Only you can answer that. I know how much I am willing to lose per day and stop after that. In my case I do stop after three losses. The maximum I can lose a day is if I start with the three losses. Otherwise I can have W, W, L, W, W, L, L and I am out with 4 winners and 3 losses. This also forced me to be more selective and I rarely have more than 5 trades a day.
What I did was manually backtesting and documented all the trades for a period of 6 months and then use this data to calculate results for different scenarios, for example:
Stop after 2 losses in a row.
Stop after 3 losses in a row.
Stop after 2 losses total for the day.
Stop after 3 losses total for the day.
Stop after x wins for the day
Stop after x trades for the day.
etc...
What I found is that stopping after 3 losses for the day resulted in the best results for me. I also don't want to lose more than twice on one day what my average winning day is. For example if I know my average winning day is 20 ticks, I don't want to lose more than 40 in one day. That way I know I can make it up after two winning days. If you allow yourself to lose 100 ticks a day, you will need 5 winning days in a row to break even again. I find this depressing to know I just blew a whole week or more of profitable days in one day. You might be ok with that. You just need to decide what you are comfortable with.
If you want to evaluate your peformance, you cannot add or remove rules every day depending on how the day went. Before you know, you end up with something completely different than what you started off with and you decide that the system doesn't work and off you went to the next one and you repeat the process all over.
Of course, this is just my opinion. In end you have to do what feels right to you and what someone else tell you to do.
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I agree. Create your plan. Then, follow it every day and grade yourself on how well you followed it. Do not grade yourself on profit/loss, rather if you have a rule "only trade in direction of sma 21" then grade yourself A-F on how well you did that today. Same for your over trading rule (3 trades per day), grade of A-F for following the rule.
Then at the end of a two week period, you are allowed to make 2 and only 2 changes to your chart/rules. If you change from SMA 21 to SMA 50, that is one change. If you change from 6 range to 6 renko, that is one change. Keep the changes minimal and gradual so can you have a chance to properly evaluate how they are effecting your trading.
Once you start to master portions of your plan, you can move on to new areas after identifying your weakest points to focus on, which will be apparent after re-reading your journal every week or two.
Three losing trades in a row are as much as I should stomach, because any more, and I begin to revenge trade, which has no limits. That said, I will defer this new rule until the end of the two-week Sim trading period, as you suggested, Mike.
With respect to grading myself, I will use a Pass/Fail grading system as I already harbor a lot of judgement surrounding my trading capabilities.
Today, I passed. I did not take a single trade on the Sim. I watched the charts like a hawk and observed my feelings when I wanted to take a trade but hesitated. Someone on MWinfrey's thread, I forget his name, said he keeps a journal close by his side and records how he feels when he enters a trade. I would like to do that, too.
In addition to watching the CL chart intently I rewrote my rules to be coded for an automated strategy. I was amazed how quickly and clearly and confidently I was able to commit those rules to paper, quite succinctly, I must add. The experience made me realize that my chief trading issue is executing the trade as I see it setup. I'm simply not quick enough physically. I'm unable to react with the speed that the situation demands. Additionally, my confidence is lacking.
But today I give myself a passing grade for being aware that I was unable to act sufficiently quickly, and once I missed those real setups I didn't manufacture trades setups that weren't on the chart.
Great day and very much looking forward to having an automated trading strategy.
Site Administrator Swing Trader Data Scientist & DevOps
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I strongly encourage you to take the automation slowly. If you are like most people, you will jump head first into the automation process and start cranking out dozens of changes, adding "filters". Take it extremely slow, remember that backtesting is basically worthless in terms of the net profit result and is really only useful in terms of "did the strategy do what you thought it would on this bar?"....
My advice would be to not pursue the automation route and just focus on discretionary trading. But that's just me. There are plenty on the forum who disagree with me. Anyway, good luck with it -- and I encourage you journal about it and any changes you make to it for the same reasons you would do so for a discretionary journal.
Much appreciation for your thoughts about the minefields I can stumble into. I kind of intuited that I could fall into the trap you describe and for this reason have limited the entire strategy to thee moving averages. Even though I'd like one other indicator to keep me out of the "chop" limiting the trading hours might be a solution. I'm keeping the strategy simple because I do not know better or more. So my lack of experience and knowledge may actually help me out here by not cluttering the automation with indicators. Also, I believe the simplicity will increase the probability that the programmer will successfully create an automation that is able to, as you say, "do what you thought it would on the bar" and what I can't do quickly enough.
I will continue to document my progress in both automated and my discretionary trading as you suggest. Your encouragement is more than words can say. Thank you.
