Traderich, some statistics are very important (at least for me) to assess whether a strategy is sound and tradeable: 1.) Average profit per trade: My criteria is >1% per trade AFTER commission (for stocks). This gives you some room to cover slippage 2.) Return in relation to drawdown: This measures the consistency of your strategy. I want to have at least a relation of 10:1 (e.g. 100% annual profit, 10% max drawdown) with a reasonable number of trades When your strategy is only profitable when trading >500 lots then your average profit per trade is simply not good enough. One way to improve things is to look at the MFE (Maximum Favorable Excursion) and MAE (Maximum Adverse Excursion) figures in combination with the profit distribution of your strategy. These numbers can give you a hint to find better stops, entries and/or exits. The portfolio simulator in Wealth Lab is a great tool to support a research like this.
I have no secret weapon, far from it. I will give you more detail on a 1 on 1 basis rather than blindly posting my strategy on here.
Many of you will consider what I am doing as scalping because the average gain is about 4 cents per trade. Be careful though, I am saying the 'average' is 6 cents for several thousand trades. 6 cents per stock equates to $60 for 1000 shares minus $14 commission is $46/trade average. Assume average of 6 stocks traded each day equates to just under $300/day and about $1500/week. It is extremely important that you realize that this the average of hundreds of trades. Some trades were worth several thousand dollars profit where others were a couple thousand loss and everywhere in between. I have a full log of each trade and the profits and losses for your review.
'5/2 $4,180 '5/3 ($554) '5/4 $1,006 '5/5 ($1,034) '5/6 $556 '5/9 $3,306 '5/10 ($1,554) '5/11 ($164) '5/12 ($734) '5/13 ($1,294) '5/16 $866 '5/17 $1,286 '5/18 $786 '5/19 $826 '5/20 $726 '5/23 $786 '5/24 ($1,174) '5/25 ($3,614) '5/26 ($44) '5/27 ($174) '5/31 ($124) '6/1 $356 '6/2 $3,196 '6/3 $4,196 '6/6 ($574) '6/7 ($214) '6/8 ($174) '6/9 $2,466 '6/10 $1,412 '6/13 ($904) '6/14 $3,776 '6/15 ($244) '6/16 ($3,024) '6/17 ($6,134) '6/21 $1,776 '6/22 $1,646 '6/23 ($1,684) '6/24 ($1,354) '6/27 $166 '6/28 $1,286 '6/29 $3,266 '6/30 ($154) '7/1 $816 '7/5 ($1,784) '7/6 ($518) '7/7 $1,816 '7/8 $892 '7/11 ($504) '7/13 ($3,414) '7/14 $396 '7/15 $0 '7/18 $1,456 '7/20 $4,306 '7/21 $206 '7/25 $1,726 '7/26 ($428) '7/27 $1,496 '7/28 $1,172 '7/29 ($564) '8/1 ($164) '8/2 ($354) '8/3 $476 '8/4 ($114) '8/5 ($1,454) '8/8 ($1,864) '8/9 ($294) '8/10 ($1,104) '8/11 ($334) '8/12 ($264) '8/15 $786 '8/16 ($804) '8/17 $256 '8/18 $7,126 '8/19 ($2,484) '8/22 $56 '8/23 ($568) '8/24 $2,086 '8/25 ($304) '8/26 ($1,144) '8/29mon $616 '8/30 ($834) '8/31 $4,161 '9/1 ($1,494) '9/2 '9/5 '9/6 $816 '9/7 ($1,024) '9/8 $496 '9/9 ($34) '9/12 $1,726 '9/13 $886 '9/14 $736 '9/15 ($2,254) '9/16 $1,300 '9/19 ($2,134) '9/20 ($2,244) '9/21 $786 '9/22 ($2,294) '9/23 $2,036 $20,795
I am paying $7/trade market or limit order. If you were using a full service brokerage house which could charge $500 for a trade, guess what? You'd better be in for the long haul to try and overcome that vig! My average profit for several hundred trades is less than 10 cents per trade. Doesn't sound very good, but 9 cents average profit per trade for 1000 shares is $90. Subtract commission of $14 leaves you with $76/trade. Times that by about 6 trades a day on average is say $400/day or about $2000/week. If this is chump change to you, please let me be the one asking you what the heck you are doing!
I really didn't want to have to explain this in detail but here is the reason why the same 1000 share trades would not be profitable if I only traded 100 share blocks: 9 cent profit per trade average x 1000 shares is $90. 9 cent profit per trade average x 100 shares is $9. subtract $14 commission and you see why. so, I am sure the smart ones are saying, oh, I see, so my breakeven is 1.4 cents on 1000 shares buy 14 cents on 100 shares. Big difference. In fact, it turns a profitable method into a losing proposition. Now that we have that detail cleared up, let's move. thanks.
I know I have stressed the point that the AVERAGE for several hundred trades is about 6 cents, here are a couple specific examples of the swings. Notice in my post of the actual day results from 5/2- 9/23 there are huge swings. I bought ALO @ 26.60 the other day, sold off @ 29.25 for a nice gain on 1000 shares. I bought POT @ 104.55 a while back. sold the 1000 shares off @ 100.35 for a massive loss. As you can see there are huge swings on individual trades and also on a single day. I am not concerned with one trade, or one day of trading. I want to show a profit doing the same thing over and over again over the course of a year or longer. One other point: I do not use tight stops on the orders. I have thought about this and have to further review it to see what is a good stop loss. I like the idea of minimizing the losses, but several times the stocks go down and then go back up later in the day. If you review the data you will see that the big gains are bigger than the big losses and there are more bigger winners than big losers. I agree with the guy who said that in layman terms its better to let the winners ride and cut the losers fast.
7/29/05: ticker buy price sell price 1000 500 300 100 RGR 11.21 11.77 ($504) ($259) ($161) ($63) MNT 48.78 48.27 ($524) ($269) ($167) ($65) WEN 50.32 51.74 $1,406 $696 $412 $128 IM 18.43 18.64 $196 $91 $49 $7 SVR 14.01 13.98 ($44) ($29) ($23) ($17) BHS 50.99 49.91 ($1,094) ($554) ($338) ($122) Total 193.75 194.23 ($564) ($324) ($228) ($132) DTBP needed $193k $96k $58k 19k Notice that this day was a loss of $564 based on 1000 shares of each stock traded. Also notice that $193,000 was needed for buying power to buy all the stocks that day. Here is a winning day: 10/17/05: # shares traded ticker buy sell 1000 500 300 100 BLI 12.5 12.7 $186 $86 $46 $6 COG 29.87 30.46 $576 $281 $163 $45 PKG 22.3 22.39 $76 $31 $13 ($5) HD 39.19 38.8 ($404) ($209) ($131) ($53) DKS 35.21 35.9 $676 $331 $193 $55 HYC 5.61 5.8 $176 $81 $43 $5 144.68 146.05 $1,286 $601 $327 $53 DTBP needed $146k $73k $43k $14k
$0.07 per share average commission is too high. You can do better then that. http://www.interactivebrokers.com/en/accounts/fees/commission.php?ib_entity=llc