Registered: Aug 2005
12-17-11 01:48 AM
Quote from N54_Fan:
Thanks for the compliment. It has been rare that people engage in a discussion with me about the things I bring up. I often wonder if I am making sense on here. Either that or this entire site has me on ignore.
With regards to your discretionary system, I would be interested to know more about it if you dont mind sharing more details. I ran a MC Sim based on the numbers you ran and assumed a $100K trading acct and 1% risk per trade. The maximum draw down was just about 21% (close to the ~17% you experienced) but the system generated a MINIMUM 78% return in a year with 200 trades. I ran the sim with 10,000 times instead of 1,000 to get a more accurate picture of the system. So I think this was just a string of bad luck but well within the system observances. Just know that these MAY happen and try to design a system that has a minimal risk of draw down.
If you read "Definitive Guide to Position Sizing" Van Tharp describes a "10% risk of MAX Draw Down and 1% risk of ruin" Each person defines their own MAX draw down and risk of ruin. If you define max draw down you can stomach as 50% and risk of ruin is 100% and I define them a 10% and 20% respectively then you and I MUST risk different amounts even if we were trading the EXACT same system. The great thing about a good MC simulator is that you can see the % chance that you will have these levels of draw down and thus maximize your risk per trade yet still minimize these events from happening. Essentially, what you are doing is drawing a line in the sand between the red line and white line on theMC Sim graphs & charts above as the maximum loss you are willing to tolerate and adjusting risk per trade to meeet that objective. This is the "optimal" risk per trade,...for THAT particular trader using THAT particular system. Kut2k and intradaybill above have mentioned Optimal F and other methods but Van Tharp dispels these as they will usually cause you to risk too much to achieve the goal you have in mind,...kut2k was right on that one...
The Simulator I use is free and is not quite this capable but I am eyeing the purchase of a more capable one to help me here.
I went back and checked my library. I do not seem to have a copy of "Definitive Guide to Position Sizing". I thought I did. I have Tharps “Secret Report on Money Management” and “Trade you way to Financial Freedom”.
You asked for the general gist of my discretionary swing trading. It will look to most at first as a Barry Rudd general set up. To others it looks like a swing trade from the “Ultimate Trading Guide.”
Just keep in mind the criteria that I actually live trade with are quite different and many conditions have been substituted. I don’t use the moving averages I will illustrate with. My set up is similar to a standard pullback swing trade. Here is what my long trade example model outline does look like:
1 Establish probable trend – For example all price bars are above the 20 EMA and the 20 EMA > 40 EMA establishes probable trend up.
2 Define Trade Trigger mechanism - Price makes 3 consecutive lower Highs where the low of the lowest price bar pierces the 20 EMA.
3 Confirm Price Pullback – Use the indicator of your choice to confirm the pullback. Could be a CCI(5), Stoch(5,3), etc….
4 Trade Execution – Trade execution takes place $0.05 above the prior days high.
5 Initial Stop and Trail Stop – Trade Stop loss placed $0.05 below the entry days low or prior days low whichever is lower. Once two price bars have occurred trail stop until the target is met.
6 Target – The target is the $0.05 above the first pullback bar.