longest flat period 2 days in the market 32% of the time. while almost all my profits are never more than 1: in spite of positive slippage most all my stops far less, like .25 to .50 in fact i just looked and very few were 2. this is the looseness of fit it takes to make a model hold up over time, same model 1.25:2 winds up 40%+ win rate and makes less. ask away any questions you have
Ok, just that I though you said in one of the replies your PT and ST were fixed so I was reading that to mean you were either making $1 or losing $2. But what you seem to be replying is that the ST of $2 is worst case and most times you are out of a loser before this - correct? Is that because the model generates a reverse signal so it gets out of the loser as soon as a signal is generated in the other direction? If not, what is making the model close a loser before the $2 ST is reached (based on your theoretical 1:2 reward to risk ratio)?
i never thought about it but that is why i am here to answer questions that might be useful to others. thru the years i have found that in live trading you can put me into a position and i can profit from it most of the time using only a quote. it comes from 30+ years of trading at firms where we bet on any and everything while we managed funds. so in my modeling i also practice that, i get a slight edge on the entry and the magic comes with risk management. most my models have about 3 possible exit strategies the least favorable is the hard stop and the least likely to get hit. i would be glad to post a .pdf that give examples of how to do this. so to answer your question entries are pretty cut and dry, stops and sar's are on the other hand really where i have found you make your money and it's where i put in my most work.
Thanks Mark, Yes by all means post a .pdf as others may find it useful as well. Second question: you mentioned about adding contracts over time without adding additional risk. I think you said its starts with one car and builds up to 10 cars. What method is it using to determine when to move to 2 cars and then 3 etc eg is it when the account size say doubles it adds another car - and does it ever reduce the number of cars per trade? You mention 'fixed ratio' what do you mean by this?
there are many theories on this and i have tried them all. i will post you my actual code for the 2nd system i posted in this thread. again there are so many different ideas on this i just know what works for me, irregardless what someone has written in a book. i learned by losing real money. so normally you would have a delta that you would increase below it's hard coded and notice the note i am not reducing size, found that just drags out for far to long. pl=netprofit; if pl > maxpl then maxpl=pl; if pl > 3000 then siz=2; if pl > 10000 then siz=3; if pl > 20000 then siz=4; if pl > 32000 then siz=5; if pl > 45000 then siz=6; if pl > 60000 then siz=7; if pl > 75000 then siz=8; if pl > 95000 then siz=9; if pl > 115000 then siz=10; if pl > 140000 then siz=11; if pl > 165000 then siz=12; if pl > 190000 then siz=13; if pl > 220000 then siz=14; if pl > 250000 then siz=15; if siz > maxsiz then maxsiz=siz; siz=maxsiz; {no reducing size} if MaxIDDrawDown / maxsiz > 3000 then siz=0;{quit trading when 3k dd is hit} {----- end of MM code -----} if mm=0 then siz=1; {input mm turns off MM calc when 0}
I don't want to muddy up Mark's thread as he's posting a ton of good information, so I'll make this short. As another old dog in the yard I do want to add my .02 on the risk 200 for 100. As noted above the old adage is, cut your losses short and let your winners run. I'm positive that was started buy a broker to make money. If you're familiar with Financial Machine Learning you already know who Marcos Lopez de Prado is, if you don't and you're into that sort of thing, def give him a google. This is what he said about the matter: "... The half-life is so small that performance is maximized in a narrow range of combinations of small profit-taking with large stop-losses. In other words, the optimal trading rule is to hold an inventory long enough until a small profit arises, even at the risk of experiencing some 5-fold or 7-fold unrealized losses. Sharpe ratios are high, reaching levels of around 3.2. The worst possible trading rule in this setting would be to combine a short stop-loss with a large profit-taking threshold, a situation that market-makers avoid in practice." Marcos was the head of machine learning at AQR a $226 billion dollar HF. I'd take that advice over a bucket-shop any day. Alright, I'm ducking out, please carry on with this most excellent thread.
Hello MarkBrown, Thanks for the post. A few questions: 1. Was choosing a Reward to Risk < 1 a personal thing or it makes money thing? Or was it related to having a high probability trade each time? 2. What are 1 to 3 reasons you prefer range bars? I have been monitoring range bars the past few weeks. Thank you,
1.) answers there is an undeniable correlation between risk reward and percentage of wins. trend traders risk little and lose often yet win big. if they would risk more and take profits faster then they would win more often. so think of it as a sliding scale the larger risk and smaller profit = more wins the smaller risk and larger profit = less wins typically i have found in discretionary trading like you are doing larger stops will give more time for a trade to work in your favor that you didn't have an optimal entry on. 2.) answers i have used all sorts of bars for testing, i like tick bar charts and range bars by far the best. range bars for the same reasons you touched on you know immediately what your looking at value wise. another advantage is no matter the market and what your methods they will always look the same and never change. you can increased the range bar size and things will slow down but it will look exactly the same. so consistency is why i like range bars, but if you get them too small less than a full point they can become untradeable because they will artificially fill gaps in the data with pseudo bars.
Add averaging down to upside down risks/reward and a trader will be breaking two cardinal rules but may very well find his account will grow and not deplete. I have been harping on this sort of stuff in my journal trying to effect paradigm shift but traditions are hard to break. Mathematically 2:1 reward to risk or 3:1 ...4:1 etc sounds great and in theory mathematically they work but in real trading the theory VERY OFTEN falls apart. See, you can create any numbers for R:R you want and they may sound good but often what a trader forgets is: what is the probability of the trade ACTUALLY reaching his PT before his SL? I will tell you what; quite often 1:2 or 1:3 Initial reward to risk will in fact flip in actual trading and actual reward to risk once the exit is made will end up being 3:1 or 6:1 or even 10:1 after the trade is finished. I pay way more attention to actual R:R than I do my initial R:R. Breaking a third cardinal rule of “letting your profits runs counterintuitive.” But I say “grab them profits.” In real life too often trying to let your profits run ends up being break even or losing after having a paper profit in hand but it evaporated in the twinkle of an eye. JUST LOCK IN THOSE PROFITS. It does not matter what happens afterwards. If the move continues I can often get back in at a better price than my previous exit that locked in profits thus, in effect, compounding my money as the move continues. I don’t worry about commissions. I guess that too is breaking another rule...ROFLMAO