# Trading Plan Help Required



## sydneyboy (16 September 2008)

I am new to this forum and while have traded, gambled? in the past have done so with no serious plan.


At the moment my plan is as follows.


1. Follow trends- refer to Darryl Guppy on Trend Trading- trends either up or down seem to have about a 70% chance of continuing. While still learning about T/A are prepared to lose small amount rather than paper trade as personally feel no involvement when doing so.


2. Be ruthless on money management. Strict money management seems to be far more important than actual selection, should show a profit on lower % of winning trades with good management over good selections with bad management. 


3. While 2% risk seems to be written in stone among the various contributors am I being naive in suggesting that it would be possible to increase the risk exposure to 3% and at the same time reducing the stop loss margin. In this I note the chart that skyquake provided,(I don't know how to attach but it is #51 under heading "I lost $1600 in one day trading OZL" showing in the Beginners Lounge shows the percentage possibility of consecutive losing trades. In my admittedly general reviews of the market  it would seem more viable to cut and run very early if a price drops as the chance of reversing after a small drop seems to be less than the likelihood of the trend  continuing. 


4. While trading profitably to gradually (say 0.5%) increase in risk after each profitable trade and reduce back to 2-3% after first losing trade to minimise capital loss.


5. Where the shares, options, whatever rises either:-

(a) sell a percentage as soon as transaction costs are covered and increase the stop loss to this amount so barring disasters at worst you will break even on that trade, or

(b) continue to hold all until a reversal and sell all at first opportunity (again on the basis that once a trend starts it is more than likely to continue). It means that you will never sell at the top of the market, who does anyway, but you should be reasonably close to it.

I am more inclined to option (b) but keen to hear opposing views


I look forward to comments, suggestions, criticisms.


sydneyboy


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## Trembling Hand (16 September 2008)

Can you clarify your thinking on point 3. Seems to be a bit messed up and possibly completely wrong.


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## sydneyboy (16 September 2008)

Thanks TH I got myself all confused. What i was trying to say is best shown in following example.


Presume trading capital $10k , therefore max exposure on any stock @ 2% is $200. If buy $2k of stock can wear loss up to $200 (10%) before stop loss comes into play.


If max risk is 3% or $300 can buy up to $3k of stock, at $300 (10%) stop loss comes in, or could have tighter stop loss @ $200 or 6.67%. 


What I was saying refereeing to sykyquakes spreadsheet is that when one is commencing trading and not relying on trading for their sole income their pain threshhold is probably somewhat greater than a full time trader such as TH and provided the numbers are not too great (less than $10,000) is probably better able to handle the inevitable losing streak. I know I probably couldnt handle it if I was trading $100k+. I believe that every trader should pin the sheet next to his computer simply to remind him/her of the inevitability of a losing run no matter what their success rate.


I know the stop loss limits I have set are fairly arbitary but reading between the lines I get the feeling that you (TH) disagree with the fundamental principal that it is best to bail out if there is a slight loss, is that right?


As a matter of interest TH what is your average stop loss % and do you have a rule for exiting profitable trades, you might have said it before but I cannot recall it.


Thanks for the enjoyment in reading your posts and blogs, as you have said previously any novice will learn far more from this site and Guppys books than an expensive weekend with spivs with capped teeth, Hugo Boss suits and driving black BMW's flogging CFD's.


sydneyboy


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## Trembling Hand (16 September 2008)

sydneyboy said:


> provided the numbers are not too great (less than $10,000) is probably better able to handle the inevitable losing streak. I know I probably couldnt handle it if I was trading $100k+.




A funny thing goes on when trading small accounts. People are willing to take bigger loses when it should be the exact opposite as cost and inexperience make it 1000 million times harder to survive. 




sydneyboy said:


> I know the stop loss limits I have set are fairly arbitary but reading between the lines I get the feeling that you (TH) disagree with the fundamental principal that it is best to bail out if there is a slight loss, is that right?



 NO. Stops are the cost of doing biz. In any biz small cost are the diff between wining and blowing up.



sydneyboy said:


> As a matter of interest TH what is your average stop loss % and do you have a rule for exiting profitable trades, you might have said it before but I cannot recall it.



My stop is based on Max % loss per day as I'm an intraday trader. and that is at 1% or less a day. Now considering 100 trades is a slow day for me and 10 or even 15 bad trades in a row happen often my stop per trade is tiny as a % of capital.


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## Trembling Hand (16 September 2008)

One thing you seem to have not covered is what kind of results you can expect from this "plan".

Its not a trading plan if you don't know what direction your map is pointing you in. And its certainly useless if you don't know what constitutes a broken plan before you set out on your journey. If your plan is to stop once you walk off the cliff it's not the greatests plan. The best ones concern themselves with doing no damage first.


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## jersey10 (16 September 2008)

Trembling Hand said:


> My stop is based on Max % loss per day as I'm an intraday trader. and that is at 1% or less a day. Now considering 100 trades is a slow day for me and 10 or even 15 bad trades in a row happen often my stop per trade is tiny as a % of capital.




Why is your stop based on the day? Wouldn't it be more appropriate to base it on a specified number of trades as your expectancy opportunity is dependent on number of trades rather than a duration of time?


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## SGB (16 September 2008)

sydneyboy said:


> 4. While trading profitably to gradually (say 0.5%) increase in risk after each profitable trade and reduce back to 2-3% after first losing trade to minimise capital loss.
> 
> 
> sydneyboy




Hi SB,

Just my humble opinion but (4) would be too messy for me. Too many  changes to the plan especially if there starts to occur inconsistencies within the price patten.eg, up one day, draw down next day. profit one trade, loss next trade

Build yourself a profit base before bouncing around to and from.

SGB


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## tech/a (16 September 2008)

TH is on the money.

Pretty well everyone has a "Plan"
most of those have no idea wether the plan they are trading day in and day out can be profitable after a few months trading let alone a few years.

Unless you know you could be trading a plan to bankruptcy.

So all your doing is trading a group of ideas---nothing more.

The only way to tell is to test your ideas over 1000s of trades in many timeframes.
Forward and backtested.

When developing a plan you must know what it is your trying to achieve.
That will be either
A high win rate much more winners than losers.ie 75% winners
Or a low win rate with much higher accumulated winners than accumulated losses.ie 30% winners of 50% and 70% losers at 5%
OR
a combination of both.

If you dont have this objective satisfied you WILL NOT profit.


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## julius (16 September 2008)

sydneyboy said:


> Thanks TH I got myself all confused. What i was trying to say is best shown in following example.
> 
> 
> Presume trading capital $10k , therefore max exposure on any stock @ 2% is $200. If buy $2k of stock can wear loss up to $200 (10%) before stop loss comes into play.
> ...




