Mechanical Trading Intra Day

This is a discussion on Mechanical Trading Intra Day within the Trading Journals forums, part of the Reception category; Lets start with 20k Capital which is about what most new traders start with and see how we get on. ...

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Old Mar 19, 2008, 2:09pm   #11
 
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Equity update

rdstagg started this thread Lets start with 20k Capital which is about what most new traders start with and see how we get on.
So March 18th we have $21,992.

I will talk about portfolio position sizing at a later date but for now lets go to 1 contract per instrument.

I know you can't trade real time 1 contract with all these instruments - margin is too great but I base my drawdown, etc on that amount. You need around 70k to comfortably handle this portfolio r/t.
My max drawdown allowable is 35%. (of 20k)

My portfolio consists of YM,ES(removed as of today and replaced with SMI),EMD,ER2,Dax and ESTX50 .

I have finally taken the plunge and removed ES as my strategy just does not work with it. I have battled with it for 4 years and finally I admit defeat.
I think it's because it's too mean reverting. Trending strats just don't work with it - well not for me anyway.

Last edited by rdstagg; Apr 17, 2008 at 9:52am.
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Old Mar 20, 2008, 3:58pm   #12
 
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Wow what a day

rdstagg started this thread March 19th Profits Portfolio Gain +6,180
Equity Now 28,172 (40.86%)

SMi -1,030
YM +1,165
EMD +1,580
ER2 +1,580
Dax + 2,225
ESTX50 +660

Ok this is a little unfair but you have to take the good times as well as the bad!
March 19th was a 6% day - that is profits like this have only happened 6% of the time before - hope that makes sense!

We removed ES yesterday and replaced it with SMI - consequently the Gods of trading gave me a $1600 profit in ES and a loss of 1030 in SMi - ha I spit in their faces!

Everything else just swam along with the tide.

Biggest problem trading today - hanging on and not taking profits early. Hence a system.

Next post I will talk about taking this to the next stage with proper position sizing!
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Last edited by rdstagg; Apr 17, 2008 at 9:51am. Reason: Error in Equity % corrected
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Old Mar 21, 2008, 1:00pm   #13
 
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A Game of Two Halves - March 20th

rdstagg started this thread Ym +750
EMD +550
ER2 +560
Dax -1525
ESTX50 - 410
SMI -550
Net -625
Portfolio Equity 24,725 **

Another interesting day. Smi continues to suck money out of us - yet again the ES performed really well but we weren't in it.

Benefits of a little diversification came into play in reducing our losses considerably.

It was a "game of two halves" with Europe losing all the money and the USA trying to give some of it back.

** I have changed the portfolio start date slightly by 1 day to include a loss of 2,925 on day 1.
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eq-20-march.png   march-20.png  

Last edited by rdstagg; Apr 17, 2008 at 9:50am. Reason: Change Title and tidy up
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Old Mar 21, 2008, 6:25pm   #14
 
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Pos Sizing Chapter 2

rdstagg started this thread Ok so we all understand Fixed Fractional position sizing - where we place contracts/shares risking a fixed fraction (eg3%) of our capital on each trade.

The problem comes when you increase contracts because you can only trade whole contracts. So you must jump from 1 to 2 to 3 etc. You can't trade 1.57 contracts (unless you spread bet for example). If it is 1.57 do you trade 1 or round up to 2 - hopefully you see the issue.
If the day you go from 1 - 2 contracts and it's a loser you have just doubled your loss. Next trade you go back to your fixed fraction of your new lower capital.

Sounds so simple doesn't it?

Variations on this theme include Fixed Ratio by Ryan Jones and Secure F which is a variant of Vince Ralph's work. Google this stuff on the web and read books about it because it is essential to understand.

For this exercise I will outline my Pos sizing technique on the next blog.

Last edited by rdstagg; Apr 17, 2008 at 9:45am.
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Old Mar 25, 2008, 6:06pm   #15
 
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Easter Monday

rdstagg started this thread Ym -110
Er2 +240
EMD +20

Net : +150
New Equity 24,875 Single 25,055 Pos Sizing*

No European Indices were open but USA indices were frustrating for my system.
Discretionary Breakeven exit on YM only because it was late in the day and I did not want to turn a profit into a loss. Reported as a loss however.
ER2 at least gave me some money for the day again with the same principle in mind. Failure to match / make a new high followed by a break of the recent pivot low.
Pics show coded system as I have never been able to code a proper breakeven exit without at least some human input!

