Exactly, that is what I was thinking: the way the market works today might be different from how it behaved in the past. That made me wonder how you decided to look back two years, instead of any other look back period.
I am not a day trader like you. So I guess that my choices might be different than yours. My trading is fully automated and doesn't use any stop loss settings. My system does take volatility into account and bases that on the most recent 25 trading days. If the volatility is less (compared to my account size), is a larger position size allowed. If the volatility gets larger (compared to account size) is the position size reduced. Thus it uses an inverse relationship between volatility and position size.
No, I don't use ATR. I use the daily close prices over the last 25 days. And calculate the volatility based on those.
One cannot create a more or less accurate comparison of volatility measure across different instruments using this method, unless you use a very extensive convoluted and messy formula, imo.
@themickey I feel that this discussion should not be done in @MidwesternTrader 's journal, but somewhere else. I don't want to "hijack" his journal.
Week Feb 5th – Feb 9th In a week where many fortunes were made or lost, this strategy produced a result almost equal to its weekly average for the past two years. I guess in a way it validated its design to make a profit by keeping losers small and letting winners run through end of day to overcome the high number of full stop losses it will incur. 3 wining days, 2 losing days. 19 winning trades, 21 losing trades with 16 full stop losses. The pre-market entries into NQ this week had no chance in this equity volatility event. Good returns in CL, HO and NG overcame awful weeks in NQ (5 full stop losses) and LE (5 full stop losses). NAV: +$3,127.65 Adherence to outlined trading strategy: 100%.
8 Week Assessment Time to compare my actual results against the strategy expected results for each instrument. For this comparison the strategy expected result includes an original slippage factor for each instrument. Commissions will not be included when comparing to actuals, but treated as a separate cost so I can compare performance of each futures contract trade. I’ll round figures to whole dollars to make this easier. Overall the realized gain from the first 8 weeks of trading is $14,940. Commissions totaled $1,770, so net profit rests at $13,170. 26.4% gain on the $50,000 bankroll used to start this account. But how does this compare to my strategy model’s expected return? The model is expecting a realized gain of $21,470 not including commissions. So I am $6,530 short of that mark, 30% less than the model. Understanding that most models will incur performance slip from actual trading, I would like to actuals to be within 15% of the model. Let’s look at each future to see where the discrepancies are. Instrument: Model : Actual: Difference from Model (All figures in 10s. 600 = $6,000) CL: +710 : 692 : +18 NQ: +281 : 289 : +9 GC: +185 : 190 : +5 NG: +499 : 396 : -103 HO: +494 : 390 : -104 KC: -289 : -253 : +46 HE: -132 : -418 : -286 LE: +416 : 190 : -226 CL, NQ, and GC actuals are in line with the model’s expected results. I’ve setup and executed trades for all these at 100% accuracy to the strategy’s signals. These 3 futures also trade with the highest volumes compared to others in the group and usually have no gap in the Bid / Ask spread, so the expected slippage factor of 1 tick per round turn is holding true. NG and HO are each seeing about a -$1,000 miss in expected return so far. I’ve setup and executed the trades for these at 100% accuracy, so I must not be correctly forecasting slippage for these instruments. I have made 37 trades for both of these instruments, so my slip has been about $1000 / 37 trades = $27 more per round turn more than expected. These instruments both trade using four decimal places, 2.1000 for example. The Bid / Ask spread is often .0005 - .0007, so this is the most likely reason for under performing compared to the model’s expected result. They do not have the tight spreads like CL or NQ. I most likely need to add an additional $20 of slippage for each round turn for these contracts. KC is more of an enigma. I was having issues with higher slippage stemming from intraday price thrusts in this thinly traded instrument, so I expected the actuals to be negative in relation to the model, not positive. I do exit trades 1 minute early from close and the model calculates at the closing tick, so there is enough randomization between 12:28:59 and 12:39:59 prices to account for the +46. Livestock products HE and LE also need some analysis as they have the widest actual to strategy model performance gaps. For LE I did mistake one entry signal and reversed a trade turning a $950 winner into a $560 stop out loser, so that accounts for -$1,510 or the -$2,260 difference. I also began trading these at 8:35 AM instead of at the 8:30 AM open to try and avoid early stop losses during volatile opens. I’ve tracked the price difference between the two times and this accounts for an additional -$810 variance. Taking in those two factors leaves a a minimal variance, so I think I understand the LE variance. HE also has some slip being caused by the decision to change the entry time to 8:35 instead of 8:30 and accounts for -200 of the -286 variance or around $45 dollars per trade. I notice that price movement from 8:30 to 8:35 AM has mostly moved in the direction of the trade signal, so on average I am losing return with the 8:35 AM open. That leaves an additional -86 variance that represents another $20 per trade that may be due to additional slippage on top of that. I will probably need more data points on both HE and LE in order to make better actual vs. model slippage assessments.
Thanks HT. It's not that impressive in total return as a single well placed discretionary trade in the ES could net someone 60 points or more easily this week. But for how it trades, not having it blow up with a big red week is a good thing. Other styles of trading definitely cashed in big this week, but I'll take the results to live another day. It will be interesting to see how it continues to perform as this period of elevated volatility will be around for a while.