How long before I blow up? And other ramblings ...

[TraderCat]

Time will tell, but that's the important question every trader must have the answer to if they actually plan to avoid that unpleasant fate. So with that, let's begin ...

I make no recommendations, just some notes to self and some performance numbers over the next few days based on early walk-forward tests, good, bad & ugly.

Here's what I trade: Yen, Pound, Euro, E-minis, Bond, Note, Oil, Gold futures. Acct size is 500K nominal.

Used market maker algos (basically just dumb autofaders, currently configured to make on the order of 100-500 trades/day) on ZB (30 Yr Bond Future) and ES overnight and during day session. Only serious drawdown came during the common overnight 1-way move. But an early morning recovery and trendless day session gave a positive net for the day. Market maker algos do well on these types of days, hence the positive results for the day.

That made up the bulk of the positive p&l for today, with a couple of discretionary trades in 6E (Euro Currency Future) and CL (Oil Future). Good trading day for the bots, boring trading day for the humans.

The discretionary trades were the standard 1:3+ Risk/Reward ratio type trades. for the bot trades I'm still trying to quantify appropriate risk/reward ratios. Suffice it to say the risk/reward ratios and winning percentages for the bot trades are very different than for my discretionary trades.

Here's my rule of thumb for winning percentages and corresponding reward (in units of risk R) required in order to be long-term profitable.

Winning pct :
10% : 15R
20% : 10R
30% : 4-5R
40% : 3-4R
50% : 2-3R
60% : 1.5-2R
70% : 1-1.5R

In other words if my profit target is ALWAYS at least 15 times my stop loss for all trades, then I will be long-term profitable if my winning trade percentage is 10% or better, etc.

In order to succeed as a trader, at the very least I must:

Ensure the odds are in my favour over the long term.
Ensure I am intellectually & psychologically prepared to cope with trading over the long term.
Ensure my account is appropriately capitalized to survive until the long term ...

imho.

 

[TraderCat]

Bots fell over when main trading server locked up. Since I was running several simultaneously, had to close out positions manually and was left with less protection than I'd like while bringing things back on line.

No significant damage, but there could have been had this been a much more volatile day.

This is one of those things that do not show up in backtests.

Note to self: Improve recovery procedures for trading platforms, particularly when running algos ...

 

[Yamato]

Thanks for the interesting information. I trade the same futures as you.

 

[GladiatorX]

Awesome. May i ask about your trading background?

 

[Black Swan]

Love it, nice one...

 

[jtc172]

makes sense

 

[TraderCat]

FOMC Day. The day of all trading days. Rivalled only by Non-Farm Payrolls and Catastrophic events for trading activity.

Not today.

Snoozer as far as volatility. Not really a surprise as trading ranges usually tighten up in anticipation of "important" announcements. Today was no exception as ranges were small all day leading up to the announcement. But the response to the announcement was atypical with very little price movement across the asset classes. Atypical, but not unexpected given the timing and the fact that there was really nothing new in the statements made by the Fed.

In any case, a very good day to just sit on either side of the bid/ask spread all day long. Spent most of the day trading against my bots. Trying to keep position sizes manageable and hedging against the bots. Decent P&L but will really need that cushion when things finally start breaking out again and I start taking my well-overdue lumps.

It's important to know the Achille's heel for any methodology you plan to use for trading and make every to attempt to mitigate or at least be prepared for the Market's attempt to exploit that weak spot (The Market is amazingly adept at finding the weak spots of all trading strategies).

There are no free lunches - all we can do is shuffle around the risk, keep it at bay, push it on to someone else long enough to allow our positive expectancy to kick in (assuming you actually have one - If you don't, return to step 1 and start over).

In my case, the bulk of my P&L comes from non-directional market making trades. As such, I am susceptible to sharp, unidirectional moves - those are the bane of market makers and I am not immune to them.

So I prepare for them as best I can.

When actively trading highly leveraged instruments any given trading day could be your last. One way to mitigate against that possibility is to have a strict equity drawdown cutoff.

As they say, one's biggest loss (or biggest losing streak) is always ahead ... Make sure you are capitalized appropriately to deal with that inevitably.

imho.

