My journey to long term consistency

[DrSafari]

Okay, I calculated the Kelly criterion for the trades done with my demo account. The results are bad. With the +800 Harley Davidson trade I am profitable but the winning probability is bad. This is what came out of it:

W (winning probability) = 0,344827586
R (win/loss ratio) = 2,297570518
Kelly's equation = 0,059668803

Based on "only" 30 trades but still it already gives an indicator and without the HD trade I would be totally obliterated. I would be losing money big time.

Back to square 1 !!

I will now go over the charts and see if I can see any patterns and something I can use to come up with a new system, see if my idea of adapting the timing might be a good one.

 

[DrSafari]

Like I said I went over the stocks and investigated if I open sooner after market opens if it would have been profitable. My intuition was right, the statistics are even better than I expected

Profitable before 1 hour after market open: 22
break even: 1
NOT profitable: 3
NOT profitable at first but not enough to hit SL and profitable after: 2
NOT profitable but not enough to hit SL but losing after: 1

Total: 29

It seems this will give me very good results!! However, I am aware that these results are too positive for reality because there are also a number of trades I dont take because they started going in the wrong direction within that hour. Usually that happens pretty fast though and I am hoping I can filter enough of those out by looking at what the 5m and perhaps 1 min chart will do.

Funny thing that just crossed my mind: I seem to be naturally evolving from swing-trading to day-trading for some reason. Well, daytrading has appealed to me from the first time I ever heard of it so maybe that is one of the reasons.

But enough mental masturbation, let's test this plan. Will update the plan accordingly soon.

 

[options-george]

It's not an easy way to make money, this trading thing, is it?

Wish you good luck in continuing your strategy development!
[It's comforting to know I am not the sole retail trader battling with this stuff!]

O-G

 

[DrSafari]

It's not an easy way to make money, this trading thing, is it?

Wish you good luck in continuing your strategy development!
[It's comforting to know I am not the sole retail trader battling with this stuff!]

O-G

No it sure is not, I take comfort that my real account is making money (although the number of trades this conclusion is based on is on the low side so I am proceeding with caution) alas my strategy there only allows me to a few transactions per month which is not enough to make a good amount of money with my current capital.

Oh I don't think you and me are the only ones, most are struggeling but few are honest about it I think.

I used to think it was easy. A friend of mine turned 20k into 120k in a year. I was demo trading and I turned 20k into 58k in 3 months. I was of course taking way too much risk and did not really know what I was doing but I was mostly trading news events. My friend of course also took too much risk and by now has lost all his earnings. He still has his original 20k but took a break from trading.. not sure if he will ever get back into it. Anyway, my view that it was easy was shattered and I am now taking a much more structured approach. I consider all this part of the journey I have to go through.

Thanks and good luck to you too!

 

[DrSafari]

Plan Demo Account:

1) Deciding whether to trade or not

• Before deciding to trade look if any major economic events are up in the current trading day if yes then we DO NOT TRADE unless after 1 hour of occurence
• Before deciding to trade: check yahoo finances whether something big is up or not. If it is DO NOT TRADE

2) Find potential trades

• Do this (the following) before US market opens and make a list of potential candidates
• Right away when market opens go through that list and look for positions to take OR use an order with a price entry where the trend would be IF it's not possible to be at a pc at that time.
• Wait at LEAST 1 hour after the occurence of a major economical event or indicator
• Look at the S&P500 and the stocks in your watchlist. Watch if most of them are in the plus or in the min. Only go Long if the market is clearly more bullish, only go short when the market is clearly more bearish, do nothing if that is not clear.
• Scan american stocks and look for clean charts (whether up or down determinded in previous point). Clean will be "defined" below (1)
• Do not include stocks that gapped opun opening of that day. Gap will be defined below (2)
• Do not include stocks that require me to take stop losses wider than 2% of my equity
• The last three bars (1h) should go with the trendline, else dont take it
• Look at the shorter timeframes 15m and 5m or 1m and only enter the position if those are going along with the trend.

3) Taking positions

• Look for the trend and highest difference in opposite direction of the entire trend is where I place my stop loss
• I am not going to risk more than 2 % on each trade
• I am not going to risk more than 6 % in total positions

4) Once in a position

• Make it a trailing stop loss
• Once the trade reaches 75% profit of amount risked move the SL to break even.
• Once the trade reaches 100% profit of amount risked move the SL to 50% profit (of what was the SL)
• Exit only if stop loss hits OR if a high expected volatility economic event is going to occur
  [*] Do not hold over the weekend
  [*] Do not hold over the night if the trend does not continue (flatline) or is going in opposite direction (if it didnt hit the SL already)
• Document every trade carefully in journal (with charts) saying what you did and what I should have done

(1) A clean chart is a chart with:

1. As much candles as possible in the same colour.
2. As little wicks as possible
3. All candles having about the same height.
4. The top of the previous candle comes close to the bottom of the next candle (or vice versa)

(2) A gap is a stock that *clearly* violates the trend line as seen below.

