Ok so I was stopped out at 1.4184 GBP/CHF Result: + 29 pips = +0.06 risk points Record: 7 wins, 14 losses Cumulative risk points: -1.84 Avg: -0.09 I'm not going to enter any new trades until next week, for two reasons: (1) I have to make some key decisions regarding my trading future, and my next moves will likely be in a slightly different direction. I've applied to a few trading jobs, but didn't get them because I didn't have a finance internship so they can't assess my probability of defecting (several employers' feedback). So, I may re-open my live account to develop a more extended trading history. However, I may decide instead to pursue backtesting and an automated trading system. I plan to decide this week. (2) I have an extremely busy week.
Citigroup, IMC Chicago, and a few others. Citigroup turned me down because I had an Econ internship instead of a finance internship and I haven't join any of the finance clubs at school (even though they don't do anything with trading). Here's the result of my trading assessment: - I'm not opening a live account because a past rule specifies that I need 3x my risk-per-trade in profit before doing so. I may need a better trading history if I wanted to continue pursuing jobs, but it can wait until winter if needed or at least until I do backtesting - I should start backtesting after the end of the month. I have a side project of going through the entire Excel 2007 manual, and I only have about 15% of it left. I also take the GREs at the end of the month. I want to show to myself that I can finish projects rather than aimlessly starting new ones. - Once I finish Excel, I'll likely do programming and backtesting something with Metatrader This reasoning also really shows that trading is not my #1 priority, as does my preference of Econ and projects outside of finance. While I still intend to dedicate myself more to trading over the winter and to backtesting as it comes, most likely my first job will be in something else and I'll just trade on the side. Nevertheless, I'll still try to get most out of the time I put in and apply for a few trading jobs here and there. I'll start checking my pairs again on Monday.
I've become kind of bored with just taking positions, so I'm going to issue some market maker type orders and see what happens. These will not count toward my current performance, but I'll probably keep track of them separately. EUR/USD Bid at 1.3600 Ask at 1.3800 So here's how it will happen. Either of these two levels will initiate the order. If 1.3600, I will buy a unit, if 1.3800 I will sell a unit. When the level is reached, the orders will reset at +/0 0.0200 of the mark. The max units I can have is 3 or -3.
Ok so this is great. I like experiments and this one can go very quickly, and I'm likely to learn a ton more than by taking 20-some positions over the course of over one year. I'm expecting to find that this strategy is not profitable, net of transaction costs. The reason for this would be because this is a simple strategy, and the market should be structured in a way where neither a trend-following strategy nor ride/fade is profitable, because if they were, even the simplest traders would fill them. I've changed my orders to +/- 0.0050 instead of 0.0100, because I'd like to go through 40 trades or however many I need to determine something important. Closed positions: 3 Profit/loss, no commissions or slippage: +0.0050 Open position: 1 (short) This is of course easy to backtest or do by hand, but this will be more interesting.
I'll post the results of my study once it's completed. It was doing very well in chop but getting killed in trending, as expected. Anyway, I wanted to post the findings of an Economics experiment at my university. The experiment goes like this: - bidders bid on a product of value unknown to them that is random between 0.00 and 1.00 - sellers see their value and the bid from the bidder, and retain the highest of the two - bidders earn 1.5x the true value of the product if their bid is accepted. The funny think is that accepted bids are at a random interval between 0 and the bid, so the average accepted bid is at bid/2. The bidder gets a value 1.5x this to receive 0.75*bid, but then gives his bid money to the seller and earns a net earnings of -0.25*bid. In the experiment, people's average bids are around 0.40 and never progress towards 0, the optimal bid. The importance of this is that people constantly accept losses because they get a small value from winning. So, people's utility looks something like this: Utility(win, value) = a*p(win) + b*EMV(bid), where a and b are some kind of constant or function. This easily explains why people still trade when they are losing, and why people gamble in slots when they lose. It also probably explains why I continue to trade at EMVs at or slightly below zero in the long run. I only stop when the disutility of my negative bottom line or huge time costs are large enough to warrant that my habits immediately cease. So from this I now have greater assurance that intuitivel trading (i.e. non-analytic or non-quant) is a poor decision. Results should continue to be analytically and statistically based (as mine have), but approaches should be as well (as mine have not). On with studies, down with the often pathetic limitations of the human brain.
The study has been interesting so far. After about 30 trades, the first 10-15 netted about +400 pips (+8x risk) in chop and the 10-15 since have netted -1,050 pips (-21x risk) in the trending. I fully expect some variation of this strategy to be profitable to a very small extent, but clearly I have not found it. I'll still continue the study for a little while though and perhaps the market strength will subside.
Results of the strategy I described are in, and the profit graph is attached. How to interpret: - Each x-axis tick mark is a point when the EUR/USD hits a .0050 marker - A horizontal line means no execution for that point due to either it being an entry (no decided profit until closure) or if I already achieved my maximum interest Conclusion: This is pretty much what I expected: right around b/e. I bet some people have improved something like this to become mildly profitable, but any simple strategy like this shouldn't work. I would expect a similar result from a trend-following strategy (e.g. follow breakouts); near b/e but losing after commissions included. I have no direction for what I want to do at the moment. I'm against trading from opinion now, so that's not it. I've also been following the IEM futures markets to see how good the market making and/or arbitrage opportunities are, but the arbitrage opportunities are not existent and I haven't decided if I feel like putting the work into market making yet. If something crosses my mind, I'll post it. Also I received a job offer I like outside trading, so the combination of low available profits and low job relevance is definitely a deterrent. I'll see what comes out of it.