Hi Sydneyboy,

"Think of the largest drawdown you can handle, the halve it..."

That's from Nick Radge at the Power Setups seminars.

It's easy to say you can handle a 50% D.D. until you experience it...


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## Kauri (16 September 2008)

or take a shortcut and ride the coat-tails of a successfull, professional, australian trader...   
life is only as hard asyou wan to makit..

cheers
.....kauri


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## skyQuake (16 September 2008)

Look up percentage risk model - thats what the table came from. My 2c is if you have a good enough money management system, you'll survive long enough in the markets to be profitable.


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## Kauri (16 September 2008)

Kauri said:


> or take a shortcut and ride the coat-tails of a successfull, professional, australian trader...
> life is only as hard asyou wan to makit..
> 
> cheers
> .....kauri





 did I forget to atach this???

Cheers
...........Kauri


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## nomore4s (17 September 2008)

SGB said:


> Hi SB,
> 
> Just my humble opinion but (4) would be too messy for me. Too many  changes to the plan especially if there starts to occur inconsistencies within the price patten.eg, up one day, draw down next day. profit one trade, loss next trade
> 
> ...




4 is making things difficult imo, too easy to start chopping and changing.

If you are using fixed fractional positioning properly you won't need rule 4 anyway.

EG - If using 2% of capital (I use about 1%) as your max loss, as you become profitable and your capital increases so will your postion sizes.

Capital - $10,000, 2% = $200
Buy XYZ @ $10.00 with stop @ $9.00 - Risk is $1.00
Therefore you can buy 200 shares or $2000.00 worth.

But when your capital has increased to $12,500, 2% = $250.00
Buy XYZ @ $10.00 with stop @ $9.00 - Risk is still $1.00
But you can buy 250 shares or $2500.00 worth.

Obviously if you can get a tighter stop you can lower your risk and buy more shares for the same total dollar risk, but tighter stops generally increase your risk of being stopped out. This is why you will hear traders talking about looking for low risk set ups.
EG - Capital - $10,000, 2% = $200
Buy XYZ @ $10.00 with stop @ $9.50 - Risk is $0.50
Therefore you can buy 400 shares or $4000.00 worth.


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## peter2 (17 September 2008)

I agree with *TH* and *tech/a* that you have five general concepts with very few detailed processes. You need to define the details so that you can objectively backtest and forward test your plan. This will give you some idea if you have a winning system. 

1. "Follow trends". 
Good, but which time frame will you use as your main directional indicator?
How are you going to define the trend direction? 
Can you tell when a trend changes direction (ends)? 

Trading setup? How are going to define a trading opportunity? 
Are you going to use a breakout in the direction of the trend? 
Are you going to buy a dip in an up trend? 
How are you going to define the entry trigger?
How are you going to decide on a stop loss price?

2. Think you are confusing trade mgt with money mgt. Trade mgt tells you when to alter your SL to a TS to minimise risk and then to protect profits. You will need to decide how you do this so that when a trade is open your plan stays in control of the trade, not your brain. 

3. 2% is commonly suggested for good reason. Do you have a valid reason to use another amount? 

4. If you decide on a fixed fractional position sizing model then use the same risk % all the time. 
As your capital grows compounding will take care of itself. (*Nomore4s* showed you these details)

5. Decide if you are going to take partial profits or not. 
Don't have these two options available, as you will always use the wrong one at the time. 

A trading plan needs to be detailed enough so that all decisions and actions are straight forward. It should match your expertise and this makes it comfortable to use. As your experience grows the plan evolves as you develop your own trading style. A plan makes your trading consistent and the market rewards consistency.

Business plans: Short term and longer tem goals? Include personal goals with financial goals?
Starting capital, how much are you willing to lose before stopping for a review?
How are you going to locate your opportunities? 
What resources do you need? Can you afford them?
How much time are going to set aside?

You have only started on the introduction to your business/trading plan. Good luck with it.


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## Aussiest (17 September 2008)

tech/a said:


> The only way to tell is to test your ideas over 1000s of trades in many timeframes.




I don't know if TA applies at this stage (except for support and resistance). As somebody else said in another thread, we are in unchartered territory. How can you possibly base your current decisions on past data, seeing as though we're in the middle of a 'credit crisis'? When is it going to end? The psychology of the market would have to be measurably different to what it was, say, 2 years ago.

Having said that tech/a, i think you are a great trader! (vis a vis your shorts on WPL and BHP). Well done


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## Trembling Hand (17 September 2008)

Aussiest said:


> I don't know if TA applies at this stage (except for support and resistance).






Gee I'd like this one teased out a little more!! Are you saying that TA rules for finding good R:R setups and managing trades don't work because we aren't in a ripping bull market


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## Aussiest (17 September 2008)

Yes.

I don't know what an R:R set-up is, but one thing for sure i've noticed is that traditional, basic TA, such as bullish white candles on high volume aren't signalling anything, but a temporary bounce. Certain other candle formations, which according to theory, should signal particular moves, are being crushed by 'bad news'.

Maybe i'm thinking about it from a bull point of view, and therefore nothing is working out. Maybe i should be looking at most stocks on the market like they're in an overall downtrend. Maybe that's why i am constantly disappointed.

Another thing: COH has been gradually climbing, day after day, for no apparent reason that i can see. Sure, they've had some 'good' news, but their dividend isn't that attractive. So, why?

I guess i made my statement because it seems that any form of TA, imo (but i don't use the advanced ones) seems to be knocked out by whatever 'news' comes out of the US. Perhaps 'sentiment' is the thing to trade on, and i don't think TA can predict sentiment at this stage.

Just my ever so humble and uneducated opinion :

Btw, i think the 'trades management' part would work in any market, because you set certain rules for stops and money management. It's the 'buy' signals i am having a problem with (and am therefore not attempting because of). Things just don't make sense. A stock may look good for a buy and suddenly bad news from the US rips it apart...


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## Trembling Hand (17 September 2008)

Aussiest said:


> but one thing for sure i've noticed is that traditional, basic TA, such as bullish white candles on high volume aren't signalling anything, but a temporary bounce. ..............
> 
> Maybe i'm thinking about it from a bull point of view, and therefore nothing is working out. Maybe i should be looking at most stocks on the market like they're in an overall downtrend.............
> 
> ...





Boy oh Boy!! These statements with your initial comment are staggering in that you have the answer yet not the ability to put them together.

Have a look at the two charts below and tell me whats going on in the most basic sense.


