I don't think there's a simple answer. A better than 50% win rate is good but if your money management isn't tight and you incur large losses, you won't get anywhere fast. Up 35% in 3 months is very good but it may be nothing more than the good fortune of a finite sample in a cooperative market. Or not. Time will tell. When to increase size is a personal thing as you have to balance results with risk. In early '07 I began experimenting with a pairs trading system on somewhat illiquid stocks that looked good on paper (the hindsight of backtesting). I began trading it with several 400-600 share positions (200-300 on each side, long and short). As they worked and as I discovered add'l nuances that only come from real time, I began slowly bumping up size, more so as profits were booked (substituting legs to book profits, shifting bias intraday, etc.). I believe that when something is working well, you keep hammering at it, increasing size the longer it works but never more thanone can eat when it doesn't. It's usually the last trade that gets you but by then you should be well ahead and one trade isn't a killer - it just becomes the cost of doing business. At one point in 2010 I held nearly mid 6 figures of pairs inventory but by then, the strategy was on the decline. Edges come and go and eventually, so did this one. I'm not confusing brains with a raging bear market. Trading in a GFC was a lot wind in the sails and the edge is gone. Or maybe not an edge, just a being in the right place at the right time. Call it what you want. The short answer? You have to scale up within your comnfort zone, make hay while the sun shines and at all times, practice good money management so that nothing ever hammers you.
TT You said ââ¦the more I see it is as much feel as it is working within the systemâ¦â I would like to comment on this. What all successful traders eventually find out is that their trading is a form of artificial intelligence (that is like AI in computers). Each of us develops a rules based expert system that works for our trading criteria or edge. The rules that work for you as trader may not apply to building a rule set for me. This is why it so difficult in ET to often converse among ourselves. Both of our methods may work for our techniques yet not resemble the other traders. When you said volatility is cyclical (I have traded cycles for 20 years) your expert system has rules that let you trade high volatility because the cycle will be mean reverting and you can profit by it. Where in my expert system money management and risk management rules come first in the trade set up and tell me what I can and canât do because I lean toward capital preservation. So I often override position sizing in high volatility. Another example in my rule set is volume. I need a 800,000 share average over 30-50 days. I would not trade TDSC. I trade stocks like IDCC. Like I said both of our methods are correct for our techniques and our expert rule setâ¦
Good thoughts Rabbit...all true! At least we agree that without trading our lives would be somewhat less fulfilling..Enjoy your summer off!
After 10 trades over 3 mos I am up 35%...How mant trades do any of you recommend I put in before I can realistically think that I may have a system that is somewhat workable for now and I can look to start increasing my size a bit. Why not let the returns dictate the size? In other words, if your up 35% in 3 months, a new position now could be 35% larger than a new position 3 months ago. I typically backtest strategies with hundreds to thousands of trades, so when I go live I pretty much know what to expect.
10 trades is almost nothing , even on a random basis being up 35% after 10 is quite likley ( whats more 35% isn't that much either and happens very often by chance ), 30 or 40 trades are (obviousley ) more significant , but only if win rate is very high , i.e. even a thousand trades isn't significant if only 550 win 450 lose ( even win/ loss size) but 40 is likley to be significant if 39 win.
DWP..thats some good advice. makes sense as I go up when successful and down when in a bad streak..I will think on that one.