Ok, getting used to blogging. All a bit Homer Simpson to me at the moment.
right.
Lets define what I mean by mechanical trading.
It's mechanical with ideally NO interference from me but in reality that does not happen.
Every now and again I will interfere if I see something that I haven't coded up. Or if for instance the fed is making an announcement.
right.
Lets define what I mean by mechanical trading.
It's mechanical with ideally NO interference from me but in reality that does not happen.
Every now and again I will interfere if I see something that I haven't coded up. Or if for instance the fed is making an announcement.
3rd July 2007
First blog entry.
64% chance of a down close today on the Dax
Gap open at the moment.
Well it closed up again - for the fifth day in a row! Statistically thats just not on!
Nothing kind of day really - burst up from open till 9am thane range bound the rest of the day.
Strategy lost about 6 points today.
First blog entry.
64% chance of a down close today on the Dax
Gap open at the moment.
Well it closed up again - for the fifth day in a row! Statistically thats just not on!
Nothing kind of day really - burst up from open till 9am thane range bound the rest of the day.
Strategy lost about 6 points today.
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W/C July 23rd 2007
Just discovered I have commented on my own post. Doh!
Talking about my reaction to figs it's different at different times eg if I have 1k in profits I might well protect most of that whereas if I am £20 down then I may just let the dice fall.
The testing/trading results I have take NO account of announcements.
I have been trading this system as is for 3.5 years now.
It isn't pretty. More like winning ugly really.
Just discovered I have commented on my own post. Doh!
Talking about my reaction to figs it's different at different times eg if I have 1k in profits I might well protect most of that whereas if I am £20 down then I may just let the dice fall.
The testing/trading results I have take NO account of announcements.
I have been trading this system as is for 3.5 years now.
It isn't pretty. More like winning ugly really.
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july 27
Funeral today so not much comment.
Still fiddling with a website in order to show charts. Hope to get there soon.
Once that is up I shall start this blog with some previous trades - some winners some losers as starting this week is not indicative of what 99% of trading is like!
(For me anyway - others may differ).
As it turned out there was no system trade today on the dax. I have not yet found any reliable automated strategy execution software ( that can link with Tradestation signals). Soon (??) Tradestation will be able to execute trades on the Eurex US and then we are cooking! All this manual stuff is no good!
BTW I do go and edit my previous blogs - like a kind of results column if you like.
I am going to post what I do - warts and all.
Funeral today so not much comment.
Still fiddling with a website in order to show charts. Hope to get there soon.
Once that is up I shall start this blog with some previous trades - some winners some losers as starting this week is not indicative of what 99% of trading is like!
(For me anyway - others may differ).
As it turned out there was no system trade today on the dax. I have not yet found any reliable automated strategy execution software ( that can link with Tradestation signals). Soon (??) Tradestation will be able to execute trades on the Eurex US and then we are cooking! All this manual stuff is no good!
BTW I do go and edit my previous blogs - like a kind of results column if you like.
I am going to post what I do - warts and all.
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Funeral for a friend
Life is short - all philosophical after the funeral which was a huge success. Never been to a humanist funeral before - definitely a convert.
Still sorting out web space and getting charts on there - so text only at the moment.
Also I changed to BT broadband today - Pipex were a total and utter waste of time - cutting me off from American servers at 1630 every day due to "Traffic shaping". Apparenty whilst I don't abuse their internet access according to their policy I am quote "on a rather long time" unquote. I only use the internet for surfing, and trading - no music, no peer to peer or bit torrent or anything like that. PaH I say to them! They can no longer have my money.
Today they rang up and assured me it was now all sorted and I could have 6 months free. Funny how that happens when you cancel.
I did not accept their offer as I do not trust them...
Anyway trading....
Today we went long at 7619 on the dax at 10:25.
We now have an interesting situation...
The pullback has been v sharp and almost parabolic to just below the 61.8% mark.
If this new rise fails then we are out of here for good.
Currently we are sitting on profits of 37 points which is v nice. (straight trailing stop there)
Our re entry point is around the 7660 mark but we will have to be careful.