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## nomore4s (17 September 2008)

lol, no offence Aussiest but your post shows a clear lack of understanding about TA. Good TA traders will be doing well in this market as Tech short trades have shown.

A big reason your candles aren't working out is because your going against the major trends which is why they are only temporary bounces, also imo it is hard to purely trade off candle formations without some other form of analysis (but I'm sure there are traders that do it).


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## nomore4s (17 September 2008)

Aussiest said:


> Another thing: COH has been gradually climbing, day after day, for no apparent reason that i can see. Sure, they've had some 'good' news, but their dividend isn't that attractive. So, why?




Does there need to be a reason?



> A stock may look good for a buy and suddenly bad news from the US rips it apart...




That's what happens in a bear market


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## Trembling Hand (17 September 2008)

Aussiest........... don't want to play my game with my charts??

anyone...whats happening in a basic TA sense?


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## Temjin (17 September 2008)

Beside the comments made by TH and T/A which are invaluable, here are some of my. 

Point 1 and 2 are fine as they are your personal preference, there is no right or wrong. 



sydneyboy said:


> 3. While 2% risk seems to be written in stone among the various contributors am I being naive in suggesting that it would be possible to increase the risk exposure to 3% and at the same time reducing the stop loss margin. In this I note the chart that skyquake provided,(I don't know how to attach but it is #51 under heading "I lost $1600 in one day trading OZL" showing in the Beginners Lounge shows the percentage possibility of consecutive losing trades. In my admittedly general reviews of the market  it would seem more viable to cut and run very early if a price drops as the chance of reversing after a small drop seems to be less than the likelihood of the trend  continuing.




There is several problems I see here. 

How do you exactly know 2% risk is an acceptable one based on your "trading plan"? Like TH and T/A have been saying, have you backtested the plan? Using a 2% fixed percentage position sizing strategy, what was the maximum drawdown? Are you mentally prepared to wear twice of that amount? Do you think your account balance can recover if that 2 x maximum backtested drawdown might occur?  



> 4. While trading profitably to gradually (say 0.5%) increase in risk after each profitable trade and reduce back to 2-3% after first losing trade to minimise capital loss.




This is an untested idea. You will need to find out for yourself. However, increasing your risk gradually without a limit after a profitable trade is usually a BIG NO. At least in my opinion because you are violating your initial position sizing rule. 



> 5. Where the shares, options, whatever rises either:-
> 
> (a) sell a percentage as soon as transaction costs are covered and increase the stop loss to this amount so barring disasters at worst you will break even on that trade, or
> 
> ...




Like others have already said, backtest the strategy to see if it has produced a positive expectancy in the past without minimal optimisation. 



> If max risk is 3% or $300 can buy up to $3k of stock, at $300 (10%) stop loss comes in, *or could have tighter stop loss @ $200 or 6.67%.*




You need to separate your trade management away from your position sizing, they are essentially two  TOTALLY DIFFERENT THING. You should only set your stop based on your trading strategy, and not based on how much you are willing to lose. That is, you adjust the amount of shares/whatever you buy in a particular trade so that if it hit your stop loss, you would only loss the maximum % you set initially. 

If I were to repeat the above, I would go something like this.

My trading plan tell me that I should set a stop loss of 10% from the price of the security. (based on whatever technical or fundamental signals you use) I am willing to risk a maximum of 3% of my account balance, which is $300. Thus, if the share price is $10.00, I should buy [($300 / 0.1) / $10] number of shares, which is really 300 @ $3000 worth. 

Hope this is clear.


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## skyQuake (17 September 2008)

Trembling Hand said:


> Aussiest........... don't want to play my game with my charts??
> 
> anyone...whats happening in a basic TA sense?




Haha! I've been looking at that chart every day for god knows how long. Nice reverse and flip there . 
Dare I say its in a very nice uptrend, with brief periods of consolidation. High highs and higher lows.


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## Timmy (17 September 2008)

Trembling Hand said:


> Aussiest........... don't want to play my game with my charts??
> 
> anyone...whats happening in a basic TA sense?




Anyone here... & always up for a bit of TA in the most basic sense ... otherwise I just do it wrong.

Top chart, 3 MAs showing uptrend and all pointing up , and price moving to new highs.
Last few bars activity show a bit of toing and froing at new highs, but close on final bar is strong.

Second chart, again 3 MAs showing uptrend and all pointing up, price not into new highs.
Second-last bar a reversal just below the highs, final bar closing very strong but still below highs

Thats it (v. basic)


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## skyQuake (17 September 2008)

ANZ. One way trip, doesnt even bounce properly.


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## Trembling Hand (17 September 2008)

Yes Gold star for everyone. It's up trending. Easy to see. The most basic of TA at work. so you should of bought and held.

Only problem is that its the XAO and ANZ upside down.


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## kam75 (18 September 2008)

Trading Plans are like people.  Everyone has their own unique personality and beliefs. No one is alike.  And no-one is any better than another.  The main problem traders face is crafting a plan that fits THEM.  Any good plan should follow sound money management rules, cut losses fast, pyramid and ride winners and generally trade with the longer term trend.  Plus incorporate the trader's philosophy, beliefs and goals.

Here’s a Trading Plan showing the various components that need to be addressed when planning a trade.  It should help you complete any trade with discipline and consistency.

Trade Details
Date
Market
Stock Code
Entry Signal
Confirmation

Risk Analysis
Entry Price
Stop loss Price
Initial trade risk (%)
Profit Target(s)
Reason for Target(s)
Potential gain (%)
Risk/Reward Ratio

Money Management
Total Account Size
Amount for this trade
Position size
Breakeven level

Order for Broker
no. of shares
Buy Stop / Limit
Stop loss
Take Profit Order Y/ N

Trade Management
Trailing Stop Rules
Pyramid Winner
Profit Taking

Exit Strategy for Trade
Time stop
other

Successful trading requires the meticulous planning of every aspect of a trade and the discipline to carry out your decisions based on your Trading Plan, in the market.


Regards
kam75
_____________________________
http://www.sharesmadeeasy.com


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## johenmo (18 September 2008)

kam75 said:


> Here’s a Trading Plan showing the various components that need to be addressed when planning a trade.  It should help you complete any trade with discipline and consistency.
> 
> Successful trading requires the meticulous planning of every aspect of a trade and the discipline to carry out your decisions based on your Trading Plan, in the market.




Sydneyboy - I am trying to develop a plan.  And the more I work on it the more I realise it's not a 5 minute throw together.  What brought htis home to me was using Amibroker (trial) as I try to figure out what to do.  When I chose BHP on an overall up trend, and used simple TA for buy and sell and did a back test, I found that with some adjustments I was able to get 80% return in 8 months and 50% loss in two months.  Same indicators, just altering the numbers - *on an up trend!!*.  I admit I know little about AB but the backtest report made me realise that you have to get your plan and test it in both directions.

