I did automate a number of strategies, but had to stop because I was not too pleased with the performance. Now, for the most part, I try to add some discretionary element to the "automated" strategies: Get the system alert me when a qualifying set-up arises, and the I can use my discretion to go ahead with the trade or not. My aim eventually is to have all my trades dictated by the system, while I use my discretion (based on my experience of the markets over the years -- which I believe I cannot get the computer to fill in) to take the trade or skip. Of course that means I am still leaving room for psychological flaws; but it is really like being caught between the devil and the deep sea. Thanks for pointing this out. I believe the size of the gainers last year covered up some of the flaws in my execution, and rule violations. For the rest of the year, I hope I can scale back when the market has little to offer. I am not sure of the part in italics. I think as long as we are humans, I believe we'll continue to battle the psychological angle. My plan is that over time, I will get more and more removed from the trade, while the machine handles the bulk of the decison-making and execution (and hopefully I can keep from watching the P&L on a constant basis - it is what stirs up much of the emotion). Definitely it seems a lot of calmer heads are in the market now, so the extremes that happened in the last quarter of last year isn't occurring too often. The key remains knowing to refrain from making huge bets when the reward is not there. Haha... I've certainly got that feeling sometimes. However, it is reassuring to know that my 270K is just a drop in the ocean for any big guy to target. You certainly see why quitting a full-time job is not a decision I could just make willy-nilly, with a family and two young kids to look after. It's amazing how the money does not look like money when I am breaking the rules, but at the end of the week, seeing a draw-down of nearly 100K from the high, I suddenly realise this is something I cannot save from my regular employment in two years. It is then some reality begin to sink in. Climbing back to 370K from 270 is certainly much easier than coming back (370K) from , say, 50K. So at this levels, CAUTION shall be my watch-word.
have you considered trading the currency majors? No gaps, liquidity all you need... MUCH less risky for the order size you are pulling.
I have been following your thread for two years and usually I get inspired and think " He does it, so it can be done. " I have the same capital you have, but the truth is that I could never ever do what you do. A 2% every month is enough, that's why I sell options. You have the guts to go up and down $ 100k in a few weeks but most people do not. A LOT of stuff could be done with 100k. It would take most people more than a year to spend that kind of money and still live large. Very large.
My drawdowns are usually when I do my best development. For me, the DD's act like a nasty reminder that I need to examine possible improvements to the systems I already trade as well as create more systems so as to achieve better diversification. It sounds like you are trying to work in the "grey area" between full system automation and discretion. That is a very tough line to walk. I tried to walk that line when I first started automating my trades in 2004. In short: it did not go very well. My thinking was that I could read the market and add alpha. What happened is I did worse than if I had just left the system alone. My net results were at about 30% of what the expected net of the fully-automated system would have been. During that time I remember clearly being afraid of certain trades because they looked "wrong" - some of those "wrong" trades sometimes were losers, but, the ones that turned out to be winners were massive and made up most of the system's profits. For about a full year (most of 2005) I worked very hard at following all signals exactly. Sure I made some discipline errors here and there, but, my results improved drastically. It has been getting easier year by year and I can now say that its been a long time since I last failed to take a system trade. I still do add/remove size as needed to good/bad trades, but, I always enter/exit when my systems say so. I think the last time I barfed on a few trades was 9/29/2008, and that day presented a very good reason... Anyhow, the point of my post is that going from discretionary to 100% systemic is not that easy but is really the best way to go. I started it in 2004 after many years of discretionary trading and it took until 2006 to get all the pyschological "bugs" worked out. It has been very good experience ever since, much smoother returns with *almost* no stress. The real benefit came once I hit a certain equity level. I found that I could not handle the same account volatilty. I used to have a high threshold for drawdowns, but, over the last few