I would like to go short but my system doesn't do that so I can't.
BTW if you do read this blog you will have to excuse the odd rant - it is a fantastic way to get it off your chest.
Life is short - all philosophical after the funeral which was a huge success. Never been to a humanist funeral before - definitely a convert.
Still sorting out web space and getting charts on there - so text only at the moment.
Also I changed to BT broadband today - Pipex were a total and utter waste of time - cutting me off from American servers at 1630 every day due to "Traffic shaping". Apparenty whilst I don't abuse their internet access according to their policy I am quote "on a rather long time" unquote. I only use the internet for surfing, and trading - no music, no peer to peer or bit torrent or anything like that. PaH I say to them! They can no longer have my money.
Today they rang up and assured me it was now all sorted and I could have 6 months free. Funny how that happens when you cancel.
I did not accept their offer as I do not trust them...
Anyway trading....
Today we went long at 7619 on the dax at 10:25.
We now have an interesting situation...
The pullback has been v sharp and almost parabolic to just below the 61.8% mark.
If this new rise fails then we are out of here for good.
Currently we are sitting on profits of 37 points which is v nice. (straight trailing stop there)
Our re entry point is around the 7660 mark but we will have to be careful.
I would like to go short but my system doesn't do that so I can't.
BTW if you do read this blog you will have to excuse the odd rant - it is a fantastic way to get it off your chest.
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Why is Trading so hard?
I am in blog mood today so...
Trading is hard because it will expose all of your psychological weaknesses and exploit them to the max.
Depending on who you believe between 85 -95% of traders do not last in the game for more than 1 year.
For you Newbies out there lets repeat that
Depending on who you believe between 85 -95% of traders do not last in the game for more than 1 year.
So if you want to make a million ( that includes me ) you have to ask yourself some serious questions as to why very intelligent people fail. No trader I know has EVER owned up to being really dumb.
I have made some monumental **** ups in my trading life - I mean fubar's of the highest order. The very worst one was in my first week of full time trading where I lost 25% of my capital.
And oddly that is what saved me.....
I was in such a deep state of shock that I stopped trading for 2 years ( and that my friends I am really proud of) and went and read every book you can imagine, spent thousands on attending courses and seminars , even 1 to 1's with traders.
The net outcome of all this was that you have to find a system that fits you - this system here is probably not for you. It's just an outline of some of the ups and downs.
It is not new, employs no fancy Heisenberg spectral analysis widgets but does use a principle that I beleive in - trends. What you have to do (IMHO) is be there when the trend comes along and the price of that is that you are there all the other times when the trend is not. A la Turtle system. .
If you try and stop the losses you ruin the system - if anyone disagrees I would love to see it.
It has lots of quirks, does give quite large drawdowns (35%) fairly regularly and is NOT easy to follow.
What really turns the tap on profit wise is positon sizing - and that's for a much later blog.
For now the Dax has failed to come up today so it currently looks like our trading is over for today. But the day is not yet over of course.
I am in blog mood today so...
Trading is hard because it will expose all of your psychological weaknesses and exploit them to the max.
Depending on who you believe between 85 -95% of traders do not last in the game for more than 1 year.
For you Newbies out there lets repeat that
Depending on who you believe between 85 -95% of traders do not last in the game for more than 1 year.
So if you want to make a million ( that includes me ) you have to ask yourself some serious questions as to why very intelligent people fail. No trader I know has EVER owned up to being really dumb.
I have made some monumental **** ups in my trading life - I mean fubar's of the highest order. The very worst one was in my first week of full time trading where I lost 25% of my capital.
And oddly that is what saved me.....
I was in such a deep state of shock that I stopped trading for 2 years ( and that my friends I am really proud of) and went and read every book you can imagine, spent thousands on attending courses and seminars , even 1 to 1's with traders.
The net outcome of all this was that you have to find a system that fits you - this system here is probably not for you. It's just an outline of some of the ups and downs.
It is not new, employs no fancy Heisenberg spectral analysis widgets but does use a principle that I beleive in - trends. What you have to do (IMHO) is be there when the trend comes along and the price of that is that you are there all the other times when the trend is not. A la Turtle system. .