5 or 6 hours on AB cost me nothing except time, but has saved me from throwing good money away.  If I had done this a few months ago I wouldn't have purchased any shares at the time.

All I can say is at this stage invest your time, not your money, in the market..  And I am following my own (limited experience) advice.


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## kosai (23 September 2008)

I like the overall idea behind your plan. It's good to include a set of principles that will outline your overall trading as well as include some money management principles. I think you should also include some goals for yourself, some strict rules about what you will do at critical situations and also detail the entry/exit criteria you will apply to the market. How detailed your plan needs to be depends on the individual and how often they stray away from it. If it's too hard to follow your plan then a trading journal is great to log your thoughts as you trade so that you can better identify them later on. I'll include a quick snapshot of my trading plan. I won't expand all the fields since it took me ages to work on mine, but that will give some people out there an idea of one. I also think making a visual plan is a big plus. It makes reviewing and following the plan far easier.


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## CamKawa (23 September 2008)

nomore4s said:


> Capital - $10,000, 2% = $200
> Buy XYZ @ $10.00 with stop @ $9.00 - Risk is $1.00
> Therefore you can buy 200 shares or $2000.00 worth.



Don't forget slippage and brokerage.

Say you are with IB paying 0.08% of trade value for ASX stocks. Every time you buy and sell you rack up 0.16% in brokerage taking your 2% down to 1.84% and then there's slippage. 

Should slippage and brokerage be included in the 2%? I've read one source that says it should but others, including Nick's book, don't mention it.


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## nomore4s (23 September 2008)

CamKawa said:


> Don't forget slippage and brokerage.
> 
> Say you are with IB paying 0.08% of trade value for ASX stocks. Every time you buy and sell you rack up 0.16% in brokerage taking your 2% down to 1.84% and then there's slippage.
> 
> Should slippage and brokerage be included in the 2%? I've read one source that says it should but others, including Nick's book, don't mention it.




This is why I use 1% instead of 2%, there will be situations were prices will gap through your stop.


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## lakemac (23 September 2008)

sydneyboi (and others) may I suggest you read, digest, re-read, implement and consider the following book:

Enhancing Trader Performance by Brett Steenbarger.

Brett is a trained psychiatrist. (No you won't loose your mind, well not just yet anyway  ). He coaches traders in real time (amazing stories in his book).

He asks you the reader to ask yourselves these questions, even before you place your first trade:

1. what kind of trader are you (referring to tech, fundamental, gut feel, etc etc).
2. are you trading the right market and/or instrument?
3. are you actually the kind of person that should even be a trader (this one can take a lot of soul searching).
4. are you trading in the right time frame?
5. what are the issues that come up when you sit quietly and think about your trading (he gives some exercises which you do to bring this on - I did this two years ago and I am only now clearing up other things in my life such that I am now making big money).


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## lakemac (23 September 2008)

I forgot to say he then goes on to the development of trading plans.

Guys do yourself a favour and sort out the mental first, then the rest will fall into place.

Of course most of you will not heed this advice (as I didn't for 6 years) and then come back to this post and go "why oh why didn't I listen to lakemac's advice..."


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## lakemac (23 September 2008)

kosai - I loved your "mind map" of the issue at hand.

I use Freemind (which funnily enough is free  ) to handle my mind mapping.
http://freemind.sourceforge.net/wiki/index.php/Main_Page
(get the 0.9.x version rather than 0.8 version here:
http://downloads.sourceforge.net/fr...ta_20-max.exe?modtime=1220605935&big_mirror=0

Love the technology. I would be lost without it.

A small snippet of my top level Freemind mindmap:


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## rub92me (26 September 2008)

While I acknowledge it is crucial to manage the psychological side of trading, I think that should be a prerequisite to defining what your personal trading objectives are before you start testing entries/exits or formulating a trading plan.
The below is an example of one of my intraday trading plans for one of the contracts I trade. I haven't given away my exact entry criteria, but they're very simple price/volume related triggers. I tested the entries and objectives in Amibroker, using techniques described in Howard Bandy's Quantitative Trading Systems (Thanks Howard!) 

*Trading Objectives & Risk Management Rules*

A: Win / Loss Ratio	 = 60%
B: Avg Win / Avg Loss = 2
C: Maximum Drawdown = 25%
Risk per trade (R) = 1% of start capital (SC)
Avg trades per month = 10
Contracts Traded = 1

*Verification & Adjustment Criteria*

Assessment of Objectives
Assess whether objectives A and B are achieved after 20 trades and every 10 trades thereafter. Start continuous monitoring of drawdown after 25 trades.

Stop trading and back to the drawing board if
1) A < 30 % or B < 1
2) A * B < 0.8
Note that if 1) or 2) are met it can still be profitable, but it’s not good enough for me to keep trading.
3) C > 25 %

Increase contracts traded if
Equity > 2*SC: start trading 2 contracts
Equity > 3*SC: start trading 3 contracts
Equity > 4*SC: start trading 4 contracts (maximum)

*Entry Criteria*

Timeframe	3 minutes = 1 bar
Buy Trigger (B)	Trade secret :
Sell Trigger (S)	Trade secret :
Enter trade	If B or S is met, buy or sell at market in next bar with preset stop attached


*Trade Management (Stop and Profit Rules)*

Stop Rule 1: Stop can not be widened under any circumstance
Stop Rule 2 (Trailing stop): Move stop to breakeven when open profit reaches 2R, move stop to 1R at open profit 3R, etc.
Exit Rule 1 (Flip): Long: sell at market if S is met (next bar); Short: buy at market if B is met (next bar)
Exit Rule 2 (Greed): Close position when open profit reaches 5 R
Exit Rule 3 (Time):	Exit after 50 bars if previous Exit Rules haven’t hit


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## Bin57again (26 September 2008)

Agree with the comments here. Don't listen to anyone who reckons all you need to do is write down your thoughts, find time to trade and be true to yourself...that's all bollocks. You need a system with an edge. Period.
Also, if you're starting out, work on a mid-long term system not a short term system. Often, you will find short term systems are destroyed by small account size and commissions. (I still can't find a system that's profitable on day trading or position trading (less than 3 days) unless my trading account size is $1m) . 
Someone also made reference to Nick Radge's comment of ascertaining the max drawdown then halving it. Good advice.


