fail. I'll explain why.

So my trading was going as planned, good entries, safe exits, but nearly all trades were losses. I had what amounted to a 2/13 win/loss ratio, nowhere near what I should have been getting (50/50). You can flip a coin 13 times and get 13 tails, but it is unlikely. Rather than pile on the losses (I was going to evaluate the system after 30 trades), I just stopped all trading on this system.

I went through and tried to figure out why backtesting went so well, but live trading failed. (Yes, I know, this has happened to other traders a million times). My backtesting method had a flaw that was taking entries that wouldn't have happened. I even backtested manually, but I must have been doing the same thing.

I'm disappointed, but not unhappy and I'm actually relieved. It was killing me knowing that my system was failing with no apparent reason. My Pinako system is dead.

There are some positives to take from this:
  • I made a couple of common mistakes that I won't make again (riding a loser, bad entry, not following my system.....I know better)
  • I identified these mistakes and didn't make them again on later trades
  • I've built a database and technical framework for generating trade suggestions which is very fast and powerful... assuming my backtesting is correct.
  • I've built processes around trading which minimize the time needed (1-2 hours per day, from start to finish)
  • I've been able to prove I can handle the psychological aspect of trading, especially because of the constant losses

Now I'm building my next system, code-named Hughes and based on Hull moving averages. Initial results are encouraging, but I have development work and a ton of testing to do to determine which method produces the statistically best results. Once I am live trading with that system, I will open a new journal thread.

As the great Stan Lee says....

Excelsior!

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Last Updated on March 23, 2017


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