Dr. Toad's Journey to Bankruptcy or Financial Freedom

This is a discussion on Dr. Toad's Journey to Bankruptcy or Financial Freedom within the Trading Journals forums, part of the Reception category; Originally Posted by tar He's thinks that shorting is safer hence there are no black swans to the upside . ...

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Old Aug 16, 2015, 12:39pm   #17
Joined Jul 2015
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Originally Posted by tar View Post
He's thinks that shorting is safer hence there are no black swans to the upside .
OK, I stand corrected, positive black swans are not unheard of. But really I do not think that shorting is safer and if you read what I wrote instead of latching onto one incorrect statement that would be very clear...

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Originally Posted by Dr. Toad View Post
I am aware that by the very nature of short sells I am exposing myself to infinite risk in a black swan event but I believe an upside black swan is probably close to unheard of with regard to stocks. If the strategy I outlined above proves practical, then really I will have no need for short sells, so I can mitigate even this hopefully.
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Old Aug 16, 2015, 6:09pm   #18
 
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Personally I think you have far too much going on.

Way too many stocks to screen, and far too many "systems" or set-ups.

Strip it all away, simplify


And if i may make a suggestion, if you can afford it, or when you make some money in your main account, open a second account with money you're prepared to lose, and start risking 10 or 20% per trade.
That will sharpen your thought process rapidly
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Old Aug 16, 2015, 7:37pm   #19
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Originally Posted by rathcoole_exile View Post
Personally I think you have far too much going on.

Way too many stocks to screen, and far too many "systems" or set-ups.

Strip it all away, simplify
I completely agree with you there. The main reason for the large number of systems I have been testing is I am still very new to this so I am still trying to find something that works for me.

The systems I have looked at so far which meet this are:
  1. Pangolin-Z
  2. Aroon Cross
  3. Channel & Line
  4. Probability

I tested out the Pangolin-Z for a month and it proved to be profitable. In addition it underwent extensive backtesting by the creator and has been profitable since the live testing of it began back around 2013 (not by me).

I am comfortable trading the Aroon Cross. This is easily manageable since it is more of a typical investment strategy with a simple trailing stop and target profit. I intend to continue using this per my original plan. Whether it will be profitable remains a bit of a mystery but I won't really know that for a year or two due to the nature of it.

The channel and line I believe have merit but I am not comfortable trading these yet. In order to get comfortable I believe I will need to paper trade these so I can get a realistic expectation of win-loss and profit potential.

I am comfortable trading the Probability system after fully vetting it. This one requires a modest amount of effort as I will need to verify the stocks I am following are good ones weekly. That is about a 2 hour process if adding to the list and more like 30 minutes if just updating target buy and profit takes, so not to bad.



My plan going forward is this:

Thoroughly test the Probability system (give it a full month unless it is clear beyond a doubt that it is not working as it should).

Manage the Aroon Cross trades I have open, and continue with this strategy (go in on a new one after one closes and I have a buy signal).

If after a month the Probability system is not working to my satisfaction, I will likely revert to the Pangolin-Z system with my live account and start paper trading the Line & Channel strategies. If the Probability system is working to my satisfaction I will maintain the Probability and Aroon Cross systems as the main ones I will use in my account.

Two (or potentially three) systems is all I intend to use going forward and I don't forsee myself developing any others from square 1.

Quote:
Originally Posted by rathcoole_exile View Post
And if i may make a suggestion, if you can afford it, or when you make some money in your main account, open a second account with money you're prepared to lose, and start risking 10 or 20% per trade.
That will sharpen your thought process rapidly
This is actually why I started with live testing using a fraction of my intended trading capital. Sure I am losing money...it is enough that I am rather quickly re-evaluating and now thoroughly vetting my strategies, but it is not enough to break me or give up yet. It is also exposing me to some nuances that I do not think paper trading would have.

I will be ramping up my trading capital a bit over the next couple of weeks since I will now be classified as a "pattern day trader" and will legally need more in my account. I probably won't go in fully for another month or two though.
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Old Aug 22, 2015, 6:38pm   #20
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Dr. Toad started this thread Over the course of this week I have reviewed my initial analysis of the high probability trade system and have revised how the system stats are derived somewhat based on what I feel is the most likely price action scenario. This decreased the systems probability of success, but I feel it is more realistic. I also went through and optimized each stock in the system and then re-ran the study.

The reworked stats for my system are “correct” except for during the development, which target (sell or buy) was hit first was not a factor. It is simply too time consuming to look at this for each individual stock in the system. As it is, it takes about 30 minutes to optimize one. When I re-ran the study, I was using a basket of 9 stocks which I selected from the 19 I optimized. Now that I know what I am looking for with this, I have gone back through and have an additional ~80 potentials which I will probably narrow down to about 30-40 total after optimizing.

The following is the results for the revised study:

The base stats of the stocks in the system are:
  1. Average % win = 70.48% (stocks range between 67.31% - 74.19%)
  2. Average win = 0.81% (stocks range between 0.69% - 1.00%)
  3. Average % loss = 29.52% (stocks range between 25.81% - 32.69%)
  4. Average stop loss = 0.96% (stocks range between 0.72% - 1.26%)
  5. Average maximum % stop out = 12.39% (stocks range between 3.85% - 17.46%)

I have looked at this in three ways, one being using purely the averages, one being using worst case scenario stats (i.e. using the lowest % win, the lowest win, the highest % loss, and the highest loss), and what I (being delusional) believe to be the most likely outcome.

For the average and worst case studies, I considered all losses to be at the stop out % and all wins to be at the win %. The stats I am using for my delusional study which I am using as the target metric are a 65% win rate with a 0.9% gain, and a 35% loss with a 0.56% decrease. The 0.56% decrease was derived from assuming 15% of the time I get stopped out at a stop loss of 0.9%, and all other losses average to a 0.5% decline.