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## CamKawa (26 September 2008)

rub92me said:


> *Trading Objectives & Risk Management Rules*
> 
> A: Win / Loss Ratio = 60%



Are you saying your system picks 60% of winners? Over what time period did you run the back test to get that figure? How did you system perform compared to buy and holders over the same period?


rub92me said:


> C: Maximum Drawdown = 25%



Can you live with that?

Would you mind posting your AmiBroker backtesting results? I'd be interested in having a look. Did you use the walk-forward method? I'm having trouble getting my system to pick more than 40% of winners?


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## rub92me (26 September 2008)

Bin57again said:


> Also, if you're starting out, work on a mid-long term system not a short term system. Often, you will find short term systems are destroyed by small account size and commissions. (I still can't find a system that's profitable on day trading or position trading (less than 3 days) unless my trading account size is $1m) .



Keep trying and testing. The above described has an average hold time of about 2 hours, with start capital of USD 50,000. Commission is minor: USD 2.50 for every buy/sell. I've been trading it for about 5 months and it is still within parameters and tested equity curve.


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## lakemac (26 September 2008)

Rub92me - nice one 
Well described.

Bin57again, I would only partially agree with you. Yes an "edge" is important but as any trader knows the physcology is what keeps that "edge" sharp so to speak. If you fear/greed override your system/trading plan no amount of edge is going to work for you.

On a longer timeframe you psychology is also what is going to control your profitability (or loss).

The book "Enhancing Trader Performance" is not a warm fuzzy think of your thoughts kind of book (have you every read it? If not then maybe let those that have make comment...). It is a very hard nosed look at trading and how to keep your trading working for you even when you start to have the inevitable psychology get in the way.

Bin57again you may be one of the lucky ones that is able to totally control your psychology - unfortunately for a lot of us we don't have that kind of innate mind control. Most of us have to learn it. Most of us require training to overcome it. How to train your psychology is probably the best part of the book.


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## rub92me (26 September 2008)

CamKawa said:


> Are you saying your system picks 60% of winners? Over what time period did you run the back test to get that figure? How did you system perform compared to buy and holders over the same period?
> 25% Drawdown:
> Can you live with that?
> 
> Would you mind posting your AmiBroker backtesting results? I'd be interested in having a look. Did you use the walk-forward method? I'm having trouble getting my system to pick more than 40% of winners?



My intent was to give an example of how I use a trading plan, not so much about the objectives or the results. It is traded on a futures contract, so buy and hold is not an option. I only trade in a specific timeframe, where the volume and volatilty suits my plan. The 25% drawdown is over the capital required to trade this contract, rather than my entire equity. I can live with losing that.


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## Bin57again (26 September 2008)

Lake
No, I totally agree with you. 
Thanks for reminding us of that important point.
I was keeping my response brief but on the psychology side, you're right. As an example, on trend following systems, my best results can come through when my win rate is 25-30% (based on holding through to 5R). However, I know I can get down during a campaign with such a low win rate (e.g. question myself, whether "this time it's different" etc, maybe I coded it wrong), so I often will build into the system a scale out or earlier exit so that I end up with a less profitable system but a higher win rate (say 45%). The commissions will be higher because I'm taking more trades. But at least I know that I'm comfortable with that, my consecutive loser rate will be lower (say max 5) and my drawdowns lower. I also know there's a good chance I'll get off to a reasonable start.
To take it to its extreme, you could sell me a system which had a win rate of 20% but with 7R. I know I couldn't handle that...I don't think many could...
Rub - well done mate. That's awesome. I salute you...
Bin


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## wbosher (29 September 2009)

Trembling Hand said:


> A funny thing goes on when trading small accounts. People are willing to take bigger loses when it should be the exact opposite




I think the reason for this brokerage fees, if they are included in the equation.

For me personally, I'm a newbie with only a few thousand $$ to trade with. If I set my SL at 2% the SP only has go down by a very small amount and I will be stopped out. 

Say for example I only have $5000 to trade with, 2% of this is $100. That doesn't leave much room to move at all once you factor in brokerage fees.

I think it was in one of Darryl Guppy's books where it mentions that traders starting with little capital will often need to expand the 2% rule out to 5% or maybe even a little more, until you have enough cash to impliment the 2% rule without being stopped by the slightest downward movement.


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## Mr J (29 September 2009)

If someone trades 2% (particularly if they trade for a living), they better be able to deal with 50%+ drawdowns.


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## tech/a (29 September 2009)

*A severe lack of understanding* shown here in how to position size with a 2% equity risk.


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## kam75 (29 September 2009)

sydneyboy said:


> I am new to this forum and while have traded, gambled? in the past have done so with no serious plan.
> 
> 
> At the moment my plan is as follows.
> ...





1. Yes
2. Yes
3. depending on your account size.  2% Rule on 100K good.  Smaller account may go larger, 3-4% but never more than 5% risk on any one trade.  
4. Decrease bet size if account draws down, increase bets as account grows.
5. Set profit targets instead.


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## wbosher (29 September 2009)

tech/a said:


> *A severe lack of understanding* shown here in how to position size with a 2% equity risk.




Please explain. Who are you refering to? 

If it's me, I'm only too happy to be corrected, that's why I'm here.


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## wayneL (29 September 2009)

Mr J said:


> If someone trades 2% (particularly if they trade for a living), they better be able to deal with 50%+ drawdowns.



Why?


tech/a said:


> *A severe lack of understanding* shown here in how to position size with a 2% equity risk.



Why?



Statements without explanation are worth jack s#1t.


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## FXanyone (29 September 2009)

Hi Guys,

Looking for a little help. I am new to this forum so forgive me if I am in the wrong thread.
 I am a full time trader, primarily of fx and foreign stock indicies. 

Was wondering if someone could point out a website with technical commentary for the ASX 200. Sure they must exist, I just havent found one? 

Finally I am not looking for an ensorsement of a site, I am capable of making my own decisions and taking risk- just looking for a few pointers as where to look
Thank You


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## mazzatelli (29 September 2009)

wayneL said:


> Statements without explanation are worth jack s#1t.




Best not to be in your warpath today!!! lol


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## lukeaye (29 September 2009)

I see no real trading to plan to be honest. As somebody else stated just ideas. You cant have one without the other ie, no money management but an expectency of where price will go, or money management with no idea of where price will go, i dont think you have grasped either properly yet.

Have a read of Nick Radges adpative analysis. otherwise be prepared to be wrong, alot. and get emotionally tied up in every trade. the way i got over this is by writting out set rules and scenarios of what i think can happen with the stock im looking to trade, and having an action plan for every scenario. that way there is no emotion, just technical analysis.

i started the same as you, thinking i had ideas, but no real rules i stuck with, and i tore up probably $15000 in my first year thinking id only trade small. the market will suck you in, trust me.


