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A Random Walk Stopped: My Journey to find the balance between Stoploss/ProfitTarget
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A Random Walk Stopped: My Journey to find the balance between Stoploss/ProfitTarget

  #21 (permalink)
Elite Member
Fort Collins, Colorado
 
Futures Experience: Intermediate
Platform: NT7
Favorite Futures: ES
 
Posts: 57 since Feb 2011
Thanks: 48 given, 43 received

Day 4 Results

--4 days have gone by for my monthly journal, and it is having several effects on me that are not apparent from the topic selection of the last 4 days. Although I have so far limitted the scope of the journal to a Stoploss study , I have been more honest with myself about my other results as well. It is as though the idea of writing publicly causes me to go focus on all of the details more clearly.
.
--One of my biggest difficulties during trading is that I often get stressed during the "calm before the storm." I enter a trade on a signal, and if it doesn't materialize quickly, I start to second guess the decision. Frequently, the market will encourage my doubt by slowing to what feels like a stop, and then suddenly surging the opposite direction. I pull the trigger to exit the trade or tighten my stop until it is hit, and just seconds later the market rips off in the direction of my original signal. This seems to trap me more than it should. Of course, when I adapt a few trades later and wait to enter, the market immediately takes off when the signal comes and I miss the trade. So, not wanting to fight the market all day, I get the idea to just widen my stops and leave them. The next trade is about as predictable as you can imagine. I enter the trade, stay firm to my wide stops, and the market never even starts in the right direction, hitting my wide stop and leaving me rocking in the corner staring at the screen and drooling.
.
--I know I sound like a pessimist describing a Murphey's Law scenario, it really has happened that way. Maybe it is more common then I suspect, but it has been a bane to me for a long time. So, that is the plan behind the journal. I have come to believe what I have read so many times, that the money management of trading is more important than the signal/system itself. Now, I have to find what trade management will work for me.

Michael H. - Thanks for reading. I will be interested to see if you are right, since running with the trade and stopping it out early is the method I have tried to employ most often. The 8 trades so far, and the backtesting (not accurate) have both shown the tight target method to do better, I'll have to keep it up for a while.

The Results
Narrow Target/Wide Stops - Total to date: + $23.90/ ct
.
-116.70 AM
+40.80 PM
.
Wide Target/Narrow Stops - Total to date: -$68.60/ct


-$49.20 AM
+ $120.80 PM
(see spreadsheet and chart for entries and exits)
.
Wide stoploss took another big hit today, so even though it has a 6:2 win ratio, it is only marginally up.
Wide Target is now 2:6, but a PM trade win brought it back to within striking distance.
Keep in mind that both trades are always in the same direction, so the diametrically opposed results very much support at least short term randomness in the market.
.
I will continue on the present configuration this week, but I will add a second contract with wider stops and targets. In theory, if it is only short term random behavior, and the market does in fact have a tendency to trend, the wider spread will allow the Wide Target/Narrow Stops method to pull ahead, even in a randomly placed trade. I will keep the ratio at 2.5:1, but I think that doubling the stops would run the risk of not being within the afternoon range before close. So, the targets will be
ES 4/10 ticks and 6/15, and YM 9/23 and 14/35
.
.
--Long post today, but I also have a question for anyone who happens to be reading this, and who also trades the TF. I am thinking of doing some trading in the TF, since the movement seems to be wider in a daily range, and it may have a better tendency to trend then YM or ES. I am curious how the bid/ask spread has looked over many months, as I have only just begun to watch it. If anyone has a comment on fills and slippage, I would welcome that to. I am a small position trader, rarely carrying more than 3 or 4 contracts, so I believe the liquidity shouldn't be too much of a problem. Any ideas are welcome.

Thanks for reading. Looking forward to Monday...

