Mechanical Trading Intra Day

This is a discussion on Mechanical Trading Intra Day within the Trading Journals forums, part of the Reception category; March 25th Ym -490 EMD +130 ER2 +30 Dax -1,000 SMi +10 Net -1,550 Equity 23,325 Well., actually 2 mistakes. ...

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Old Mar 26, 2008, 7:49am   #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 8:44am.
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Old Mar 26, 2008, 9:02am   #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 8:43am.
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Old Mar 26, 2008, 9:07am   #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, 9:12am   #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, 11:20am   #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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smi-march-26.png   eq-26-march.png  

Last edited by rdstagg; Apr 17, 2008 at 8:43am.
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Old Mar 28, 2008, 8:57am   #21
 
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Beneath our start equity

rdstagg started this thread March 27th

YM +355
EMD - 730
ER2 -900
DAx +275
Estx +10
SMI -300
Net -1,290 New Equity 19,495

I have found that entering on trends that are sharp and have already run 4-5 bars is not a good idea generally (see chart).
There are loads of signals to say don't do this trade but mechanical trading is about taking every trade. You should not decide in the heat of the market what to do - that's why you have a plan. I am fairly fluent in EAsy Language (Tradestation's coding language) but my efforts to avoid these kinds of trades MECHANICALLY have so far failed to bring fruition.

Dax had nearly 2,000 in open profit at it's height - again very irritating. Similarly SMI was well into profit but it didn't hit my minimum profit band (cyan line on each chart) so we had to take a loss.
This system relies on trends persisting and sometimes they do not.

Note the volume on our entry bar of YM (chart) - its normal to get a volume bloom at the breakout of a significant line but there is no significant line at our entry point - hence the discretional part of me says only enter with half your position. I used to NOT enter - which was highly successful right up until I missed the monster of a trade which was the biggest last year. Always improving.
The best description I heard about system trading is that it's like a mobile - touch one element and all the others shuffle round and alter.
I know anyone reading this would now be feeling a little nervous - all these big loses piling up. But don't worry. It happens.
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eq-mar-27.png   mar-27.png  

Last edited by rdstagg; Apr 17, 2008 at 8:40am.
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Old Mar 29, 2008, 8:03am   #22
 
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Small profits and Dr Clayburgh

rdstagg started this thread Ym +475
EMD +480
ER2 +600
Dax -600
EStx -250
SMI + 185
Net 890 New Equity 20,155

Dax was the big loser again today. In reality I did not enter this position - again because the entry is coming after an 8 bar up trend. It just has to take a rest, so I waited for the pullback and then got the worst kind of candlestick with big volume. Now I actually shorted this but this blog system can't do that so we report it as a loss.
Now let me explain about the Clayburgh line. Dr Clayburgh trades and sells all sorts of indicators and systems which are not for me BUT from his web site you can have a FREE Directional Day filter indicator which is the line made up of crosses on the chart.
This is my OWN interpretation of that and I have found it very useful.
It assists in looking at the big trend of the day so you can't use it as a timing device. Essentially I look at it as a sort of barrier zone. Crossing it is never that easy. If it does, it often (but not always) signals a change of thought by the market.
It's very simple but once you see it in a few charts the penny usually drops!
My coding is still a little off re the colours, the crosses should be green here for instance, but it is only used as a guide. Here it saved us from the bigger loss ("Loss" exit on the chart ) which I find is one of it's most effective outcomes.

NB to save time I am only going to show the equity spreadsheet each friday from now - or when we change position size.
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mar-28.png   eq-mar-28.png  

Last edited by rdstagg; Apr 17, 2008 at 8:42am. Reason: Correction on spreadsheet
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Old Mar 30, 2008, 11:58am   #23
 
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Lets Define Discretionary

rdstagg started this thread For the purposes of this blog the only alterations I will make to the mechanical system are ones I note in real time. It's no good saying "Ah, I would have got out / taken a profit there" I have to have noted it on my chart. I don't always display these charts but you have to have some trust!

I learnt this from moving over from paper trading at which I was really quite successful. Whole charts are nice and easy to read - in real time, however you trade the hard right edge and pattern recognition is a whole leap in complexity.

So, a tip for any new/ wannabe / struggling traders out there - if you don't note it on your chart in r/t - you didn't do it! Trust me it's really hard when you miss the blindingly obvious patterns or ( and I frequently still do this) you exit a profitable trade WAY too early on what turns out to be a minor pullback.
For the psychologists / philosophers out there I found the minute I had to actually write down on a chart what my position was RIGHT NOW the anxiety shot up. Because trading is unlike any other area in life except gravity, you can't negotiate, sell , coerece or persuade gravity to do anything - it just is. The market is exactly the same. Those "lets go long here" comments on the high tick of the day are humbling BUT they do teach you if you are prepared to listen. Also in trading you are right or you are wrong (if you think this way). There is no inbetween. Seeing it written, by yourself , for the 3rd time in a row that your pattern didn't work out profitably is plain hard.
Oh and then of course there's the time where you moved the stop just to give it a few more ticks of wiggle room, well just a few more coz it's got to turn here, well it can't keep going this way..... .................................................. ..
can it?............................................... .......,
.................................................. ...........
now I am just going to tough it out....................
.................................................. ...........
this market is not going to beat me.... .................................................. .......
.................................................. ............
.................................................. ............
..............
where has all my account equity gone?