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## Mr J (29 September 2009)

wayneL said:


> Why?
> Statements without explanation are worth jack s#1t.




Replies like this are worth even less.



			
				tech said:
			
		

> A severe lack of understanding shown here in how to position size with a 2% equity risk.




If we flip a coin thousands of times, there will be stretches were heads comes up 35 more times than tails. There's our 50% drawdown. It has nothing to do with an individual situation, but the result of variance.



			
				kam75 said:
			
		

> 3. depending on your account size. 2% Rule on 100K good. Smaller account may go larger, 3-4% but never more than 5% risk on any one trade.




I disagree. First of all, few people could trade at 5% risk and handle it emotionally. Second, our maximim size is determined by our tolerance of variance or by the mathematics of the trade (risk, profit, and probability). It can certainly be acceptable to risk more than 5% on a trade.


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## lukeaye (29 September 2009)

kam75 said:


> 1. Yes
> 2. Yes
> 3. depending on your account size.  2% Rule on 100K good.  Smaller account may go larger, 3-4% but never more than 5% risk on any one trade.
> 4. Decrease bet size if account draws down, increase bets as account grows.
> 5. Set profit targets instead.




LOL at this. Kam can i ask you, if your bullish on say 4 stocks, and you use your 5% rule, what happens when all 4 reverse? thats a 20% drawdown, i thought you were a coach?

just goes to show, those who cant teach, those who can do.


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## AlterEgo (29 September 2009)

wbosher said:


> For me personally, I'm a newbie with only a few thousand $$ to trade with. If I set my SL at 2% the SP only has go down by a very small amount and I will be stopped out.
> 
> Say for example I only have $5000 to trade with, 2% of this is $100. That doesn't leave much room to move at all once you factor in brokerage fees.




This is why trading stocks with such a small account size is most likely to end in failure – you can’t position size properly. Be prepared to lose most of your account.

Trading with such a small account is pretty pointless in my opinion, unless you are prepared to lose it and just treat it as a learning exercise.


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## lukeaye (29 September 2009)

AlterEgo said:


> This is why trading stocks with such a small account size is most likely to end in failure – you can’t position size properly. Be prepared to lose most of your account.
> 
> Trading with such a small account is pretty pointless in my opinion, unless you are prepared to lose it and just treat it as a learning exercise.




i disagree, whilst it is harder, it can be done. if you are correct with your position sizing you can make 700 from 100. all it means is that your limited to the trades you can take.

The best thing you can do is when setting up your trade, check where your stop loss needs to be first, then determine if this allows you to profit enough


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## wbosher (29 September 2009)

AlterEgo said:


> This is why trading stocks with such a small account size is most likely to end in failure – you can’t position size properly. Be prepared to lose most of your account.
> 
> Trading with such a small account is pretty pointless in my opinion, unless you are prepared to lose it and just treat it as a learning exercise.




You're probably right. I was trying to save at least $10,000 before entering the market but a few unforeseen problems put an end to that (car problems, replacing clapped out kitchen whiteware etc...). 

With the market going off the way it has been for most of this year I took a punt and jumped in with only $3000 because I didn't want to miss out. I'm doing ok but nothing to write home about, far better than I could get leaving my money in any bank though. Could have gone horribly wrong I guess but up to this point it hasn't. Fingers crossed...



lukeaye said:


> i disagree, whilst it is harder, it can be done. if you are correct with your position sizing you can make 700 from 100. all it means is that your limited to the trades you can take.
> 
> The best thing you can do is when setting up your trade, check where your stop loss needs to be first, then determine if this allows you to profit enough




I generally try to enter a trade directly above a fairly strong support level and get out if it falls back through, seems to be working ok for me at the moment (most of the time).


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## lukeaye (29 September 2009)

exactly, you can place a stop close to support, risk very little with a great return? if it moves in your favour you could make very good money with little risk? whats wrong with risking 100 to make potentially double that? brokerage is like $9? Am i missing something here? 

Dont get to greedy, if you can make more money then you put in, regardless of the amount, then what is the problem?


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## nomore4s (29 September 2009)

Mr J said:


> If someone trades 2% (particularly if they trade for a living), they better be able to deal with 50%+ drawdowns.




Am I missing something here? I'm just getting over the flu so my brain still isn't quite working properly yet.

What is the difference between a 50% drawdown using 2% and a 50% drawdown using 4%? Aren't they both still 50% drawdowns on the account - the only difference is one takes longer (ie more trades) then the other to actually get to 50%.


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## nomore4s (29 September 2009)

kam75 said:


> 4. Decrease bet size if account draws down, increase bets as account grows.




Isn't this what using fixed fractional position sizing does?

As the account grows 2% becomes larger in dollar value and as the account drawsdown it becomes smaller in dollar value.


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## Mr J (29 September 2009)

nomore4s said:


> Am I missing something here? I'm just getting over the flu so my brain still isn't quite working properly yet.
> 
> What is the difference between a 50% drawdown using 2% and a 50% drawdown using 4%? Aren't they both still 50% drawdowns on the account - the only difference is one takes longer (ie more trades) then the other to actually get to 50%.




Yes, that's what I'm saying. 2% vs 1% will see larger drawdowns more frequently, and newer traders might be surprised at how great a difference it makes. If someone flips coins 30 times a week, it wouldn't be unusual to see a 50% drawdown within a couple months. A 50% drawdown could happen using 1% trades, but since it will usually require a far greater sample, the trader doesn't have to be as prepared for it.


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## Wysiwyg (29 September 2009)

Mr J said:


> If someone flips coins 30 times a week, it wouldn't be unusual to see a 50% drawdown within a couple months.




I recommend trading shares instead.


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## lukeaye (29 September 2009)

I recommend CFD's, you need leverage. but you must understand risk beforehand as well and proper money management. PROPER. There is alot more to it then people will lead you to believe.

If you go into CFD's with no real plan, you will get hit, and hit hard. but its your only chance with such a small capital base.


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## AlterEgo (29 September 2009)

lukeaye said:


> i disagree, whilst it is harder, it can be done. if you are correct with your position sizing you can make 700 from 100. all it means is that your limited to the trades you can take.




I never said it couldn't be done. I said "most likely" end in failure, not saying it's impossible. The poster had admitted to being a newbie. I'm sure an experienced trader, with a proper plan, could succeed at it, but a newbie?? Possible, but unlikely.


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## lukeaye (29 September 2009)

Yes it is dificult for a newbie, but whether he has 10,000, 100,000 or 3,000 it doesnt matter, if he is going to fail he is going to lose money anyway. If he can practice good trading methods with positive expectancy and good risk reward ratios, then he can succeed, regardles of capital base. 

