If you do the maths ... with a win% of 50%, the odds of a losing streak of 7 losers in a row are about 1% ... assuming an average 10 trades per day (you mentioned 5-15), you'll get two of these on average every month. If you are betting 5% per trade, this is 2 drawdowns of 35% or more every month. This is going to be enormous psychological pressure on an ongoing basis, a "good" environment to make all sorts of errors. Anyway, I sincerely wish you the best of luck
Here is my advice to you. 1. For each trade you should have an edge, and a plan and stick to it. 2. Reduce your leverage. 3. Your goal should not be more then 25% per year. (If you make more that's a bonus.) 4. Risk managment should be your top priority, not return on capital.
Update for week 1 ending Mar 30, 2012 : +200$ for the week. Had a great start on Monday but gave back gains during other days of the week. Took 3 non-systematic trades - and they cost me a good 300$. Good thing was as week progressed, I controlled my urge to take any unplanned trades completely. I had developed skeleton of a strategy on ES around 4 months ago, but was not using it as the equity curve was erratic. I tried couple of very easy filters this week on this forgotten strategy which made the equity curve pretty smooth. I am going to start trading this ES strategy - so now my stable of ES strategies has gone up to 3. Also have developed another ES strategy that trades daily but its average profit is just 1 tick, so won't trade it for the time being. Currently, I have ES data for only past 2 yrs, I will surely like to see results hold over much longer periods (preferably 10yrs or so on this 1 tick average profit strategy) before I put it into production. So, I will wait to test this strategy on longer historical ES data. Weekly Stats: 1. Week PL: +200 2. Start Equity: 2500 3. End Equity: 2700 4. Maximum equity run-up: 2900 5. Max Win day as % of that day's start equity: 19% 6. Max Loss day as % of that day's start equity: -14% 7. # of Systematic Trades missed: 0 8. # of Trades other than Systematic Trades: 3 Below stats are from Journal start day: 1. Total PL: +200 2. PF: 1.26 3. RoI: 7% 4. Max. DD: 23% 5. Current DD: 8% 6. # of winning days 40%, # of losing days 60% 7. Av. win day: 17% 8. Av. Loss day: -8% 9. Sharpe: 2.32
You raise a very good and pertinent point. Thinking through it, here is my response. Below numbers are based on my best estimate: 1. On more than 90% of days, number of trades with 5% risk would be less than 4. 2. Most of the days (say 45%) would have 1 trade with 5% risk. 3. Around 25% days would have 2 trades with 5% risk. 4. Around 20% days would have 3 trades with 5% risk. 5. Most of the other trades during a day would have generally 2% to 3% risk. Lets say such trades will number 6-8 trades per day. 6. Around 30 days in a year, one trade would have 10% risk. You can assume 50% win rate for all the trades above. It will be great if you can compute expected DD frequency based on the information I gave you in above points. Cheers and Thanks! I guess once I have data for first 3 months, I will have a much better idea of actual drawdowns I will encounter. I have not run any trading account before with such meticulous planning and in such a systematic way, so its a little tricky to look back at previous accounts DD statistics and make the projection for this account. Also, I think the real issue that will determine quality of success would be how I fare psychologically when my account has increased in size, say from 2500 to 60k and then a 60% DD hits and it goes back to 24k. At that point, would I be courageous and disciplined enough to take all the trades as they come or will I deviate from the plan ? This alone would determine the long term success of this journal.
Update for week 2 ending Apr 6, 2012 : +200$ for the week. Started badly on Monday and Tuesday, took highly correlated two positions simultaneously on Monday and ended up losing 5-8% on both of them. Basically had gone long after 90 pip gapup on AUD on Monday and long Euro also. By Wednesday, equity was at a fresh all time low, but then climbed back aided by some decent moves in the market and some nice signals on Wed and Thursday. Some volatility following payrolls numbers helped also. Went berserk on Thursday when I had 16 unplanned trades, lost some dollars there. Week could have been better otherwise. Weekly Stats: 1. Week PL: +200 2. Start Equity: 2700 3. End Equity: 2900 4. Maximum equity run-up: 2900 5. Max Win day as % of that day's start equity: 31% 6. Max Loss day as % of that day's start equity: -11% 7. # of Systematic Trades missed: 0 8. # of Trades other than Systematic Trades: 16 Below stats are from Journal start day: 1. Total PL: +400 2. PF: 1.35 3. RoI: 17% 4. Max. DD: 23% 5. Current DD: 0% 6. # of winning days 40%, # of losing days 60% 7. Av. win day: 18% 8. Av. Loss day: -8% 9. Sharpe: 2.71
gmst: good job recovery that early DD in the week. May I suggest you add to your stats the number of systematic trades taken during the week, as well as total number of trades since Journal start. Happy Easter!
you. don't. have. an. edge. mate making just 200$ in a week trading 2900 is appalling. That's 1 trade's worth, and you can make many such trades a day. Study harder. Good luck.
Thats a good suggestion. I would add these parameters from the next week onwards. Happy Easter to you as well!
What I don't have is rock solid discipline. On Thursday after losing and then winning a trade in ES, I should have stopped as I had no other setup. But I went on to have 16 more trades, paying 4.02 commissions every round trip. that is 64$ right there. I also managed to lose a bit more money on those trades. That is why I am reporting number of unplanned trades every week. I never kept any records for this stat before, and as things stand now, this is one of the most important stat that will help me keep my balance and perspective and help me achieve my goal. Thanks for your critique though.