 

[TraderCat]

Awesome. May i ask about your trading background?

I'm a stray cat. No pedigree to speak of.

 

[TraderCat]

When hedges go bad

What a stinker!

I'm still scratching my head on this one. It seems that a hedge got turned upside down over night, as I woke up to some very serious draw downs. Somehow I ended up weighted heavily to one side - the wrong side.

Spent the rest of the trading day shoveling out from the mess. Almost equity-stopped out.

Here's another problem with trading high-frequency across many instruments and algos - it gets very hard to keep track of many, many trades over time and including open positions, the blotter gets very messy, especially when I start adding in my discretionary hedges and directional trades.

Sometimes it's just best to hit reset when things start getting messy and the trades aren't matching up. I decided to take the long way out.

A day like this also stresses the importance of being well-capitalized. High volume trading is not viable with a small account. The drawdowns are just too severe. The jury is still out if it's viable with large accounts ...

 

[TraderCat]

2009.12.18

Mostly lucky. Things could have been very different. A repeat of yesterday would have required a break from trading in order to recalibrate.

2 equity stops in a row=system breakdown=time for a rest

Flat now. Fresh start next week ...

 

[TraderCat]

2009.12.20 - 2009.12.26: Backfill

No journal entries for last week. Nothing of note - standard small range trading typical of most low volume holiday periods.

So for the record - here's the weekly summary.

Mostly churn. Yawn.

 

[TraderCat]

Re: 2009.12.20 - 2009.12.26: Backfill

No journal entries for last week. Nothing of note - standard small range trading typical of most low volume holiday periods.

So for the record - here's the weekly summary.

Mostly churn. Yawn.

Forgot the attachments ...

 

[TraderCat]

2009.12.28 - Sleepytime

Napped (literally) most of trading day. Kept (scalping) bots to a minimum.

Some days I'd just rather catch some zzz's rather than watch the screen and monitor retarded trading bots all day.

Just ZB and ES (simple fading against 4-12 tick ranges for small targets).

No discretionary trades with the exception of some hedges against the bots near end of day.

Easy day.

 

[TraderCat]

2009.12.29 - Yawn

Another slow one.

 

[TraderCat]

2009.12.30

Did you know that a series of trades made with each trade having a 30% likelihood of success can easily have 30 or more losers in a row if you trade in large enough volume?

E.g. a Monte Carlo simulation with sample of 50K trades finds several losing streaks in excess of 30 trades for simple 30% trades.

And that's just one 30R losing streak. What happens if you get a couple of these anomalies in a row?

Are you capitalized appropriately to deal with this?

Something to think about.

 

[TraderCat]

2009.12.31 - Blech

Some days you do ok. Others you don't. Next.

Started underwater. Finished even worse due to being caught with my pants down when the end-of-day crapout occurred. ES dropped 7 handles in a heartbeat (not unexpected given the time). Ate most of the loss and put on a partial spread (long 30 ES, Short 30 NQ) to hold remainder (including open loss about $5k) until Sunday open.

Alternatively I could have just flattened out. I made a judgement call here. Spurious end-of-day action usually (quantify?) does not have follow through.

Hindsight will show the better option.

Bonds got a little wacky as well at eod. Made up for some of the position loss by taking advantage of the widened spreads, but hedging was/is difficult without liquidity.

 

[TraderCat]

My Credo

■My purpose as a professional trader is to protect my capital and trade in a manner that allows me to derive enough compensation over the long term to finance my chosen lifestyle
■Long term trading success requires significant capital and consistent use of quantifiable trading edges in combination with sound risk and money management

 

[spreader_legger]

If you don't mind me asking, do you develop your own bots, or did you have someone design them for you?

 

[TraderCat]

If you don't mind me asking, do you develop your own bots, or did you have someone design them for you?

I develop my own.

That way I know who to blame when things go awry.

 

[spreader_legger]

Thanks, I was thinking of getting into that for shorter term trades given that most of my discretional trades are longer term in nature these days.

I guess you have to have quite a lot of programming competence to give this a go

I develop my own.

That way I know who to blame when things go awry.