Can Anyone Explain Why This Happens When I Trade More Than 4 Times

Jul 9, 2017
2
0
11
#1
Dear Community

I just wanted to share something with you which I have had a hard time understanding or grasping. I believe this might be something that maybe a statistician or mathematician might be able to shed some light on.

I have a trading strategy which I have been testing for the last 2 weeks. This is a continuation of research I was doing last year. When I took the first 4 trades of each day for this strategy over the last 15 days the result were as follows.

02/02/2018 3 1 (won 3 lost 1)
03/02/2018 0 3 (won 0 lost 3)
04/02/2018 2 2 (won 2 lost 2)
05/02/2018 3 1 and so on
06/02/2018 2 2
07/02/2018 4 0
08/02/2018 2 2
09/02/2018 3 1
10/02/2018 4 0
11/02/2018 2 2
12/02/2018 3 1
13/02/2018 3 0
14/02/2018 2 2
15/02/2018 0 2
16/02/2018 1 3

Now this is a system where for each winner I make £180 and each loser I lose £100. Looking at the results above its clear its a profitable system as this is replicating similar results from last year when I tested this over a sample of 200 trades.

NOW HERE IS THE ISSUE.

Because the results are positive and seem to be a showing a win rate of around 58% and with a reward to risk ratio of 1.8:1 I felt that maybe instead of gtrading just 4 times I should be taking every possible opportunity per day where a trading opportunity comes available.

However what I have found is that most of the time If I continue to trade throughout the day taking the same opportunities as per my system that its almost as if I experienced increased randomness where I start hitting big losing streaks of 5-6 losing trades.

For instance today I won my first 3 trades and lost my 4th trade. I decided to continue trading and then won only 1 trade out of the next 6.

The question I would like to ask is why is it that if I keep it to just the first 4 trades that the results tend to be favorable for me whereas when I start increasing the number of trades per day outside the first 4 that the results then start showing such a level of randomness that it starts making me question whether my win rate is really 58% and whether its more like 40%.

What I am saying is that If i limit to 4 trades per day my win rate seems to always average around the 58% mark whereas if I trade endlessly where possible each day where the same type of trading set up comes along it seems that my win rate drops significantly to around 40% .

I cannot explain what is happening as if trading many more times per day is the real insight regarding the metrics of my system then why isnt this more reflected in the first 4 results of each day. As you can see above me losing 3-4 trades in a row in my first 4 trades is not the dominant occurrence.

Or is this the man upstairs trying to tell me you are only supposed to trade 4 times per day so you can have time to do other things.

Is this something anyone else has experienced and is there a scientific understanding behind this.

It seems like there is more randomness/variance the more trades I take when I thought (hypothetically speaking) that the more coin flips you do the less the variance/randomness and that increased variance was when you took few trades or coin flips.

Anyone can help here.

Thanks

UK Trader
 
Jan 14, 2003
8,424
870
173
UK
#2
A 58% winning rate would see a more than 50% chance of hitting 8 consecutive losers in a row so nothing unusual there. What platform are you using to trade this ?
 
Likes: brewski1984

tomorton

Well-known member
Feb 28, 2002
7,053
916
173
62
Exeter
#3
I was thinking that increased randomness of outcomes with increasing sample size confirms its a random strategy. However, your consistent win record up to 4 trades stands against this. But 15 days is not a long period, certainly not long enough to encompass the full spectrum of market conditions.

Is there something about the timing of the later trades? Do they take place or close after the US open?
 

Atilla

Well-known member
Nov 15, 2006
18,260
2,527
323
#5
Dear Community

I just wanted to share something with you which I have had a hard time understanding or grasping. I believe this might be something that maybe a statistician or mathematician might be able to shed some light on.

I have a trading strategy which I have been testing for the last 2 weeks. This is a continuation of research I was doing last year. When I took the first 4 trades of each day for this strategy over the last 15 days the result were as follows.

02/02/2018 3 1 (won 3 lost 1)
03/02/2018 0 3 (won 0 lost 3)
04/02/2018 2 2 (won 2 lost 2)
05/02/2018 3 1 and so on
06/02/2018 2 2
07/02/2018 4 0
08/02/2018 2 2
09/02/2018 3 1
10/02/2018 4 0
11/02/2018 2 2
12/02/2018 3 1
13/02/2018 3 0
14/02/2018 2 2
15/02/2018 0 2
16/02/2018 1 3

Now this is a system where for each winner I make £180 and each loser I lose £100. Looking at the results above its clear its a profitable system as this is replicating similar results from last year when I tested this over a sample of 200 trades.

NOW HERE IS THE ISSUE.

Because the results are positive and seem to be a showing a win rate of around 58% and with a reward to risk ratio of 1.8:1 I felt that maybe instead of gtrading just 4 times I should be taking every possible opportunity per day where a trading opportunity comes available.

However what I have found is that most of the time If I continue to trade throughout the day taking the same opportunities as per my system that its almost as if I experienced increased randomness where I start hitting big losing streaks of 5-6 losing trades.

For instance today I won my first 3 trades and lost my 4th trade. I decided to continue trading and then won only 1 trade out of the next 6.