If you try and stop the losses you ruin the system - if anyone disagrees I would love to see it.
It has lots of quirks, does give quite large drawdowns (35%) fairly regularly and is NOT easy to follow.
What really turns the tap on profit wise is positon sizing - and that's for a much later blog.
For now the Dax has failed to come up today so it currently looks like our trading is over for today. But the day is not yet over of course.
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The New Month
Played some golf yesterday so missed the weirdness of the last half hour.
Still unsure what caused it ( don't really care to be honest ) but a 120 point rally in 30 minutes is exceptional by any standards.
Rest of the day resulted in me going long at 10:50 at 7489.5. Took half off at yest low (7543) and the remainder at 7500. (Net gain 32.5)
Very very tempted to take the remainder off at 7519 but did well and held on to the bitter end.
Had I stayed in until 2100 we would have ended up with +126 points. But I would defy anyone to have stayed in after the double top at 17:40.
This brings me neatly on to book keeping.
It is imperative to keep records of your trades and what the market / your system did.
I run a no of "dummy" systems alongside my actual one - one of them is keeping the trade on until 2100 with only the other side of the opening range as a stop.
This is the loosest stop you could have bar having none I suppose. What it's useful for is telling me whether or not the system works almost without stops. My system is just profitable over the portfolio I trade which sounds not v good but it does mean even if I miss the odd stop / no fills etc I should still come out ahead over the long term.
You couldn't live on this system really but it seems to prove that it is exploiting a market model that is robust.
I spend my life trying to find the correct balance between tighter stops/ targets and letting the trade run.:cheesy:
Played some golf yesterday so missed the weirdness of the last half hour.
Still unsure what caused it ( don't really care to be honest ) but a 120 point rally in 30 minutes is exceptional by any standards.
Rest of the day resulted in me going long at 10:50 at 7489.5. Took half off at yest low (7543) and the remainder at 7500. (Net gain 32.5)
Very very tempted to take the remainder off at 7519 but did well and held on to the bitter end.
Had I stayed in until 2100 we would have ended up with +126 points. But I would defy anyone to have stayed in after the double top at 17:40.
This brings me neatly on to book keeping.
It is imperative to keep records of your trades and what the market / your system did.
I run a no of "dummy" systems alongside my actual one - one of them is keeping the trade on until 2100 with only the other side of the opening range as a stop.
This is the loosest stop you could have bar having none I suppose. What it's useful for is telling me whether or not the system works almost without stops. My system is just profitable over the portfolio I trade which sounds not v good but it does mean even if I miss the odd stop / no fills etc I should still come out ahead over the long term.
You couldn't live on this system really but it seems to prove that it is exploiting a market model that is robust.
I spend my life trying to find the correct balance between tighter stops/ targets and letting the trade run.:cheesy:
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Time waits for No Man
Where does time go? Only seems like yesterday but nearly a week has passed.
This week has so far resulted in wins of 2888 and 13 (breakeven effectively) and a loss of 813. Net gain of around 2088.
Monday was fantastic - great breakout and everything hunky dory. Tuesday was the day I keep trying to avoid - nicked me in and then turned and ran the other way.
Yesterday was strange - all going nicely until 19:30 and then something came out and everything just tanked big time.
So a healthy profit turned into a breakeven.
No economic figs were due out and I couldn't find any news so have to live with that. Doesn't happen that often - just really frustrating when it does.
I don't monitor my trades after about 1800 - I find it wastes my time - but yesterday was a day when a little inspection would have saved hundreds of euros. A lot of people will criticise me for that - but to spend 5 hours of an evening 75 days a year (say) to save 3 or 4 trades - cost/benefit analysis doesn't add up IMHO.
I also find that I "interfere" - you know tape reading, picking up the vibe / harmony of the market and getting out just as it takes off for a new leg up, etc.
So I reckon currently the breakeven is the best I can do.
I did enjoy the golf though!!
Where does time go? Only seems like yesterday but nearly a week has passed.
This week has so far resulted in wins of 2888 and 13 (breakeven effectively) and a loss of 813. Net gain of around 2088.