The following table summarizes all results for the outcome probability of just below 50% (i.e. the actual outcome will most likely be that shown in the table or better). The returns shown are assuming compounding.

Click the image to open in full size.

My basic plan for how to manage this strategy is as follows:
Monthly:
  • Search for new potential stocks and optimize them
  • Re-optimize stocks that are below the trade basket threshold but still have potential

Weekly:
  • Verify the statistics of the stocks in the trade basket have stayed at an acceptable level. Drop them out of the trade basket if they are no longer at the required levels.

Daily:
  • Look at the stocks in the trade basket and rank them by the most probable ones to have an up day based on end of day charts.
  • Select the top 10 and verify there are no obvious issues with trading them the next day. Basically check it isn’t an earnings report day and verify there are no recent bad news items with them.

Stocks will be put in my trading basket if 3 of the 4 criterion are met (or if 2 of the 4 are met with a third that is not too far off):
  1. Probability of success > 65%
  2. Probability of stop out < 15%
  3. Target gain > 0.7%
  4. Target loss < 1.00%

In total this means I will have to dedicate about 45 minutes daily, 5 hours weekly, and 15 hours monthly to maintain this strategy. That is approximately 40 hours a month…getting in the realm of a part time job. If this strategy proves it has merit I will look at automating the optimization process for each stock since that is really the only major time sink with this technique.


I believe I have convinced myself that this strategy has a positive expectancy and an edge, but really the only proof of this is actual results. So, I present the actual results thus far of this strategy. I will be tracking this strategy using my actual wins and losses with commission included and assuming pure compounding each time. I have included my metric and worst case results in the graph as well since I expect my actual results to fall somewhere in the middle. Also I know that if my actual results dip below the worst case I need to re-evaluate. Once I have more data I will revise my metric to better fit the actual results and will use that to determine if something is wrong in the system.

Click the image to open in full size.

Some stats on the actual trades:
  • # wins = 4, average win % = 0.725%
  • # losses = 3, average loss % = 0.537%
  • Probability of outcome based on metric stats = 53.23%

The take away of this so far is that really there is no conclusive proof of success or failure of this strategy yet. More data is needed to validate or refute it.
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Old Aug 29, 2015, 2:01am   #21
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Dr. Toad started this thread I am keeping my update short this month as I have already gone over most of the items in detail. The main problem with this month was testing out to many things at once as pointed out by rathcoole_exile. Although this is the case, I do believe I would have ended the month profitable had the market not entered a death spiral. My profit/loss curve is shown below which highlights this.

Click the image to open in full size.

The loss on all of these trades I had going comes to around $750, but really the loss was more since all of the trades were in profit at the time. Any loss sucks, but I am pretty sure I fared better than a good number of people who had mostly long position open. All of this is really just making me like the day trade strategy better. Being down $1,000 does suck a bit, but keeping things in perspective this is about what I have saved in lifestyle changes from when I started, so I'm not losing sleep over it.

The losing is getting a bit discouraging, and if I have another month of losing I may be re-evaluating my foray into trading and determine if it is really worth my time. Although I do find the market fascinating, if you suck at something, you certainly can't do it for a living. I do believe I am able to "see" where the market is going better now than when I started which will help my day trade strategy. This is the only thing I will be using going forward...at least for the time being especially since I see the market continuing on down in the near future.

I do not believe the market going down or up makes much difference to my day trade strategy, the main thing that will be the death of it is high volatility. For that reason I opted to stay out of the action Monday through Thursday this week. So, I only have one more trade to add to my Probability strategy stats which now stand at:

# wins = 5, average win % = 0.728%
# losses = 3, average loss % = 0.537%
Probability of 3 or fewer losses in 8 trades based on metric stats = 42.78%

Still to early to conclude much of anything other than it has made me more money than lost me to this point.
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Old Sep 3, 2015, 5:00am   #22
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Dr. Toad started this thread So I tried a more normal daytrade today in my frustration with the system that I am trying out. It is starting to look like it is not much better than throwing a dart blindfolded...still to early to conclusively say that though. It is slow at the office now so I could do a bit of babysitting my trade...you can witness my awesomeness below.

Click the image to open in full size.

So, I am 2 for 2 (+0.15 and +0.14). If only I had the foresight to trade 10 million shares on one of those, then I would have made an easy 1.5 million or 1.4 million, no sweat. Forget that I would have needed 2.25 billion dollars to execute it and needed to trade 10% of the stocks shares...those factors are irrelevant.

On a bit more serious note though, it does seem that trends always break down right when I enter them (talking about the 2nd entry here as the 1st was not exactly trend based). I should not have raised my entry for the second trade, but I still feel that around 225.10 would have been a justified entry...still...dropped like a rock right after my entry both times, and just about dropped to the point I would have taken my loss at both times. Then to top it off, a nice up trend starts shortly after I exit...both times. Nothing points out how much you suck more than entering right before a drop and exiting right before an upswing. Oh well...managed to get out with no harm both times...still very frustrating though.
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Old Sep 3, 2015, 5:42am   #23
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I do believe I am able to "see" where the market is going better now than when I started which will help my day trade strategy.
sounds dangerous.

Do you know @darktone? He knows nothing and seems to do ok.
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Old Sep 4, 2015, 1:20am   #24
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Originally Posted by paszkman View Post
sounds dangerous.

Do you know @darktone? He knows nothing and seems to do ok.
Like the chart. Good to know I have progressed to the "I'm an expert" phase. I don't feel like I have made much progress, but perhaps lurking in the hind site trading thread has improved my skills more than I thought.
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