 

[DrSafari]

Demo account

Long Cerner
200 Shares
Reason of closure: adjusted trailing stop loss got hit.

Opening rate: 59.77
Opening time: 7/8/2016 3:34 PM

Close rate: 60.39
Close time: 7/8/2016 5:12 PM

Amount risked: € 106.63
Initial Stop loss: 59 pips = 58.99



Net P/L: €+‪112.27‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
Most stocks were green.


Personal notes
Seems like a confirmation of my revised trading plan. My hypothesis can't be confirmed any clearer. Rallies upon opening but backtraces around 1 hour after opening. Trend did not continue after that in this case, but instead of a loss I now have a profit.

 

[DrSafari]

REAL ACCOUNT

Long Umi
300 Shares
Reason of closure: adjusted stop loss got hit

Opening rate: 47.59
Opening time: 7/11/2016 9:55 AM

Close rate: 47.59
Close time: 7/11/2016 10:59 AM

Amount risked: ~€ 110

Net P/L: € 0.0


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
Most stocks were green.


Personal notes
Took the position and started going my way little by little, reached 75% of my risked value as profit and put the SL to break-even. Stock then went down again and through my SL leaving me with a break even trade. I believed this was a temporary decline so I was ready to enter the position again, which I did.

 

[DrSafari]

REAL ACCOUNT

Long Umi
300 Shares
Reason of closure: closed the position cause it was not going anywhere

Opening rate: 47.7
Opening time: 7/11/2016 11:06 AM

Close rate: 47.77
Close time: 7/11/2016 12:42 PM

Amount risked: ~€ 110

Net P/L: €‪+ 21.00‬

Current Equity: € 5 234.16


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 5 min chart because the 15 min one is already in previous post and it shows a more detailed view.



Context
Most stocks were green.


Personal notes
Entered the trade again as mentioned in previous post. Was floating around the break even point for the entire time so decided to get rid of it because now the trend had been broken. Was at -30 when I took the decision so waited for profit to get out of potition. I got out at +20. Not a bad decision but I should have done like last time. Put the SL as narrow as I can and see how much more it will go up. If I had done that I would have had a profit around +75... oh well, at least I did not lose and a good habit has been drilled into my brain again.

 

[DrSafari]

About last trade: I exited too fast. Hindsight is always easier of course but I should have had a little more patience and the least I could do is just put my SL to break even when it was +20. Turned out the stock rallied good. This could have been a +150 profit.

 

[DrSafari]

REAL ACCOUNT

Long DS
400 Shares
Reason of closure: tightened SL because position wasnt going anywhere but SL got hit

Opening rate: 283.37
Opening time: 7/12/2016 11:27 AM

Close rate: 282.18
Close time: 7/12/2016 3:06 PM

Amount risked: initially ~€ 120 but tightened to ~€60

Net P/L: €‪-63.99‬

Current Equity: € 5 170.17


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
Most stocks were green.


Personal notes
Similar trade as the previous one on real account. This time I did the correct thing and just tightened SL, with the difference that this trade never went positive anymore. Figures that while determined not to make the same mistake that this time it turned out as a loss. On the other hand, good that I am still learning. I am not making the huge mistakes I was making in october and november anymore, now it are more subtle mistakes but still these affect my profitability... I can only assume my results will get better. I am making profit since september even with big mistakes still being made. I make them less and less though.

 

[DrSafari]

Demo account

Long Exelon
1000 Shares
Reason of closure: trailing stop loss got hit.

Opening rate: 36.47
Opening time: 7/12/2016 3:33 PM

Close rate: 36.33
Close time: 7/12/2016 3:34 PM

Amount risked: € 126.26
Initial Stop loss: 14 pips = 36.33



Net P/L: €‪-126.26‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
Most stocks were green.


Personal notes
And this is the disadvantage of my revised system. Volatility is typically higher at the opening of the market causing it to hit my narrow SL after 1 min of opening the position, of course there has to be a catch, there always is a catch.

I could put my SL wider, but that kind of defeats the purpose of this strategy... then again, 14 pips is not a lot. I got stopped out at 36.33 but it never went lower than 36.27. I could revise my system to take the highest difference in points times 2 as a SL instead of the highest difference in points + a few more points to cover the spread. Hmm this seems doable without harming the essence of the strategy too much. Will update the plan.

 

[DrSafari]

Demo account

Long Exelon
1000 Shares
Reason of closure: trailing stop loss got hit.