years my goals have shifted dramatically to reducing drawdowns as much as possible. Trading a variety of uncorrelated systems has allowed lesser allocation per trade meaning less vola (less drawdown), but with lower returns. I don't think there is a way around this dynamic, high vola=higher reward. I think that after a certain equity level, it becomes unrealistic and unbearable to attain huge gains, the money just starts getting too serious... It sounds like doing some detailed system development might be a way to reduce some of your volatility. It takes a while (months) to get a system working correctly, but the effort is well worth it. Also, it might be pyschologically wise for you to focus on getting all the emotions out of it at this point via going the full-automation route, i.e. no breaking rules, no discretion. Mike
I'd have to concur with Mike805. Neke, you should remove as much discretion from your system/method as possible because this is the only way for you to determine whether you have an edge or not. In my case, my system is 97% automated (orders are automatcially placed by the system). The only decision that I have to make is to "trade around reports". It is quite possible that your success last year was a fluke. If your system/method is losing money after about 100 trades, then you have to really question whether you have an edge. If history shows that your system routinely has very long drawdown periods that exceed 100 trades, then you should consider finding a new edge(s). Personally, I dump methods that can't demonstrate consistent profitability in under 50 trades. Now, if your system has been profitable in under 100 trades but you are still losing money, then the issue CLEARLY lies with YOU. This simply means that you are not even following your own rules. Personally, the fact that we are in May and you have yet to turn a profit should be a big red flag that maybe you need to go back to the drawing board and find a more COMPATIBLE system for YOU. Mechanize your system and you will truly see whether you have an edge or fools gold.
Weekly Update for week 19/50 ended 05/23/2009 No let up for a battered soul. Down 29K (10.7%). Almost running out of ideas. I don't know how I forgot it was CME that killed me last week, fading its over-extended up move in stock and options. Did the same again on friday on the stock, shorting 500 shares at 287.50, and then averaged down until insanity, as the stock kept climbing. What's the need sizing down on the initial position, when I would eventually go all in if the position moves against me? Will spend more time automating some strategies that have promise, and gradually wean myself from being responsible for placing trades. With this, a decision is being made now: If the account balance goes below 225K (down 30% from starting balance of 320K), I shall cease ALL discretionary trades for the remainder of the year, and rely only on automated trades and position sizes. Maybe that will spur me on more to strategy development instead of trade execution: it's obvious I continue to lag behind in the later. Code: Opening Balance: 270,217 Net loss for the week -29,535 ------------------------------------------------ Net Balance: 240,682 Number of Trades 18 Number of Profitable Trades 11 Since Inception of Thread 01/10/2009 - 05/23/2009 Opening Balance: 320,064 Net loss (Less Margin Interest) -79,382 (Down 24.8%) ------------------------------------------------ Net Balance 240,682 Number of Trades 464 Number of Profitable Trades 292 Top/Bottom Discretionary Trades for the week TICKER ENTRY DATE/TIME EXIT DATE/TIME QTY PURCHASE AMT SOLD AMT GAIN/LOSS TYPE STLD 2009-05-19-11-53-00 2009-05-19-15-58-29 30000 412684 415464 2735 SHORT ------------------------------------ SPY 2009-05-20-12-02-41 2009-05-20-15-49-02 9000 822532 815400 -7174 LONG AMD 2009-05-19-18-28-50 2009-05-20-11-31-21 60020 283892 273845 -10124 SHORT CME 2009-05-22-10-10-50 2009-05-22-15-16-11 4000 1186989 1171125 -15978 SHORT
Average up NOT down, problem solved. You're a much better trader than this, quit being a dummy and give yourself a chance.
The past 9 weeks as a whole is abnormal for traders who have not seen that happening. Neke is doing ok. Once he get a handle of what the current situation means in weekly level, he should be able to get back his $ in no time. p.s. I don't post much in your thread but you have my support!
As a trader who loses a lot, it is important to remember to not let the amount you are down change your strategy (unless it is to make you more conservative). It seems when I am down, I lose all patience, do not wait for perfect entry points (like perhaps your CME trade today), but when I am up i don't feel any compulsion to trade and end up getting in trades with perfect setups. I'm sure you are fine as for your overall financial situation, so, don't worry, be patient, only get in perfect trades, and don't worry about missing big moves. Good luck.