Short-term trading strategy discussion

Sir Osisofliver · 17 February 2010

I wrote the below in another thread, just bringing it here so we don't clutter..

@ Tech/A

Not sure if this will be considered :topic or not. I just wanted to get into your head a little. If you think it is and want to continue I'd be happy to take this to a new thread.

Yes I appreciate that we are talking about the very specific area of day or session trading, but I'm curious as to your reasoning behind a few things.

From your comments in this thread it appears that your exit strategy is entirely dependent on the placement of your stop loss. From what you've said you do not appear to use indicators or price action as a guide for your exit levels.

I'm wondering if this is simply a result of the style of trading that you are employing with fast trading requiring a simple and quick method of managing the outcomes of multiple positions, or if there is another reason.

Your comments that...

"Everyone aims for a winning trade.
but before each trade is taken we have no idea whether it will be a winner more so how much it will win---we can determine loss.
We can look at 100s of various analytical tools and feel really comfortable that ALL those tools align before we take a trade but the hard truth is that we cannot be certain at the time of the trade whether in fact THIS trade has a higher probability of a winning trade than the LAST trade which also ticked all the boxes."

are intriguing to me because I obviously follow a very different style to yourself, where I have some expectation as to price movement. From this expectation of price action I determine my positional sizing, trade risk weighting and set a stop loss.

Without some expectation of price how do you determine such things?

Cheers

Sir O

tech/a · 17 February 2010

Its a good question and one I will spend time on tonight when I dont have phones and clients at me!

Sir Osisofliver · 17 February 2010

tech/a said:
Its a good question and one I will spend time on tonight when I dont have phones and clients at me!

Thanks Tech - yeah I got crazy busy in the afternoon too.

Cheers

Sir O

tech/a · 17 February 2010

(1) From your comments in this thread it appears that your exit strategy is entirely dependent on the placement of your stop loss.(2) From what you've said you do not appear to use indicators or price action as a guide for your exit levels.

To part one yes you are correct in the case of the WBC trade I like to let the price action take me out. However there are other patterns like spikes or exponential moves which will require a sell at a point. I remember clearly a trade I posted here (forget the stock was 2 yrs ago I think) and it rose like a rocket from 7.2c At 10c I sold and saw it go to 10.5c for a few trades then drop like a rock to 8c all in 4 hrs! 10c was a round figure which in that case worked better than a trailing stop.

But to part 2
I actually do. I use Volume and range with a keen eye on testing of bars.Past immediate price action and making sure I stick with the time frame in which I took the trade.
First I'll answer the questions then if there is interest I'll post the charts on WBC and comment on the thinking of THAT trade.

I'm wondering if this is simply a result of the style of trading that you are employing with fast trading requiring a simple and quick method of managing the outcomes of multiple positions, or if there is another reason.

I trade up to 8 positions at a time.
But only one Day Trade at a time the rest will be longer short term positions I currently only have one of those which I just keep adding to BRM.
That's all I traded today and did nothing but smile at it all day! That isn't a Day Trade.

I need to watch day trades I don't leave them unattended.Have done so and paid the price---or R loss more to the point.

"Everyone aims for a winning trade.
but before each trade is taken we have no idea whether it will be a winner more so how much it will win---we can determine loss.
We can look at 100s of various analytical tools and feel really comfortable that ALL those tools align before we take a trade but the hard truth is that we cannot be certain at the time of the trade whether in fact THIS trade has a higher probability of a winning trade than the LAST trade which also ticked all the boxes."

are intriguing to me because I obviously follow a very different style to yourself, where I have some expectation as to price movement. From this expectation of price action I determine my positional sizing, trade risk weighting and set a stop loss.

Without some expectation of price how do you determine such things?

Understandable.
Of course I have an expectation or expectation that the trade will move positively I just don't know how far and I don't know how fast.
Both are critical in setting of buy and trailing stop.
The topic is complex but simple and I will handle everyone the same but everyone different.

Let me explain.
M/M is always the same,and its not conventional in most part it has one aim only increase R.
I have no idea what my R will be before a trade nor do I guess it I simply make it as large as I can DURING the initial part of the trade.
At the end of a number of trades I can work out my ACTUAL R on those trades from the ACTUAL result.

But LIKE YOU I need somewhere to start but its NOT where I finish!
My initial risk is NEVER reached. I wont allow it. this has stopped me out prematurely but I don't care its the R that's important if I get that right profit will come---regularly.