Monday was fantastic - great breakout and everything hunky dory. Tuesday was the day I keep trying to avoid - nicked me in and then turned and ran the other way.
Yesterday was strange - all going nicely until 19:30 and then something came out and everything just tanked big time.
So a healthy profit turned into a breakeven.
No economic figs were due out and I couldn't find any news so have to live with that. Doesn't happen that often - just really frustrating when it does.
I don't monitor my trades after about 1800 - I find it wastes my time - but yesterday was a day when a little inspection would have saved hundreds of euros. A lot of people will criticise me for that - but to spend 5 hours of an evening 75 days a year (say) to save 3 or 4 trades - cost/benefit analysis doesn't add up IMHO.
I also find that I "interfere" - you know tape reading, picking up the vibe / harmony of the market and getting out just as it takes off for a new leg up, etc.
So I reckon currently the breakeven is the best I can do.
I did enjoy the golf though!!
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Aha!
Hello Traders
Yest result - +$1992 per contract.
At a small gathering of traders last night someone mentioned that you can now post charts in the blog.
I will try for a week and see how much effort/time/resources this takes.
So why not start with yesterday! Fed announces it's efforts to avert 1929 - will it work? I don't know but let's hope so.
Gold continues to rocket along with Gold - another strategy is long of both of those but I pay no attention until my computer beeps at me to do something.
Yesterday's trading typified by the Dax chart and the EMD Chart.
Here is where thinking and looking at the chart can run you into trouble. Take a look at the Dax. After a marvellous run up for hours we approach the fed time - prudency says one should look at taking some profits off the table here because volatility always goes sky high with this kind of announcement and it surely does. But can anyone hand on heart say it was going to go up after 30 minutes? Not me for sure.
So we took money off the table at 6388.5 ( + 78 pts) but we left a whole pile still there. Ah well that's trading - prudency dictates that the trend is changing so bank some profit.
Now the EMD - horrible trade. As I was not here had to take the full loss but look at the volume when it got down to 758 just huge. Difficult to trade successfully when you get that kind of volatility as the Risk/REward ratios become much smaller - albeit very successful in this instance.
So I took 4 losses in the USA and 2 big wins in Europe.
Hello Traders
Yest result - +$1992 per contract.
At a small gathering of traders last night someone mentioned that you can now post charts in the blog.
I will try for a week and see how much effort/time/resources this takes.
So why not start with yesterday! Fed announces it's efforts to avert 1929 - will it work? I don't know but let's hope so.
Gold continues to rocket along with Gold - another strategy is long of both of those but I pay no attention until my computer beeps at me to do something.
Yesterday's trading typified by the Dax chart and the EMD Chart.
Here is where thinking and looking at the chart can run you into trouble. Take a look at the Dax. After a marvellous run up for hours we approach the fed time - prudency says one should look at taking some profits off the table here because volatility always goes sky high with this kind of announcement and it surely does. But can anyone hand on heart say it was going to go up after 30 minutes? Not me for sure.
So we took money off the table at 6388.5 ( + 78 pts) but we left a whole pile still there. Ah well that's trading - prudency dictates that the trend is changing so bank some profit.
Now the EMD - horrible trade. As I was not here had to take the full loss but look at the volume when it got down to 758 just huge. Difficult to trade successfully when you get that kind of volatility as the Risk/REward ratios become much smaller - albeit very successful in this instance.
So I took 4 losses in the USA and 2 big wins in Europe.
PHP:
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Equity update
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.
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.
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Wow what a day
March 19th Profits Portfolio Gain +6,180:clap:
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!:cheesy:
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!
March 19th Profits Portfolio Gain +6,180:clap:
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!:cheesy:
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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A Game of Two Halves - March 20th
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.
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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Pos Sizing Chapter 2
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.
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.
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Easter Monday
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.
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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A mistake already!
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.
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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Arriving at my position sizing
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.
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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Mathemagician
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"Take the worst drawdown of your portfolio that you can find. Multiply that by 50%." Why? Thanks! jj
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.
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.
The rot sets in
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?
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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