Opening rate: 36.46
Opening time: 7/12/2016 3:42 PM

Close rate: 36.38
Close time: 7/12/2016 5:01 PM

Amount risked: € 112.72
Initial Stop loss: 25 pips = 36.21



Net P/L: €‪-36.14‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
Most stocks were green.


Personal notes
Idea was still valid so took the trade again a bit later. Small loss cause it reversed. If the first trade had not been prematurely stopped out it would have been a small profit. Carrying on..

 

[DrSafari]

This may be a tad too soon but I am going to quit with demo testing this particular strategy. I went over the charts of all the trades when I was using the "clean chart" system. On average the trend continued for 15 bars (of 15m). However since I was looking at hourly charts I usually only got into the position at the end of the trend. It was probably a mistake to begin with to look at the hourly charts if I am going to base my SL on the 15 min charts.

Also :

However, I am aware that these results are too positive for reality because there are also a number of trades I dont take because they started going in the wrong direction within that hour. Usually that happens pretty fast though and I am hoping I can filter enough of those out by looking at what the 5m and perhaps 1 min chart will do.

Seems like I cannot filter them out properly. Sometimes they just stay put for a while and then go down (as happened with my other 3 trades I didnt log yet). Those are also stocks I wouldnt have traded if I had waited an hour so my conclusion was wrong. I know you have to stick with a strategy longer but I came up with something else that shows greater potential. (still same principle though)


I just backtested this new idea and the results look promising. On 64 occurences of my setup I will only lose 1 R 22 times, those are the losing trades. On 9 cases I will be break even or small loss or profit. and on 33 cases I will have 1R profit or more. The average trend duration in my favour after I got into the position is 2.75 bars (15m) . This all looks pretty good. Of course I expect actual demo trading results to be worse cause I did not take spread into account and maybe this is a bit skewed towards the positive somehow... still it is worth testing.

I am going on holiday, leaving in a few hours, so I will not be trading next week, nor today.

When I come back I will update my plan. There are big changes so I consider it to be a new plan. This is all vague but will become more clear in time. Can't wait to test this out :cheesy:

 

[DrSafari]

Here is the updated plan. It is all in green because I consider this a whole new plan instead of an iteration of the previous one.

Plan Demo Account:

1) Deciding whether to trade or not

• Before deciding to trade look if any major economic events are up in the coming 2 hours if yes then we DO NOT TRADE unless after 1 hour of occurence
• Before deciding to trade: check yahoo finances whether something big is up or not. If it is DO NOT TRADE

2) Find potential trades

• Scan american stocks and look for charts (15m) with three consecutive candles (rising or falling) with the close of each of the previous candles being equal to the opening of the next. Each candle should have about the same hight and as little wicks as possible. (1)
• Do not include stocks that require me to take stop losses wider than 2% of my equity

3) Taking positions

• Look at the difference between open and close of the 3rd candle and put that as trailing stop loss.
• I am not going to risk more than 2 % on each trade
• I am not going to risk more than 6 % in total positions

4) Once in a position

• Make it a trailing stop loss
• Exit only if stop loss hits OR if a high expected volatility economic event is going to occur or at the end of trading day.
• Do not hold over the weekend
• Do not hold over the night.
• Document every trade carefully in journal (with charts) saying what you did and what I should have done

(1) Equal does not have to be within the tick equal but more or less visually equal. Same I was looking for with the clean chart system but now only 3 candles and stricter (because it are only 3 candles)

 

[DrSafari]

There was one more trade on my real account I did not log yet before I left on holiday.

REAL ACCOUNT

Long Umi
150 Shares
Reason of closure: adjusted stop loss got hit

Opening rate: 49.64
Opening time: 7/14/2016 10:09 AM

Close rate: 49.62
Close time: 7/14/2016 1:04 PM

Amount risked: around € 110


Net P/L: €‪-3.00‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 30 min chart.



Context
No idea anymore

Current Equity: € 5 167.17


Personal notes
I remember taking this trade because it gapped up and didnt go down afterwards. This usually indicates strenght. All other factors of my real acc system were in place. I made some modest profits initially but then it didn't really move anymore and even started to go down. So I decided to tighten my SL to potentially get out of a stale trade with still a small profit or if it goes up again to let it run. Eventually I didn't get a good fill and it turned into a very small loss. Not a good month for my real account but then again the losses are really small.

 

[DrSafari]

Demo account (With the new system)

Short AvalonBay Communities
100 Shares
Reason of closure: trailing stop loss got hit.

Opening rate: 183.99
Opening time: 7/25/2016 4:27 PM

Close rate: 185
Close time: 7/25/2016 5:08 PM

Amount risked: Did not log around € 120 as always
Initial Stop loss: ???



