The account has been opened with $50,000 to trade this strategy, so you can fairly easily extrapolate the % returns from NAV changes posted in the weekly updates. It only has 3 weeks of live history and that is all that matters in my book. What it will return over the months we will just have to find out as time goes on. Since it is trading highly leverage assets, we should see some big swings, easily +/- 20% or more up and down as time goes on. I'll set a bust out limit at -50% for this one, $25,000 loss on the account. As far as a total % of my portfolio or greater net worth in general, I'll just say my financial position is in the standard range for an average 44 year old, college educated professional living in the United States who feels they can lose $25,000 on this exercise. I still work to pay the bills. So understanding total net worth context is important for some, I'll let those people make their assumptions from that.
I have the same approach in that some strategies are used for particular market regimes. The trick is to have a relevant market regime filter to know when to use a particular strategy. I do strongly encourage you to get more data to test with. Testing with only two years of data which occurs during one type of market could be a recipe for disaster because the markets will eventually tumble as they always have. I understand losing 25k will not be the end of the road for you but 25k is still 25k
Yes, more history testing surely wouldn't hurt. I not so concerned it will trade OK in a bear market scenario in any of the contracts as it is direction-ally (is that even a word?) unbiased and trades about the same average P & L for longs and shorts. But a major change in volatility is my main concern at the moment. My 25k breaking point is a total draw down at any one time. In the first three weeks I've been lucky to start off on a real hot streak, which is really just dumb luck to begin at this point in time. So each Friday the account was above 50K, I ACH'ed the amount above out so Monday starts again at 50K. I've taken out $15K profits to date, so a 25K draw down from here leaves my total risk only at 10K. Again, that's mostly good luck, not genius, but I'll take it. Money management is one of my strengths. I religiously set automated daily stop losses and have done the same with my account "take out" approach for this. The intraday margin required to trade this basket is $24,950, so if the account ever draws down to $25K, I can't trade it. Sort of a built in money management firewall in that respect. But one thing for sure is you really can't learn any true trading lessons without feeling real loss/pain and euphoria/gain. Experiencing those emotions and working through them is so very important. Anyway the real goal of this journal is to learn and open it up to commentary from other traders. It will give me a chance to bounce negative and positive feedback off my convictions and hopefully make me a better trader long term. I'm not going to argue with anyone to prove a point because every trader needs to execute what works for them. A $50K account is peanuts compared to real traders and nothing worth bragging about no matter what happens to it up or down, IMO. Thanks for your comments!
This something I have thought about but have not implemented. Basically you have a system that is highly leveraged that has the potential to be very lucrative when it is in line with the market regime. When it is not there is a high likely hood that you will lose a significant amount of trading capital before pulling the plug. The key is what are the odds that you will be able to withdraw enough profits to account for the eventual wipe out? They might actually be high. I like this
To add to your thoughts, this particular strategy had six back test draw downs in excess of -$4,000 in 2016, average draw down of $-5,930. In 2017 it had 11 back test draw downs in excess of -$4,000 averaging -$5,720 per draw. Max draw over 2 years was -$9,200. More draws in 2017, but not any greater in average magnitude. When I went live on Monday, Dec. 18th, it was in the middle of a draw down at -$4,442. That draw continued through my first live week before reversing positive. So I began trading at a point when past statistical results predicted a turn around was more likely than doubling the major draw down it was currently in. Now every system is due to bust out at some time right? Nothing lasts forever and you will eventually encounter a future draw that will be the "biggest ever" at some point. But if you start trading a new method in the middle of a "large draw", then maybe you will have better odds catching an initial upswing when you go live. Anyway the race is on for this particular approach. It needs to bank another $10K in profits that can be taken off the table to make my break even against the self imposed -$25K draw down bust out event. Like you say, how long before the wipe out hits is unknown, but also a certainty.
Am I right that you are usually taking one trade per instrument per day, except when there is no bullish or bearish bias? I think that's an interesting approach which seems much more sound than the usual 50-trades-per-day-in-the-ES-strategies.
I take a long or bearish signal every day in every instrument. I currently do not sit out any days as I am always taking a long or short signal, including holiday shortened trading days for instruments that are open partial trading hours. I make the entries in the early morning and setup IB order execution tools to exit me flat before markets close on each instrument. There are people that are undoubtedly successful following the intra-day market action and trading high volumes on shorter time frame charts, but that is something I don't have the talent for or emotional make up to do. Plus I still need to work during the day, so I have been developing ideas that fit my skills and needs better than the higher volume, intra-day trading techniques.
".....take about 45 minutes each night to review the completed trades, perform price action analysis, and determine the trades for the next day....." You are able to determine trades for the next day from like 18 hours beforehand?
You mention daily entry and close, but what's the primary timeframe you're basing the trade analysis on? My initial gut reaction to the daily stop losses is that for some instruments I could see you getting stopped out over and over on some of these unless your entries are perfect (e.g. KC, GC). Also, since you're trading a basket of commodities you have to keep in mind that they can still be generally correlated and there may be days where you get killed on every position due to overall moves within the commodity space, e.g. dollar, rates, etc.
Yes, the next day's trade decision tree will be set at the previous day's close. About half the trade entries are a hard long or short irregardless of the overnight price action. The other half are signals based on a pivot point. If the instrument is trading above the pivot point before the pre-market open, it is a long. Trading below the pivot point will be a short.