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A Random Walk Stopped: My Journey to find the balance between Stoploss/ProfitTarget-mar-4-journal.png  
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  #22 (permalink)
Elite Member
Fort Collins, Colorado
 
Futures Experience: Intermediate
Platform: NT7
Favorite Futures: ES
 
Posts: 57 since Feb 2011
Thanks: 48 given, 43 received

Short twice today

Go Short at 9:00 CST
Go Short at 14:26 CST

AM
ES Narrow stops
Contract 1 10:4
Contract 2 15:6

YM Wide stops
Contract 1 9:23
Contract 2 14:35

PM
ES Wide stops
Contract 1 4:10
Contract 2 6:15

YM Narrow stops
Contract 1 23:9
Contract 2 35:14

format is Profit Target:Stoploss


Last edited by fctrader; March 7th, 2011 at 12:03 PM. Reason: Removed Smiley
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  #23 (permalink)
Elite Member
Fort Collins, Colorado
 
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Favorite Futures: ES
 
Posts: 57 since Feb 2011
Thanks: 48 given, 43 received

Results for Mar 7 & todays coin toss


The Results
Narrow Target/Wide Stops - Total to date: - $64.50/ ct

.
+40.80 AM
-129.20 PM
7 wins : 3 losses
.
Wide Target/Narrow Stops - Total to date: -$172.00/ct
.

-$54.20 AM
-$49.20 PM
2 wins : 8 losses
(see spreadsheet and chart for entries and exits)

--Both random strategies went in the red today. The wide stop method got killed in the afternoon when the market was against it, losing an additional tick from slippage, and starting to finally show the problems of having wider stops then targets.

--The narrow stops is showing a persistent problem as well. It just doesn't give the market room to move, even when it is in the direction of the trend.

--I am tallying the results of the new system with more room to breath and run, and will add a spreadsheet tomorrow, but so far, after 2 trades, the Narrow stop method is up $84.10, and the wide stop method is down $125.90. Each have one loss and one win.
.
Today's Coin Toss
Go Long at 9:10 CST
Go Long at 14:28 CST

AM
.
YM Narrow stops
Contract 1 23:9
Contract 2 35:14

ES Wide stops
Contract 1 4:10
Contract 2 6:15

PM
.
YM Wide stops
Contract 1 9:23
Contract 2 14:35

ES Narrow stops
Contract 1 10:4
Contract 2 15:6
.
(Target:Stoploss)





Attached Thumbnails
A Random Walk Stopped: My Journey to find the balance between Stoploss/ProfitTarget-bmt-mar-7.png  
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  #24 (permalink)
Elite Member
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Gut-wrenching trading

Sorry for the late post today. The trades for yesterday and today's session will be posted in the morning. It's been a stressful 24 hours, so the journal took a back seat.

Choppy trading today. Hope it went better for some of you then for me. Not a loss, but painful trading none the less. I think I will branch out on the journal entries and discuss one of my toughest trading issues tomorrow. I have a hard time taking a small loss, and it leads me to take a large one at times. Today, it came back, which was probably negative reinforcement, since it didn't have to, and it would have been a crippling loss if it hadn't.

The fact is, I've been a winning trader over the years, not huge, but in the black. However, I have had intratrade drawdowns that make me want to puke . I generally have been "right" about the direction of the market, but my entries leave me sitting and stressing, and by the time they go in my favor, I'm so happy to get anything that I cut my profits short. I know this will be the death of my trading career if I don't fix it, and that is my goal here.

More about this new confessional tone tomorrow when I post the test trades.

Good night.

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  #25 (permalink)
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  #26 (permalink)
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Thanks for the suggestion Mike. I haven't listed a history here so far.

When most kids are dreaming of being a fireman, astronaut, pilot, or movie star, I am not kidding when I say that I always wanted to be a trader. Instead of Monopoly, my dad used to play an old game called "Stock Market" with me when I was about seven, and we would trade shares of Alcoa and Standard Oil and a few dozen others. It was the best thing I'd ever seen. I started investing in stocks in 1986, and have continued to have a portfolio of some stocks since then. I changed over to mostly index funds and ETFs in the early part of the 2000s.