Net P/L: €‪-92.04‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
Less important for this new strategy but I will still log IF I take note of it.. which I did not this time


Personal notes
The three bars before the green arrow is my setup. Looking at it now the wicks are a bit too long for my liking. Should look for cleaner setups in the future. Trade did not work obviously.... This trade I took after 1 hour of market opening (minimum is 45 minutes - 3 bars) but I will not stick to only that time frame. I will mix it up. Of course I still prefer somewhere near opening of market cause I do not intend to hold overnight with this strategy. Then again... if the trend continues as before all I need is 45 minutes to make 3R... still, its better to be able to let profits run and it might be 6-7-8-9 R so I will choose different time entries but in the first half of the market day.

EDIT: I just noticed the bars are getting a bit smaller each time. This *probably* is a sign that the trend is weakening and that I should not take the trade but this is merely a theory right now. I will draw conclusions when I have enough data.

EDIT #2: I did log the stop loss but its not on this pc I just remembered

 

[DrSafari]

Demo account

Short Brinker
500 Shares
Reason of closure: I closed end of day because not holding overnight

Opening rate: 47.48
Opening time: 7/26/2016 5:16 PM

Close rate: 47.38
Close time: 7/26/2016 9:52 PM

Amount risked: € 136.55
Initial Stop loss: 30 pips

Spread: 12 pips


Net P/L: +€‪45.50‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
S&P500 was down a bit. Fell sharp at some point but I couldnt link any event with it...


Personal notes
Setup looks better than previous trade. The spread on this instrument was high. My broker has fixed spreads and they vary from 3 pips to 12 pips (as far as I have observed till now) This one was 12 pips. If you see that the difference from opening to close is 10 pips, it means that more than my entire profit is eaten by spread .

 

[DrSafari]

I forgot to log another monday trade:

Demo account

Short Alibaba
200 Shares
Reason of closure: trailing stop loss got hit (also end of day)

Opening rate: 83.15
Opening time: 7/25/2016 4:18 PM

Close rate: 83.3
Close time: 7/25/2016 9:59 PM

Amount risked: around € 120 (logged on another pc again)


Spread: okay scrap 12 being highest lol, a staggering 21 pips (it does move a lot though, more often than not that the stock moves 21 pips in 15 minutes... I think the broker bases the spread on how much the instrument typically moves.


Net P/L: €‪-27.30‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
Did not take note of it.


Personal notes
Again the bars are getting smaller and the trend kind of ends again. Setup looks good though according to current system. Journaling really comes in so handy, I'm noticing things I otherwise would totally miss.

 

[DrSafari]

Demo account

Short Colgate Palmolive
180 Shares
Reason of closure: closed because end of day

Opening rate: 73.84
Opening time: 7/26/2016 5:21 PM

Close rate: 74
Close time: 7/26/2016 9:56 PM

Amount risked: € 54 (took smaller position because not enough margin available)
Initial SL: 33 pips

Spread: 12 pips


Net P/L: €‪-26.21‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.



Context
S&P500 was down a bit. Fell sharp at some point but I couldnt link any event with it...


Personal notes
Bars were slightly getting larger in the beginning. However only saw it after the 5th bar had formed. I did not exclude these from my back testing either. I just need my 3 bars at the time of opening... whatever happened before that is irrelevant (according to my current system). The big move up juuuuuust missed my SL and then went down again. The reason I still lost half of my R is the spread again... I sound like a broken record. But, if you cannot find a system that makes money despite not ideal circumstances you won't have a good system that can make decent money with better circumstances. I do not intend to stick with this broker once I am trading for real and a substantial amount of money. I probably do need instruments with leverage though as I have not enough capital yet to be trading for a living otherwise (although that can quickly change when being succesful of course)

I have investigated other brokers but trading real stocks is 33% taxes on all profits (as of 2016 FML) here in Belgium so I prefer derivatives. Other CFD brokers I have investigated so far have a slow and horrible interface. My quest continues.

 

[DrSafari]

Demo account

Short D.R. Horton
500 Shares
Reason of closure: trailing SL got hit

Opening rate: 33.78
Opening time: 7/27/2016 6:30 PM

Close rate: 33.84
Close time: 7/27/2016 8:17 PM

Amount risked: ~ € 120 (did not log cause was on other pc)
Initial SL: /

Spread: 6 pips


Net P/L: €‪-27.31‬


Chart
Green arrow is where I opened position and red arrow is where it got closed. Chart is a 15 min chart.




Context
S&P500 and most stocks were down

Personal notes
Another non working trade... and there are two more to come. Either I am being extremely unlucky or the results of my backtesting are wrong somehow. I can't check whether I missed something or not cause I only logged the results so I will have to go through the exercise again (this time taking screenshots of all occurences) and analyse them afterwards. Will continue with this strategy and Ill see what comes out of the backtesting again. It is possible that I missed a lot of setups that did not work because my subconscious was avoiding those, RAS and all that if that rings a bell for anyone.