High Risk High Reward Trading

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

  1. bpr


    1:2.5 risk to reward and 36% winner
    your expectancy is 0.26 not that great...but average
    as you are day trading your trade frequency will be high which will help
    you will definitely make money in the long run but you will have huge pnl swing ....
    you need some backup money to recover in case you hit a black hole (worst case scenario)
    #11     Mar 7, 2018
    Millionaire likes this.
  2. I can optimize and add more filters to get much better stats.
    I try not to do that as i have learnt the hard way that this leads to systems that don't work so well in real trading.

    The bar graph in my opening post was posted to illustrate the typical kinds of pnl swings i can expect.
    The -36% was in fact the largest losing month in the complete back test, but +88% was not the biggest winning month ever ;)

    Future results can always be worse than worst case historic results, in fact they definitely will be at some point if i continue to trade this system with the same risk level for long enough. Both the largest drawdown (56%) and largest losing month (-36%) will be exceeded at some point :( . On the plus side i can also expect record profitable months and years at some point!
    Last edited: Mar 7, 2018
    #12     Mar 7, 2018
    bpr likes this.
  3. kevinkdog

    kevinkdog Sponsor

    I am curious, what is the reasoning behind not accounting for slippage in your backtest?
    #13     Mar 7, 2018
    schweiz and SimpleMeLike like this.
  4. Just that i would have to use an estimate. Which i don't like doing.
    Back testing is only indicative anyway i think it only gives a ballpark idea of what you can expect going forward.
    #14     Mar 7, 2018
  5. lindq


    But you posted at least 2 years of 55% percent drawdowns. And if you add in even a minimal amount of (realistic) slippage which your backtest ignores, you could be looking at over 60% drawdowns.

    And you're really going to sit there at your keyboard and tell me that you would have continued to trade the system aggressively at a 55-60 percent drawdown?

    Ain't gonna happen.
    #15     Mar 7, 2018
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  6. kevinkdog

    kevinkdog Sponsor

    I would think having even a rough estimate of slippage included would be better than none.

    True, backtesting is only an estimate, but you used those backtest results to determine that 4% is a safe risk amount. But maybe when you include slippage, 3% would be a better risk amount.

    It might be worth going back and recalculating the backtest, using the actual slippage you had over live trades the last 2 months. Then at least you'd know.
    Last edited: Mar 7, 2018
    #16     Mar 7, 2018
  7. I like your initiative and enthusiasm, but I can't see you being successful with such large and regular drawdowns.

    Hope for your sake that you prove my skepticism wrong. :)
    #17     Mar 7, 2018
    kevinkdog likes this.
  8. I don't think trading is easy. And the reason it isn't easy is the drawdown periods.

    This is when discipline/emotional control/psychology comes into play. I spend a lot of time on these areas. Much more now than system development. I went live with this system in October 2016. And i havent changed anything major with it since. It has performed as expected and i had a 50% drawdown in this time. Losses are never pleasant whether, 5% or 50%. Even a 0.5% loss can ruin your mood for the rest of the day.

    I don't do much research these days, my mind is focused on preparing for those drawdowns and not missing any signals ever. 100% flawless execution. I don't always achieve that i will admit.
    But i am getting better at it as the years go by.
    #18     Mar 7, 2018
  9. All I can say is "Good Luck". From what you've told us, I think you're going to need it. (IOW... I wouldn't be trading "all of your mother's money" with an approach which is so cavalier about risk/drawdowns.)
    Last edited: Mar 7, 2018
    #19     Mar 7, 2018
    Handle123 and Van_der_Voort_4 like this.
  10. kevinkdog

    kevinkdog Sponsor

    I am not trying to be a jerk, but I am trying to understand your approach. You have been trading this live for 18 months roughly, and you say that you did not include any slippage in your backtest because it would just be an estimate.

    Yet you have 18 months of real results to calculate actual slippage, right?

    I'm just trying to understand your thinking, sorry for putting you on the spot.
    #20     Mar 7, 2018