I started trading futures in 1992 after reading an all-hype, you can pyramid your way to millions course from a guy in a cowboy hat. Unfortunately, the premise of the course was that the most rudimentary 1-2-3 patterns and chanel breakouts were the holy grail to trading commodities, and the money management plan was akin to betting on a roulette wheel, and doubling up everytime you won. After just a few double ups, I'd be richer then Buffett!

Geared up with this newfound knowledge, I blew my first account in about a summer, and took several years off of commodoties and futures. I toyed with options in the late 90's, (I already discussed one of the programs I read, earlier) and realized the real money was in selling them, but that I wasn't capitalized adequately to do that, and although I could do it, I didn't enjoy the math involved, even with a spreadsheet. So I went back to trading futures, this time with Man Financial (now MF Global). The trading was in the black, but the commisions were killing me.

So, in the early 2000's, I traded futures with Tradestation/RJ Obrien. The commisions were much better, and the trading wasn't bad, but I never had a great love of stop-losses. I tended to have "mental stops", which I have since decided is just about as good as "no stops". After a while, the stress of my trading highly leveraged contracts took a burden on my wife. She made me promise that I would quit while my son was at home since I tended to be something of an a-hole when I had a bad day. Nothing physical, just your run-of-the-mill a-hole.

I fly airplanes for a living, so I focused on that for a while. Now, I'm tired of the travelling, and I want to be working out of my home, and I am returning to something that I know and love, and that I haven't had a losing year in since 1992. Only, this time, I'm going to do it "right". I plan to focus on money-management as much as I have on the market. As yet, my biggest problem is that when I use stops, I lose money, and when I don't, I generally make money. This tells me that I need a better understanding of stops. Hence, the journal.

So..... when I say that, "I have a hard time taking a small loss..." what I mean, is that I'm a type-A never want to lose SOB, and it pisses me off to lose a trade. I don't mean that I can't take a small loss from a financial perspective. In fact, I am working on learning how to hit the "close" trade button, and using NT7's ATM strategies. So if anyone has a stop system that works for them, I am all ears. I have been reading the Hurley system, and have been experimenting with it, and derivations of it, in a sim account.

And when I say "I know this will be the death of my trading career if I don't fix it..." what I mean is that if I don't learn how to take small losses, some day, that leverage that I love is going to kick my #$*; but I would not want to leave futures, as they are my favorite financial instrument.

Long story short, I've traded a lot, but I still have bad habits. So, if I ask newbie questions, or sound like a moron, forgive me. It isn't for lack of experience, but out of my desire to re-invent my trading, so that maybe I can do this full-time, and not as a hobby. I find that if I ask questions of one real person, I learn more than reading a dozen books by Murphey, Schwager, and Douglas. (maybe because I already read those!)

Good night again.... and thanks again for putting up this great resource Mike.


Last edited by fctrader; March 10th, 2011 at 01:51 AM. Reason: spelling...and swearing :)
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  #27 (permalink)
Just starting out...
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stop losses

Hey fctrader,

I realy enjoyed reading your post. Trading can be realy hard on our families, especially the bad days, lol.
As far as stops are concerned I devoted and continue to do so a lot of time to compling my trade statistics.
I started with about 4-5 signals and after 8-9 months of keeping stats narrowed it down to 2-3 signals.
Other than entry time, price, top/bottom of the candle ( i trade range bars ) I keep MFE (maximum favorable excursion ) and MAE max adverse excursion . In order for this to make any sense you need to state what is the max. pain you are willing to consider on each trade/signal. Hence, if 70% of the trades that turned out to be winners never took more than 7 ticks of pain, what is the point of keeping your stop at 12. If you dig deeper in your stats you can find out what would have happened if you did increase your stop to 12. Would the increase in number of winners compensate for the size of the losses? I will not attempt to convince anyone that this is the best method, but what it did for me is to convince me logically what works and what does not over large number of trades, so I can keep my emotions as much as I can out of trading.
To summarize, in order to set my targets/stops as well as trailing stops I use statistics collected earlier combined with support/resistance.

Hope that helps,

Th

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