So an example.
Position size with 1% of equity stop based upon a technical level.
ALWAYS take a trade with momentum in the direction of intended trade.
That's why I stupidly (evidently) buy breakouts.
After the initial buy I ignore the stop level I'll NEVER let it reach it I want to minimise R loss.
As soon as I can halve it I will and as soon as I feel the buy price wont be pressured Ill move to that.
Price normally wont rise for ever in a move so then I look for signs of exhaustion which I'll show by chart if interested.
I will move a trailing stop to pivots in the time frame traded and then when a topping is likely by way of analysis I'll pull the trailing up to a bar or 2 bar stop.

So I don't need to know how far its going and I can manipulate R dramatically over a number of trades getting amazing R multiples.
I do a less aggressive form of shorter term trading with the same result.

I play with MM far more than Analysis.
Hope that's got you into a very different head!

In this game you have to be different.

Sir Osisofliver · 18 February 2010

Hi Tech,

Thanks for the great response. This might get a bit rambly in parts but no rush.

tech/a said:
To part one yes you are correct in the case of the WBC trade I like to let the price action take me out. However there are other patterns like spikes or exponential moves which will require a sell at a point. I remember clearly a trade I posted here (forget the stock was 2 yrs ago I think) and it rose like a rocket from 7.2c At 10c I sold and saw it go to 10.5c for a few trades then drop like a rock to 8c all in 4 hrs! 10c was a round figure which in that case worked better than a trailing stop.

But to part 2
I actually do. I use Volume and range with a keen eye on testing of bars.Past immediate price action and making sure I stick with the time frame in which I took the trade.

Not that I think there is anything wrong with analysis on the price action (as every indicator is based upon price action movement), and I certainly don't disagree with the concept of getting really good at turning 1 dollar into 2 and rinsing and repeating, but what I read from the above is that your primary trade target is thrust, and you exit during consolidation of the price action.

My own experience tells me that the shorter the time frame in a trade, the more chaos I tend to see in the price action, which would lead me to suspect that you get stopped out more frequently than necessary and potentially miss out on price movement unless you enter the trade again.

There are indicators that I use to try and determine whether price action and consolidation patterns are exhausted however these indicators are for longer-term timeframes and don't convert well to a shorter term time frame.

Question - I imagine you are very comfortable with your own trading style and not make any changes, from the mental perspective - Does it bother you that you get stopped out more frequently and potentially miss out on some price action?

First I'll answer the questions then if there is interest I'll post the charts on WBC and comment on the thinking of THAT trade.

I trade up to 8 positions at a time.
But only one Day Trade at a time the rest will be longer short term positions I currently only have one of those which I just keep adding to BRM.
That's all I traded today and did nothing but smile at it all day! That isn't a Day Trade.

I need to watch day trades I don't leave them unattended.Have done so and paid the price---or R loss more to the point.

I totally agree. - No investment is ever set and forget.

Understandable.
Of course I have an expectation or expectation that the trade will move positively I just don't know how far and I don't know how fast.
Both are critical in setting of buy and trailing stop.
The topic is complex but simple and I will handle everyone the same but everyone different.

Let me explain.
M/M is always the same,and its not conventional in most part it has one aim only increase R.
I have no idea what my R will be before a trade nor do I guess it I simply make it as large as I can DURING the initial part of the trade.
At the end of a number of trades I can work out my ACTUAL R on those trades from the ACTUAL result.

But LIKE YOU I need somewhere to start but its NOT where I finish!
My initial risk is NEVER reached. I wont allow it. this has stopped me out prematurely but I don't care its the R that's important if I get that right profit will come---regularly.

So an example.
Position size with 1% of equity stop based upon a technical level.
ALWAYS take a trade with momentum in the direction of intended trade.
That's why I stupidly (evidently) buy breakouts.
After the initial buy I ignore the stop level I'll NEVER let it reach it I want to minimise R loss.
As soon as I can halve it I will and as soon as I feel the buy price wont be pressured Ill move to that.
Price normally wont rise for ever in a move so then I look for signs of exhaustion which I'll show by chart if interested.
I will move a trailing stop to pivots in the time frame traded and then when a topping is likely by way of analysis I'll pull the trailing up to a bar or 2 bar stop.

So I don't need to know how far its going and I can manipulate R dramatically over a number of trades getting amazing R multiples.
I do a less aggressive form of shorter term trading with the same result.