Last edited by rdstagg; Apr 17, 2008 at 8:42am.
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Old Apr 1, 2008, 5:58pm   #24
 
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Ooh the pain of a drawdown

rdstagg started this thread March 31st

Ym +155
EMD 0
ER2 +10
DAx - 1850
ESTX -340
SMI -750

Net -2,775 New Equity 17,380 (DD = 31% from peak)

Great instructive charts here!
Ym had a nice exit ( we took a little more than the mechanical Breakeven exit) and a real beauty of an exit on the DAx which we ignore for the purposes of this system testing.

Good times will come trust me! I would like to increase my position sizing here as 30% DD's are usually somewhere near the top but that would be foolish.
If I wanted to start the system with real money Tuesday would be the day - really!!

PS I wrote this on Monday night but forgot to post it until today.
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dax-march-31.png   ym-march-31.png  

Last edited by rdstagg; Apr 17, 2008 at 8:41am. Reason: Add PS
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Old Apr 1, 2008, 10:30pm   #25
 
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8k per contract

rdstagg started this thread April Fool's Day
Ym +715
Emd +1050
ER2 =65 0
DAx +3600
ESTX +1200
SMI +1150

Net +8365 New Equity 25.885

Not much you can say about a trending day other than stay with the trade!
These days when everything goes like a rocket are rare so lets enjoy it.
Now the real test is that tomorrow we trade 2 contracts - crikey!!
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Last edited by rdstagg; Apr 17, 2008 at 8:41am.
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Old Apr 3, 2008, 8:15am   #26
 
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Discretion saves a bath

rdstagg started this thread April 2
Ym +5
EMD -210
ER2 -100
Dax -825
EStX -385
SMI +400

Net -1,115 (single contract) Equity 24,770 (+19%)
Net -2,230 (position sizing) Equity 23.655 (+18%)

Note the divergences on the two charts which prevented us taking the larger part of these heavy losses . The mechancial system however reports the full loss and as we were trading 2 contracts it hits us harder!
Now back down to 1 contract.
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03-04-2008-07.37.29.png   03-04-2008-07.40.04.png  

Last edited by rdstagg; Apr 17, 2008 at 8:39am.
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Old Apr 4, 2008, 7:39am   #27
 
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Elliot waves in the Dow?

rdstagg started this thread April 3rd
Ym +5
EMD +10
ER2 -460
Dax +13
ESTX +5 (slippage and cost allowance)
SMI -200
Net -628.
Single contract equity 24,243
Pos sizing equity 23,028

Another frustrating day in that we had large open profits that all turned to dust. In times like these it's tempting to change the system and tweak it a little.

ER2 was instructive today. The entry point came right at yesterday's low and in reality we came out with a smaller loss after the break of 'a' on the chart.

Ym shows how the breakout just couldn't hold but for all the Elliotician's out there this could be a wave 2 pullback of a larger degree uptrend. WE shall let the price action decide that overnight and tomorrow.
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april-3-er2.png   ym-april-3.png  

Last edited by rdstagg; Apr 17, 2008 at 8:39am.
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Old Apr 5, 2008, 9:54am   #28
 
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Week 2. Portfolio +15%.

rdstagg started this thread Yesterday we made $8 but again we had open profits on the portfolio of $800 at one stage. All very frustrating. However our breakeven stops worked brilliantly to prevent profits going to quite large losses.
So that is a positive!
The chart today includes a new indicator I am currently looking at called RSI Bands. If you are a tradestation user the code is posted here.

I don't use a ton of indicators but it's always nice to research them. This looks like an interesting twist on the usual RSI indicator and of course it can be applied to any oscillating indicator , not just RSI.

Up $2,880 on the week, but still in a drawdown of around $2,850 from our peak equity. Portfolio is up 15% from our start equity.
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Last edited by rdstagg; Apr 17, 2008 at 8:38am. Reason: Spelling
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Old Apr 8, 2008, 8:46am   #29
 
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Back to square one and some software issues

rdstagg started this thread April th
Ym -300
EMD -420
ER2 -500
DAx -600
EStx 5 (Breakeven)
SMI -310 Net -2,125

Single contract equity 21,908
Pos Size equity 20,793

We are just not getting the right runs of trades yet. Patience is obviously required.
These are the days it would be great to avoid - all nick and runs - see previous posts for that definition.

Nice illustration of where software / my coding? can let you down today though.
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Last edited by rdstagg; Apr 17, 2008 at 8:38am. Reason: Improved Chart picture
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Old Apr 8, 2008, 8:51am   #30
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just noticed your blog here russell. v.good and i will keep reading with interest. jules
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