40yotrader, I hope you don't interpret our skeptical questions as reflecting on you personally. You are undoubtedly the most prepared newbie I've ever come across. It is just that many of us have seen a lot of enthusiastic newbies come in here and get their hopes dashed by the cruel realities of the market. You have a lot going for you that many of them did not. You are adequately cap'd, you have a well-tested plan, you seem to be quite knowledgeable about statistics and risk and you have clearly thought a lot about money management. I second the prior post advising you to start with only a fraction of your funds in the account. You do not need more than $10k or so to start. It is my experience that most newbies run through whatever they fund the account with to start. Then you face the hard decision of do I quit or do I add money? In your case there is no way I would put more than the 40k you are down with losing in the account. What if the broker goes bankrupt, etc? Why put those funds at risk? Of course it's a small risk, but why take it? About your plan. Did you test it using futures data or cash index data? I have found that cash index data, ie SPX, is not reliable for testing futures systems. Since all stocks do not open at once, the cash data gives you an opening that does not reflect the futures. I would agree that the 38% win rate you originally generated is reasonable for a vol b/o system. Then the question becomes how did you get it to >50%? At some point, adding filters, etc becomes curve-fitting, in other words, manipulating your system to fit the historical data. Typical red flags for a curve-fitted system are a large number of parameters or odd logic, eg. go short only in october. You mentioned an $80 average trade. Was that average win or average trade? Was it on the basis of one ES contract? An $80 per ES contract average trade is extraordinary for an daytrade system If your system can reliably do that, you might want to forget about trading and just sell the system. If you want some additional confirmation of your system, you might get the people at www.futurestruth.com to test and evaluate it for you. Might be money well spent.
Isn't a martingale system inefficient in the sense that you would never be using all of your capital at any point in time? I.e., you'd always have to have reserves for when that 10-count losing streak hits (so that you could double your size the 10th time in a row)? That would be sad if I had enough capital to cover a 10-count losing streak but then an 11-counter hit me. Isn't a martingale system built on the idea of extreme revenge trading? I've never been told that revenge trading is a good thing. Carl
Wow. 40trader, you've obviously done a lot of preparation for your upcoming journey, so I congratulate you on that. If you can manage to actually trade this way for real, my hat is off to you. A question for you, what is the "base of the progression" you'll be reverting to? Do you mean that if you begin with X contracts, and a drawdown period requires you to be trading 3X until a new equity high is reached, you'll be reverting back to X? So that this base X will not be changing even while your account equity is growing? (until you reach a couple hundred k, as you've said). Carl Erikson, I agree with you that martingale strategies are very dangerous. But I suppose the way 40yotrader is doing it is a little more reserved than just blindly increasing bets just to get back to even. For that, anything less than a 70% accuracy not only virtually assures one's destruction, but I can imagine the psychological pain of upping bets on 10 losers in a row would be nigh on unbearable. It really is a committment to a strategy to the death; as once you start down that path, there's no turning back, otherwise it's been all for nought.
Pabst, here's how ole Shakes puts my thoughts on martingales : "Things bad begun make strong themselves by ill" and "I am in blood stepp'd in so far, that, should I wade no more, returning were as tedious as go o'er" ~ Macbeth