I play with MM far more than Analysis.
Hope that's got you into a very different head!

In this game you have to be different.

So you don't use anything like a Kelly F? You use a system that is a fixed amount of equity per trade regardless of how strongly your "expectations" are?

That's a very non-emotive system - do you find that is the best for you?

Thanks for a look into the mind of a fellow trader Tech/A - I always find this stuff interesting.

Cheers

Sir O

tech/a · 18 February 2010

Sir Osisofliver said:
Hi Tech,

Thanks for the great response. This might get a bit rambly in parts but no rush.

Not that I think there is anything wrong with analysis on the price action (as every indicator is based upon price action movement), and I certainly don't disagree with the concept of getting really good at turning 1 dollar into 2 and rinsing and repeating, but what I read from the above is that your primary trade target is thrust, and you exit during consolidation of the price action.

Sort of.
Not all consolidations see me exit nor run a tighter trailing stop.
As mentioned its analysis of price and range.
EG high volume after a run up with a tight range could indicate selling ansdd it often does. This is time to watch the screen.
Low volume in consolidations indicate a lack of willingness to sell.
Of course more as I use VSA and even that has my own observations from years of use and its application is both text book and with my own flair.

My own experience tells me that the shorter the time frame in a trade, the more chaos I tend to see in the price action, which would lead me to suspect that you get stopped out more frequently than necessary and potentially miss out on price movement unless you enter the trade again.

Can do if your on a stock which analysis speaks with forked tongue.
But if its a genuine solid mover its pretty stable. to be honest my buy for WBC was for a longer term trade it had been sitting there for quite a while waiting for a fill.
When it came along I decided to use it as an example---result was less than emphatic for those watching so traded it again next day. I was attempting to make a point on Daytrading that protecting loss and maximising long term R from multiple trades will ensure profit---I did this rather badly it seems!

There are indicators that I use to try and determine whether price action and consolidation patterns are exhausted however these indicators are for longer-term timeframes and don't convert well to a shorter term time frame.

There are plenty directly related to any timeframe given enough liquidity.
Without it your guessing.

Question - I imagine you are very comfortable with your own trading style and not make any changes, from the mental perspective - Does it bother you that you get stopped out more frequently and potentially miss out on some price action?

No not at all.
I'm more than happy to take something out.
I'm even happy getting out cheaply if a trade turns against me. Cutting the initial risk from .5% to .25% or less and stopping out I feel great about even if it turns again and goes.
Why
Because my Loss tally is kept really low and when I get a good win or 3 my R doesnt suffer.
One big loss can kill a months R.---Now we have all had them!--Now not if I can manage it and not get gapped or delisted.

I totally agree. - No investment is ever set and forget.

Shouldnt be but many bottom draw stocks when the loss gets too hard to face.

So you don't use anything like a Kelly F? You use a system that is a fixed amount of equity per trade regardless of how strongly your "expectations" are?

No no Kelly and its not a system its an understanding of maximising return on $ invested.The amount of initial capital allocated is sort of fixed
but if it runs hard Ill add quickly same agressive MM as has been seen in first trade.

That's a very non-emotive system - do you find that is the best for you?

Fortunatley I have learned through business more so than trading that $$s is what we use to negotiate.If your good at it you'll accumulate.
So its a system in the knowledge only that if I do what I do I have a high probability of overall success---proven correct so far!
But as i have said Daytrading is something I actually avoid---if it stares me in the face then I'll go for it--happens 1 or 2 times a month I dont look for it.
But enjoy hunting for stocks which I can anticipate some coming action.
WBC was one and I was correct only traded it as a demo.Cost a few $$s that!

I normally wait in anticipation!

Thanks for a look into the mind of a fellow trader Tech/A - I always find this stuff interesting.

Cheers

Sir O

Always enjoy a discussion.

Sir Osisofliver · 18 February 2010

tech/a said:
Can do if your on a stock which analysis speaks with forked tongue.
But if its a genuine solid mover its pretty stable. to be honest my buy for WBC was for a longer term trade it had been sitting there for quite a while waiting for a fill.
When it came along I decided to use it as an example---result was less than emphatic for those watching so traded it again next day. I was attempting to make a point on Daytrading that protecting loss and maximising long term R from multiple trades will ensure profit---I did this rather badly it seems!

