High Risk High Reward Trading

Discussion in 'Journals' started by Millionaire, Mar 7, 2018.

  1. I day trade futures with a fully automated system.

    In trading it is generally considered that risking 1% or lower of your account per trade is low risk. 1% to 2% medium risk and anything over 2% high risk.

    To grow my account aggressively I will be risking 4% of my account per trade.

    My back testing goes back more than 10 years.
    But for the purposes of illustration I have selected the lowest performing three back to back calendar years (2013/2014/2015) from the longer period back test.
    I have shown the 36 monthly percentage returns for this period in the bar chart below.
    Looking at the chart you will see that the largest losing month during the period 2013 to 2015 was -36%. And the largest profitable month was +88%. Remember this is with 4% risked per trade and the period shown is only subset of my full backtesting results.


    Yearly returns:
    2013: +120%
    2014: +204%
    2015: +48%

    Largest drawdowns in each year:
    2013: -55%
    2014: -40%
    2015: -56%

    Yes the drawdowns are deep. But if we are aiming for very high rewards then we will normally have to take very high risks. And it is worth pointing out that If we have a 50% drawdown then we need to make 100% just to get back to even.

    I would say that overall the yearly risk/reward (MAR) ratio possible with day trading is very good, day trading beats other types of trading like long term trend following in this regard.
    However the disadvantage is that day trading is much less scalable, especially if you want to diversify by trading some of the less liquid markets. So in the long run, when day trading, you can not compound 100+% yearly returns for decades (or even one decade) because sooner rather than later you will hit liquidity limits.

    System stats for the period (2013-2015)

    Number of trades: 532
    %Profitable trades: 36%
    %Profitable months : 50%
    %Profitable quarters: 75%
    Last edited: Mar 7, 2018
  2. Live trading results for first 2 months of 2018

    Jan 2018: +35.2%
    Feb 2018: -4.2%

    Largest drawdown: 20%
    Trades taken: 22
    %Profitable Trades: 36%
    %Profitable Months: 50%

    Going forward I will try and update this journal at the end of every calendar month.
  3. Robert Morse

    Robert Morse Sponsor

    • What is the size of the account for live trading?
    • What leverage over SPAN are you limited to?
    • Are returns after all variable and fixed costs?
    • What future are your trading in the live trading?
    • What API have you been using?

  4. tomorton


    Are you sure that day-trading is the optimum trading approach? I mean, if you start off down the wrong road, then driving more quickly / efficiently down it is still going to get you to the wrong destination. Especially bearing in mind this is a relatively short time period for testing.
  5. My account size is deliberately not mentioned, neither the markets i trade with this system.
    I am using the IB Java API, i would say that i am near the limits to the leverage IB provide, i could not up my risk much more.
    Backtesting includes commissions but not slippage, live results includes both.
    My main fixed costs are for data but these are fairly insignificant as i am classed as retail for data.
    Last edited: Mar 7, 2018
    bpr likes this.
  6. bpr


    what is your average risk to reward per trade ?
  7. I don't know if mine is the optimum approach, but this is my niche and where i have spent my time doing all my research.
    Why so pessimistic? Like i mentioned in the opening post, i have back tested more than 10 years. The graph shown is the worst performing 3 back to back calendar year subset from the full back test. I am very confident that the system has a long term edge.

    Around 2.5
    Last edited: Mar 7, 2018
    Van_der_Voort_4, soulfire and bpr like this.
  8. Same.

    But + some more:

    1 - 2.5;
    2 - 9;

    Meaning, you enter 2 contracts same stops, but diff profits.Maybe that helps.
  9. Robert Morse

    Robert Morse Sponsor

    That is of course up to you. It makes a big difference if this is a $30,000 account or $300,000. The symbols is a big deal too as that way we can focus on how hot that future is.
    comagnum likes this.
  10. The only difference i see is that you can do more accurate position sizing with a $300,000 account.
    I mean if the system says buy 34.2 contracts with a $300,000 account. You would buy 34 contracts.
    But if you got the same signal with a 30K account you would have to round down 3.42 contracts to 3 contracts.
    In the long run it probably doesn't make a huge difference, but in the short run it would be frustrating if that trade turns out to be large winner and all the trades where you round up end up being losers.
    Last edited: Mar 7, 2018
    #10     Mar 7, 2018