I'm making a significant change to my risk level of my fade trades. The change is a smaller stop range and no average in (single position). I need to track how this affects my strategy overall so I'm tracking 100 trades on a separate spreadsheet. I'll be using CQG filled entry/exit price and also calculate manually my MAE/MFE for each setup. This will be added to my weekly report
The consistent results on the vast majority of days does reflect his edge but the flaw is as obvious as the pink elephant in the room. The flaw is not in his system, it is that on his two huge losing days that almost took him out, he simply "fought" the market direction and continued to bet against it. Himly just needs to find out why he did this and correct it. He is amazing in his resilience and perseverance in the face of self inflicted adversity. I admire his guts to show that gargantuan loss and still keep posting.
There's a flaw with this concept...as soon as volatility is high...it takes a few days or more for it to return back to its mean. Also, if the cause of the high volatility is still present and the market is still discussing it as the reason for the high volatility...it may take a little longer for the volatility to return back to its mean. Simply, if you know its high volatility on one day...you will know beforehand it will be high volatility the next trading day although it could be trying to revert or go higher. For example, pretend its high volatility on Weds July 31st, Thurs August 1st and Fri August 2nd. Then over the weekend reasons for the volatility is still being hyped & discussed by those that move the markets...its an issue in many different key markets and the financial networks & other professionals can't stop talking / reacting to it in real time. Simply, volatility is still an issue. Further, volatility is not going to suddenly disappear on Monday August 5th and Tuesday August 6th of the following week. This is exactly what happen the prior week to his losses on Monday and Tuesday (the big one) because volatility was still high via what had occurred the prior week (ground zero). I think hilmy83 refer to the climax on Monday and Tuesday as consecutive 1000 tick days or something like that. Therefore, even if volatility dramatically declined as it tries to revert back to its mean...its still high and not good trading conditions for most while its reverting for those that are using a trade method sensitive to movements in the volatility...that's what I strongly suspect what happen (the reasons for the consecutive losing trading days) to hilmy83 on Monday August 5th and Tuesday August 6th although Friday August 2nd was the "warning day" when he had 933.80$ in profits. Therefore, if your statistics show your trade method performs poorly in high volatility trading conditions (which is why I asked him the question about when he lost 1/2 his profits in one trading day after he mentioned such earlier in this thread...he should know what days these big losses are occurring on)... You can then know with high probability the next trading will still be high volatility market conditions even if volatility starts to revert (decline) back to its mean. In fact, statistically, volatility has never been high one trading day and then low the next trading day...it takes a mimimum of a few trading days for it to revert. Simply, high volatility will either 1) Go higher 2) Begin to revert Its during that reversion period when volatility is still dangerous for traders that use a trading plan thats sensitive to volatility in a negative way. In contrast, others that have a trade method that performs well in high volatility...they will continue trading well for a few days at the minimum while volatility begins to revert until it returns back to its mean. This is just one way out of many how professional traders adjust their position size management to volatility. The above is mute if a trader doesn't know the historical stats of his/her profits & losses versus volatility. Friday August 2nd - Volatility spiked higher and its a breakout above its weeks range. Its a week of FOMC (July 31st), Trump (tweet fiasco), 10% more Tariffs threats, China, Hedge Funds concentrated together in certain stocks and a few other key events with Europe & Asia. Monday August 5th - Volatility was high and rising during the Asia, European and U.S. trading sesssion. Tuesday August 6th - Volatility will either 1) Go higher 2) Begin to revert... Three trading sessions on Monday August 5th with high volatility as a global event. Thus, it's not a coincidence and it takes a while for the markets to calm down from a global reaction to whatever it was that caused the high volatility. I'm just shocked that volatility is not much higher...2x to 3x higher. Since President Clinton years...the market has gotten better at shaking off sudden volatility and reverting it back to its mean within a few trading days of the climax. As if its lying on its back and smoking a joint after it has had its way with us. The key here is that we can only see what hilmy83 shows us in the live stream or recordings of the live stream to know how his position size management impacted his trading when volatility went from normal to high and then reverting back to normal. Stuff like the above kills traders and can cause many to disappear for awhile or permanently that took unusual risks in their position size management or the markets they're trading. It can be very spooky to many if they do not have control of their emotions. On the flip side, markets since Wednesday July 31st is what attracts new traders to the markets to continue the wheel to go around and around. P.S. A good trader will adjust and/or take a closer look at their statistics going forward and historically. wrbtrader
You seems to suggest his loss came from his deviating from his usual method for emotional reason on that day. If that was true, then his only problem is emotional control. But I think there could be another reason. Let's say when his system catch a market turning point, there will be always some error so that he could not hit the exact turning point.So after he enter the position, he may incur some loss before the turning point occur. On a much more volatile day, the loss he incur could be so big that he could not hold his position anymore, so he may be forced to cut loss before that turning point came. That is what I meant he has flaw in leverage.
Honor the Daily loss limit, Blaming market volatility is not going to work. When deploying mean reverting strategies while the market is trending nicely, its easier to fool ourselves with larger lots convincing ourselves that oh here is the reversal. Sticking to our loss limits is the only way will help us survive until we back on our senses.
Nice post @wrbtrader I'll add... AVERAGE VIX level YoY since '90 is 19.20 (approx). Current VIX is 17.97.
What I suggested is a system that will not be affected by volatility. At least for my system, when I make my entry, I clearly know where is my stop point and where is my profit target. If on a much more volatile day, I find that my stop loss point will be 3 times as usual,(the profit target is also 3 times away), I can then adjust my position size to 1/3 of usual size.
You can not honor the daily loss limit if there is a problem with the emotional control. Simply, honoring it implies the trader is very discipline no matter what happens. In contrast, I strongly agree with you about fooling ourselves on trend days when using mean reverting strategies. --------- I can't remember the name of the broker or maybe it was a trade execution platform...the platform will lock (no trading allowed) when you reach your daily loss limit. For example, if you have a 50k account and you set it to a loss limit of -2.5k loss and you then hit that loss limit...it will lock your platform until the next trading session. Great for those that do not have control of their emotions...not respecting any loss limit when they try to do it on their own as if they can write it down on a sticky note and then stick it on their monitor to force them respect their limits. It just does not work that way for any trader without discipline. wrbtrader
Sierra Chart does have this option. I am struggling with the same issues too. A well thought out plan should be addressing these issues.