Ok here's what I'm talking about. Here's a 60EMA (value from IronFist's thread) on a 10,000 volume ES chart (arbitrarily chosen value) colored according to slope. Bar closes green? Go long on open of next candle. Bar closes red? Go short on open of next candle. You can see a few instances of bad chop, however. Especially on 3/20, but some of that was afterhours. I don't think it's quite as good as it looks, though. That's why I said this system needs work but this might be a decent starting place.
What if we were to add the following condition: Only take long trades after HH HL. Only take short trades after LL LH. That was one of the necessary components for the variant of jjrvat's sytem that I was using to be profitable. Taking every trade was bad. Taking trades following the appropriate high/low criteria made the system profitable (over my test months).
Okay, I wrote this longer post below but went back and looked at the equity exit criteria and all of the exits were based on time, none at trade equity ".1" sigma event of course . So I see why I was causing confusion for you. ( I threw in a close the trade if trade equity is > .01 which hits more often, 130 times, and it didn't change much on the EQcurve/WL/PF, slight degradation.) Original post: Look at last week, March 25th for example (cherry picking a good trade): Sliced down through the EMA at the start of the US session and never looked back, that trade was approximately: Entry: Sell 5 @1.2966 in the a.m. Exit : Cover 5 @1.2861 in the p.m. Exit Reason: end of day exit @1545EST (trade equity of .0105) Trade Result: That's $6,562.50 on 5 contracts or $1,312.50 for a single contract. Basis: 6E Tick Size: 0.0001 with Tick Value $12.50.
Are there really all that many "consistently losing systems"? It would not surprise me if they are as rare as "consistently winning systems". I forget who said it here on ET, but someone with a lot of good posts said that what kills most traders isn't a horrible losing system, it's commissions and slippage eventually taking your breakeven system down to zero equity. I bet that has more than a little truth to it.
I'm still confused by what "trade equity > .01" means. Does that mean if the profit on the trade exceeds 1% of the account value?
As a value of the account size? So "trade equity > .01" means if the gains on the trade exceed 1% of the account size (eg. $1,000 on a $100,000 account)? If so, why? Isn't that limiting winners? Or is that a just in case kind of thing?
What about averaging in as a way to deal with chop? Say you get a long signal at a certain price. Add another contract 3 points lower (or wherever) and another contract another 3 points lower (or wherever). If price eventually takes off after chopping around your gains will be much larger. Have an absolute stop another 3 points lower.
Forget the account size, it's not a function of that...it's just a fixed target and yes that is seen as 'limiting winners', and there are many other avenues to calculate here such as volatility, range... There are a few threads already on exits (target, time, fixed size etc), this one is an oldie but good: Exits-- targets vs. trailing stops http://www.elitetrader.com/vb/showthread.php?threadid=9699 At the moment, this is a very simple system, fixed size entries & exits, no scaling. The trick is to match our entries with the right exit strategy. But which one is right? I think it is a good approach when building systems to start with that simple core idea and don't throw the kitchen sink full of ideas. My experience. If anything, I would look at the amount of profit, MFE, run-up, whatever you would like to call it, was left on the table before our actual exit...and determine if trade management could make this system better or better left alone. Scaling out can smooth the equity curve on some systems but it might not be the right exit method here. I believe Lescor, at the time he wrote in his journal, favored a fixed target or fixed time for his strats.