I find those who say you need more money, are those who pratice bad habbits such as moving stop losses, or having large losing streaks due to poor methology. More money does not mean a higher expectancy, and thats what matters


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## AlterEgo (29 September 2009)

lukeaye said:


> Yes it is dificult for a newbie, but whether he has 10,000, 100,000 or 3,000 it doesnt matter, if he is going to fail he is going to lose money anyway. If he can practice good trading methods with positive expectancy and good risk reward ratios, then he can succeed, regardles of capital base.




Well I agree with you to a point, but let’s look at an example:

Say you had a $3000 account (as you mentioned above), how many stocks would you divide this between? If you put it all on one stock, and the stock gaps down 20% on some news announcement, that’s 20% of your whole account gone on a single trade!

So instead, let’s say you divide it between 3 stocks, $1000 in each. Your brokerage is say $15 each way, so that means you’re already down 3% (plus the spread) as soon as you buy the stock – hardly a good start.

Now compare that to having a $100K account split equally between 10 stocks. Brokerage is the same, but now only represents 0.3% of the trade value, so Risk:Reward shifts further in your favour. And one stock gapping down 20% only affects your total portfolio by 2%, so risk is much reduced.

So although it may be possible to succeed with a $3K account, you have a much better chance with a larger account.


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## lukeaye (29 September 2009)

AlterEgo said:


> Well I agree with you to a point, but let’s look at an example:
> 
> Say you had a $3000 account (as you mentioned above), how many stocks would you divide this between? If you put it all on one stock, and the stock gaps down 20% on some news announcement, that’s 20% of your whole account gone on a single trade!
> 
> ...




Im afraid your missing the point entireley, you would risk say $100 per trade, regardless of brokerage and the spread, it applies to both sized accounts, your expectancy of a profitable reutrn is no less or greater, the extra hurdle is only it is harder to make enough over $9 brokerage, but really its not a great amount. a trade i set up yesterday with amp, i only risked $200 and i have already made $650, the percent increase on the win is no greater or lesser regardless of account size. Have a look at the thread i started on my trading strategy where i show the amp trade.

Your chance can be no greater or worse, how does a larger capital base give you a greater expectancy? it doesnt? it can't?  please explain to me how it can?

And if you are splitting 100,000 between 10 stocks, i am very concerned for you, because when the market turns around you will cop a 50% drawdown, regardless of your account size


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## AlterEgo (29 September 2009)

lukeaye said:


> Your chance can be no greater or worse, how does a larger capital base give you a greater expectancy? it doesnt? it can't?  please explain to me how it can?




Well in the example I posted, yes it does give greater expectancy. Let me expand on the above example to better explain:

A stock you’re looking at has resistance at $2.00 and support at $1.95, so you enter on breakout at $2.01 and set stop loss at $1.94. Lets suppose our target is $2.20, lets see what this works out to with the above position sizes:

Scenario 1
Buy 500 shares at $2.01 costs $1,005 + $15 brokerage = $1,020
Sell at target = 500 shares at $2.20 minus $15 brokerage = $1,085 (gain of $65)
Sell at stop loss = 500 at $1.94 minus $15 brokerage = $955 (loss of $65)
So you have risked $65 for possible gain of $65.
Reward to risk of *1:1*

Scenario 2
Buy 5,000 shares at $2.01 costs $10,050 + $15 brokerage = $10,065
Sell at target = 5000 at $2.20 minus $15 brokerage = $10,985 (gain of $920)
Sell at stop loss = 5000 at $1.94 minus $15 brokerage = $9,685 (loss of $380)
So you have risked $380 for a possible gain of $920.
Reward to risk of *2.42:1*


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## wayneL (29 September 2009)

Mr J said:


> Yes, that's what I'm saying. 2% vs 1% will see larger drawdowns more frequently, and newer traders might be surprised at how great a difference it makes. If someone flips coins 30 times a week, it wouldn't be unusual to see a 50% drawdown within a couple months. A 50% drawdown could happen using 1% trades, but since it will usually require a far greater sample, the trader doesn't have to be as prepared for it.




Ah, some content materializes.

This may be more probable in a system where numerous correlated trades are taken. Less probable, but not impossible where a less correlated trades are taken.

However, certainly something I've always designed into my systems is overall portfolio risk. As an extreme example, take 20 2% trades all in one day in the stock market and your risk is actually 40%.

I think a figure of risk should be selected for the entire system. This will trim down the risk (but not totally negate) of such high drawdowns.


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## tech/a (29 September 2009)

Mr J said:


> Yes, that's what I'm saying. 2% vs 1% will see larger drawdowns more frequently, and newer traders might be surprised at how great a difference it makes. If someone flips coins 30 times a week, it wouldn't be unusual to see a 50% drawdown within a couple months. A 50% drawdown could happen using 1% trades, but since it will usually require a far greater sample, the trader doesn't have to be as prepared for it.




Dont you mean string of losses rather than drawdown?
Do you mean initial drawdown or relative drawdown on a system?

Wayne you speak of Portfolio Heat.


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## wayneL (29 September 2009)

tech/a said:


> Wayne you speak of Portfolio Heat.




Ahh, it's got a name. good, thanks.


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## Nick Radge (29 September 2009)

Probability theory - losing streaks and therefore drawdown are directly related to winning percent of the trades taken. The larger the iterations the larger the drawdown.

A system with 50% winning trades and 10,000 iterations will suffer 16 losing trades in a row at some stage.

16 at 1% is -16% drawdown.

16 at 2% is -32% drawdown.

Nick


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## tech/a (29 September 2009)

wayneL said:


> Ahh, it's got a name. good, thanks.




Yeh I call it Frank.


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## Wysiwyg (29 September 2009)

I think this is correctly worded.

The Total Core Equity = Starting equity minus open trades. 
The Total Equity = Starting equity plus open trades at current value.
The Total Reduced Equity = Starting equity minus open trades value at risk.

Which is best to work out % risk using any of above please.


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## wayneL (29 September 2009)

Nick Radge said:


> Probability theory - losing streaks and therefore drawdown are directly related to winning percent of the trades taken. The larger the iterations the larger the drawdown.
> 
> A system with 50% winning trades and 10,000 iterations will suffer 16 losing trades in a row at some stage.
> 
> ...




Something the martingale guys at the casino find out soon enough.


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## skc (29 September 2009)

Nick Radge said:


> Probability theory - losing streaks and therefore drawdown are directly related to winning percent of the trades taken. The larger the iterations the larger the drawdown.
> 
> A system with 50% winning trades and 10,000 iterations will suffer 16 losing trades in a row at some stage.
> 
> ...