The question I would like to ask is why is it that if I keep it to just the first 4 trades that the results tend to be favorable for me whereas when I start increasing the number of trades per day outside the first 4 that the results then start showing such a level of randomness that it starts making me question whether my win rate is really 58% and whether its more like 40%.

What I am saying is that If i limit to 4 trades per day my win rate seems to always average around the 58% mark whereas if I trade endlessly where possible each day where the same type of trading set up comes along it seems that my win rate drops significantly to around 40% .

I cannot explain what is happening as if trading many more times per day is the real insight regarding the metrics of my system then why isnt this more reflected in the first 4 results of each day. As you can see above me losing 3-4 trades in a row in my first 4 trades is not the dominant occurrence.

Or is this the man upstairs trying to tell me you are only supposed to trade 4 times per day so you can have time to do other things.

Is this something anyone else has experienced and is there a scientific understanding behind this.

It seems like there is more randomness/variance the more trades I take when I thought (hypothetically speaking) that the more coin flips you do the less the variance/randomness and that increased variance was when you took few trades or coin flips.

Anyone can help here.

Thanks

UK Trader

Given your r:r ratio what is the daily trading range of your chosen instrument?

Assuming you are trading off TA have you tried against different instrument with diff range?


As Kalott points out you should also consider timing when various exchanges kicking in for am, lunch and pm time periods etc.

I'd add High Impact news release factor in there too as TA goes all wobbly at set times. (y)
 

wallstreetwarrior87

Well-known member
Oct 14, 2009
1,288
255
93
#7
Maybe this is of interest -

http://www.trade2win.com/boards/indices/120172-anyone-scalping-ftse-futures-10523.html


Stats -
session time 2.30 pm - 3.30 pm (uk)

Days traded Mon (3 trades) /Tues (4 trades)/Thurs (5 trades)/Fri (4 trades)

Trades total - 16
3 losses (manual closes - no full stop outs)
1 BE
12 win.


Total time in trades (exposure) 42 mins

Total points gained +242

242/42 mins = 5.76 pts per min in market.

Default stop 30 pts.



I am currently showing a friend off line what sort of results can be achieved with limited time and exposure in the current conditions. Just to illustrate that when the markets are as volatile as they currently are, decent points can be made by trading a select amount of hours per day.

The 1st hour of the day is the time when the bigger players are in action - after this hour time, their business in general has been done unless these players are forced to participate due to adverse movement against their positions.

The strategy used for the above results is a simple bull/bear flag snap back method, with a default stop. The only way to ruin the strat is to jump in ahead of your pre-defined levels. The goal is simple - trade the snap back, we dont give points back by trying to stay in a bumper move (thats another style). If you wait, you will achieve at least 70% + strike rate. BUT to make this work you have to be fast - in and out. You must know what the goal is. You must KNOW WHY it will work. The only time one will lose is when there is no flag movement - ie we move right through the zone, and as its part of the plan, it is not a problem. You don't need to trade beyond this point, simply stop after the fist full stop out. But before this happens you could very well have had a run of 6/7/8 straight winners.

Obviously bigger points in general terms can be made, but with it comes stop size increase and stake size reduction to minimize risk in relation to size of account.

Not suggesting anything other than showing other ways of trading. I dont class this as scalping, rather just fast opportunity trades at areas where we are likely to have a reaction of price movement. Maintain a decent strike rate.

I take on board what others have said about bigger swings, and these can be really rewarding as we can see, but this is another style altogether.
 
Last edited:
Likes: tomorton

wallstreetwarrior87

Well-known member
Oct 14, 2009
1,288
255
93
#9
@wallstreetwarrior87, very interesting, is this what you mean?
Pretty much, but if the ranges and volatility are great enough there is no need to hold until the other side of the flag - you just need to take a %age of the range.

But the point I was trying to illustrate in relation to the question at the start of the thread, is that after the 1st hour, the effectiveness of the method diminishes due to the levels of participation.

Important to keep an eye on this aspect with whatever method one uses.
 
Likes: cbrads

gerryg

Active member
Sep 9, 2013
915
8
28
#10
Pretty much, but if the ranges and volatility are great enough there is no need to hold until the other side of the flag - you just need to take a %age of the range.

But the point I was trying to illustrate in relation to the question at the start of the thread, is that after the 1st hour, the effectiveness of the method diminishes due to the levels of participation.

Important to keep an eye on this aspect with whatever method one uses.
Volatility makes any trading style useless since what is the solution for great random we observe in our charts?

Solution is to think and act on larger scale, i.e. move out of intraday :D

unless you have a speed edge and able to ride crazy waves
 

Hoggums

Well-known member
Jan 24, 2006
2,173
877
123
#12
It's probably almost certainly an inaccurate backtest, perhaps you are using historical chart data for the first 5-10 mins of opening which I guarantee will be inaccurate and not realistic at all. If we say your 58% win rate IS accurate then you still have a 0.55% chance of getting 6 losses in a row - - if you place 4 trades a day then you should expect to see this happen once every 45 days roughly. However I suspect your real win rate is probably a lot less than this - and most likely less than 50%.

Also - 15 days backtest is nowhere near enough. You should be looking at testing for 2 years worth of data to make sure you encounter a variety of market conditions.