PS* Will explain my pos sizing on this system further in another blog - just did it over Easter and put it into spreadsheet. Pink coloured column is Single lot equity for comparison.
Poor Mathemagician has got hit for 3 losses just after he increased his contracts which really hurts - lets hope our system can get over this little hurdle.
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Last edited by rdstagg; Apr 17, 2008 at 9:44am. Reason: Added PS & URL
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Old Mar 26, 2008, 8:49am   #16
 
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A mistake already!

rdstagg started this thread March 25th
Ym -490
EMD +130
ER2 +30
Dax -1,000
SMi +10

Net -1,550 Equity 23,325

Well., actually 2 mistakes.
Firstly I used the wrong Position sizing column in my spreadsheet which is now corrected.
However the Dax trade above includes the addition of 1 contract which is what I had calculated the day before. So a 500 loss turns into a 1,000 loss.
No point in hiding it - these things happen and we must move on.
The correct contract number is now in Column Q shaded Dark Grey in the spreadsheet. It remains at 1 .

Second mistake was not exiting this trade on the double bottom. I wasn't here so that is some excuse but feel that if I had been a timely and graceful exit here would have saved 500-600 of that loss if not more.
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Last edited by rdstagg; Apr 17, 2008 at 9:44am.
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Old Mar 26, 2008, 10:02am   #17
 
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Arriving at my position sizing

rdstagg started this thread Take the worst drawdown of your portfolio that you can find. Multiply that by 50%.
Add a contract each time you increase your equity by that figure PER CONTRACT.
Worst case for my system is 16,880 but I am going to use 10.900 (prev years worst case) so the 50% fig is 5450. I do this because of the removal of ES which has been such a dog these last 4 years for my system.

This is classic Ryan Jones Fixed Ratio trading.
However this is inefficient beyond a certain point - (How to calculate that is for another blog), suffice to say that beyond Contract 9 we move to Fixed Fractional trading.

End result - we change to 2 contracts per instrument when equity reaches 25,450, 3 when it hits 36,350.

Lots of people have a go at the fixed ratio MM and there are better systems out there (have to have some secrets!) but it really is quite good provided you understand it's logic and use it correctly.
I would stress in my view the only time you should use it is when your account is relatively small.
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Last edited by rdstagg; Apr 17, 2008 at 9:43am.
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Old Mar 26, 2008, 10:07am   #18
 
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"Take the worst drawdown of your portfolio that you can find. Multiply that by 50%." Why? Thanks! jj
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Old Mar 26, 2008, 10:12am   #19
 
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rdstagg started this thread Well that's what Ryan Jones says in his book and it seems to work quite effectively.
As you may know he uses Delta to increase contracts and there is a direct relationship between delta and drawdown of 2:1 in my example.
Therefore you know at any point in time that should you suffer a maximum drawdown you will only go down 2 levels of the ladder. ie if you are trading 4 contracts you would return to trading 2 contracts, 10 contracts would revert to 8 and so on.
There is a safer option of using 75% of Max Drawdown as the figure but I have never run into any real problems using 50%.
I would add that there are all sorts of twists you can do to this once you get into it.
The problem with fixed fractional (at the beginning of trading) is that geometric growth is maximised with high percentages but risk is reduced with low percentages. Fixed Ratio requires few actual profits at the beginning (so it's more "efficient" at adding contracts) but more and more profits (in absolute terms) as contracts are added; which is why at contract 9 we should move over to pure Fixed Fractional money management because at that level with that equity the max drawdown I should suffer is 25% of capital.
But I intend to outline the maths for that a little later!
Hope that explains.
Hope that makes sense.
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Old Mar 27, 2008, 12:20pm   #20
 
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The rot sets in

rdstagg started this thread March 26th

Ym +5
ER2 -680
EMD -650
Dax - 675
ESTX -220
SMI -320
Net - 2,540 New Equity 20,785

Everything is highly correlated in this system and this is one of the prices you pay.
Good demonstration of what I call the Nick and Run - it just nicks your entry, runs away and "nicks " your money.
Discretion tells me to exit this real quick - Big vol, nasty spike bar ( I think some people call them pin bars?) and crucially your loss is relatively very big very quickly which causes people to hesitate in taking the loss. If I feel that 'panic' its the clincher for me to exit.
Lets keep to the system however and report the full loss.
We are now almost back to our start equity - isn't trading frustrating?
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Last edited by rdstagg; Apr 17, 2008 at 9:43am.
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