Nick I read about this in your book and don't get me wrong I definitely think it is helpful way of putting relationship between risk% and drawdown into context.  

However, this simple relationship doesn't show that a trader can fail (or reach the drawdown pain threshold) in other ways...  6 losses, 1 small win, 4 losses, 2 small wins, 6 more losses and 1 medium win... and next thing you know you are down 15-20% without ever needing to see 16 losses in a row.

BTW this is a 1yr old thread... who dug this out?


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## Mr J (30 September 2009)

wayneL said:


> This may be more probable in a system where numerous correlated trades are taken. Less probable, but not impossible where a less correlated trades are taken.




Yes, but trade size should be adjusted for correlation for this very reason.



> However, certainly something I've always designed into my systems is overall portfolio risk. As an extreme example, take 20 2% trades all in one day in the stock market and your risk is actually 40%.




It depends how we define risk. Say we flip coins for $1. I win the first flip, and decide as soon as I lose the dollar that I won, I'll quit. We make 9 more flips as I never lose the original dollar I won. How much have I risked? After the first flip, I only risked $1, and while that dollar was placed at risk 9 times, it was still only that dollar that was at risk.



			
				Tech said:
			
		

> Dont you mean string of losses rather than drawdown?




I assumed drawdown meant loss on account. If not, yes, I'm referring to a string of losses.



			
				Nick Radge said:
			
		

> Probability theory - losing streaks and therefore drawdown are directly related to winning percent of the trades taken.




I think it's better to think of losing stretches rather than losing streaks. Also, I'll throw in that R:R is the other factor in drawdowns. Stating the obvious, but many people do overlook R:R in favour of win% (and by not look at both, they lose).



> 16 at 1% is -16% drawdown.
> 
> 16 at 2% is -32% drawdown.




If we adjusted after each result, it's more like 15% and 28%.



			
				WayneL said:
			
		

> Something the martingale guys at the casino find out soon enough.




And unfortunately for them, they can usually double up just 6-7 times.



			
				skc said:
			
		

> and next thing you know you are down 15-20% without ever needing to see 16 losses in a row.




If we're flipping coins, 20-30 will do that, and that kind of result will occur all the time over a sample of 50. Like I said before, anyone who trades 2% better be prepared for some wild fluctuations in capital.


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## Nick Radge (30 September 2009)

> However, this simple relationship doesn't show that a trader can fail (or reach the drawdown pain threshold) in other ways... 6 losses, 1 small win, 4 losses, 2 small wins, 6 more losses and 1 medium win... and next thing you know you are down 15-20% without ever needing to see 16 losses in a row.




skc,
Yes, you're absolutely correct and I'm not sure of a way around it. I don't have the mathematical brain power that extends that far.

I guess my point really extends to those that using system testing stats to quantify their maxDD. For many years I trades a SPI/HangSeng system that in testing shows 14 losses and x% maxDD. However, using the formula above it suggest that 27 losses were more likely to occur. Funnily enough early last year it did have 27 losses...doh.

So in summary, what is usually seen on the surface will in reality be a lot worse, which is why I tell people to think of a maxDD they think they can handle, then halve their risk. 

That said most people can't handle what they think they can anyway, so its best to halve it from the outset.

Remember the idea of successful trading is to never get taken out of the game, monetary wise or psychologically. 

Nick


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## Mr J (30 September 2009)

I don't think of max drawdowns, since it is limited only by what we have in the account. All I can do is minimise the chance of experiencing one, and hope that my account has grown enough by that stage to cushion the blow.


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## wayneL (30 September 2009)

Mr J][QUOTE=wayneL said:


> This may be more probable in a system where numerous correlated trades are taken. Less probable, but not impossible where a less correlated trades are taken.




Yes, but trade size should be adjusted for correlation for this very reason.
[/QUOTE]
No argument there. I like my risk @ < 2%, for better or worse. But I also think "portfolio heat" is under-emphasized.



			
				Mr J said:
			
		

> > However, certainly something I've always designed into my systems is overall portfolio risk. As an extreme example, take 20 2% trades all in one day in the stock market and your risk is actually 40%.
> 
> 
> 
> ...




Two completely different situations... not relevant to my comments at all.

You are talking about sequential risks. I am talking about concurrent risks.


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## johenmo (30 September 2009)

AlterEgo said:


> So although it may be possible to succeed with a $3K account, you have a much better chance with a larger account.




I agree but I'd rephrase this to say with a larger account, the brokerage has less effect.

Do the maths with the same trades and with varying account sizes (So larger positions for each trade due to the larger account.  Brokerage requiores a larger % return just to cover brokerage (e.g. a $500 vs$1000 vs $10,000 position).  Repeat for different brokerage levels.

A larger account with no skills means you may take a bit longer to lose it all (i.e. success has nothing to do with account size but how you handle it).  I have a small account and cut the losses (eventually) and am ok now.  Not trading until I built a bit more - which I have now done.  But I am a little more wise now than I was before.


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## AlterEgo (30 September 2009)

johenmo said:


> I agree but I'd rephrase this to say with a larger account, the brokerage has less effect.




Yes, that’s what I’m getting at. But to be entirely correct I’d rephrase to say that the larger the *position size *(which naturally will require a larger account), the less brokerage has an effect (up to a point).

But not only that, a larger account also allows you to spread the risk over a larger number of positions (eg. having 10 positions on a $5,000 account isn’t practical, as the brokerage would kill you), and therefore allows you to use a smaller percentage risk per position if using fixed fractional position sizing. eg. With a larger account you could use say 1% risk per postion, but may have to use say 5% risk per position with a smaller account. For example, you couldn't use 1% risk with a $2,000 account, as 1% of $2,000 is $20, which is probably less than your brokerage costs (total of buy and sell brokerage).


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## wbosher (30 September 2009)

AlterEgo said:


> With a larger account you could use say 1% risk per postion, but may have to use say 5% risk per position with a smaller account. For example, you couldn't use 1% risk with a $2,000 account, as 1% of $2,000 is $20, which is probably less than your brokerage costs (total of buy and sell brokerage).




This is exactly the point I was trying to make earlier. The 2% rule needs to be taken out a little for smaller accounts. Despite what several people have said, it can be done. You just need to be very careful, and probably a bit lucky too. For a newbie like me, probably more of the latter than the former.


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## danno75 (1 October 2009)

This is a bit off the subject but as Nick was involved just yesterday I would like to know if his book can be delivered overseas if ordered online. I am living in Laos and don't plan to get back to Oz for a year or so.

Cheers

Dan


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