I find this interesting tech/a as to me consolidation events in price movements are always indicative of the price action trying to find direction. This is of course where we see plenty of inside and outside bars, flags pennants, wedges etc that plenty of technicians look for (and the break-away movements from these consolidating patterns) that indicate direction and trend. To me that consolidation is an expression of chaos, and attempting to trade within these periods of uncertainty without indicators showing trend doesn't work for me. A very tight stop for me whilst limiting my downside in these circumstances, would result in a much higher brokerage cost and limit the effectiveness of my trading.

I tend not to use much volume analysis when doing shorter term trading. Being in the industry for so long has brought home to me just how much hidden volume exists within all stocks. Most of my technical analysis tends to be purely based on price action and specific indicators.

I also wait for trades to come to me and fit my strategy.

There are plenty directly related to any timeframe given enough liquidity.
Without it your guessing.

For a given value of "guessing".

I'm sure you know tech that if your money management and risk minimisation is working, you can be right only 50% of the time and still make consistent money. If you are right more than 50% however, the equity curve line tends to be much more stable and predictable. The indicators I use give me a greater than 50% surety that my view is correct, and my stop loss is there to limit downside risk.

No not at all.
I'm more than happy to take something out.
I'm even happy getting out cheaply if a trade turns against me. Cutting the initial risk from .5% to .25% or less and stopping out I feel great about even if it turns again and goes.
Why
Because my Loss tally is kept really low and when I get a good win or 3 my R doesnt suffer.
One big loss can kill a months R.---Now we have all had them!--Now not if I can manage it and not get gapped or delisted.

I think this is the mark of a good trader tech, not being bothered with what might have been and just moving on to the next trade. I think its a mental trap that a lot of investors fall into. "Oh if only I'd bought those Pure Energy options at 10 cents!!". Having said that I think it would kill my sytem if I used such a tight stop.

No no Kelly and its not a system its an understanding of maximising return on $ invested.The amount of initial capital allocated is sort of fixed
but if it runs hard Ill add quickly same agressive MM as has been seen in first trade.

I think this is a major point of differentiation here tech. I'd prefer to get my expectation in place and get my position right, rather than average up into a successful trade and potentially give something back if the trade moves against me. With your very tight stops I can see how this would work, but you'd have to be watching it like a hawk and I like to get away from the screen for a while. I'd feel like I was constantly chasing the price utilising that style of trading.

Fortunatley I have learned through business more so than trading that $$s is what we use to negotiate.If your good at it you'll accumulate.
So its a system in the knowledge only that if I do what I do I have a high probability of overall success---proven correct so far!
But as i have said Daytrading is something I actually avoid---if it stares me in the face then I'll go for it--happens 1 or 2 times a month I dont look for it.
But enjoy hunting for stocks which I can anticipate some coming action.
WBC was one and I was correct only traded it as a demo.Cost a few $$s that!

I normally wait in anticipation!

Always enjoy a discussion.

Thanks tech

I'm enjoying as well

Cheers

Sir O

tech/a · 18 February 2010

Sir Osisofliver said:
I find this interesting tech/a as to me consolidation events in price movements are always indicative of the price action trying to find direction. This is of course where we see plenty of inside and outside bars, flags pennants, wedges etc that plenty of technicians look for (and the break-away movements from these consolidating patterns) that indicate direction and trend. To me that consolidation is an expression of chaos, and attempting to trade within these periods of uncertainty without indicators showing trend doesn't work for me. A very tight stop for me whilst limiting my downside in these circumstances, would result in a much higher brokerage cost and limit the effectiveness of my trading.

My consolidation areas may look a little different to yours in very short frames.

Click to expand

However in longer timeframes same principal but more range likely. Just timeframe I think.

I tend not to use much volume analysis when doing shorter term trading. Being in the industry for so long has brought home to me just how much hidden volume exists within all stocks. Most of my technical analysis tends to be purely based on price action and specific indicators.

Has worked for me.

I also wait for trades to come to me and fit my strategy.
For a given value of "guessing".

Often the case as well as explained before but If I see a runner from an alert and i like what i see in a few timeframes I'll certainly trade it.

I'm sure you know tech that if your money management and risk minimisation is working, you can be right only 50% of the time and still make consistent money. If you are right more than 50% however, the equity curve line tends to be much more stable and predictable. The indicators I use give me a greater than 50% surety that my view is correct, and my stop loss is there to limit downside risk.

Sure I trade methods with 30% winners and 12:1R this very short term trading is skewed by an extreme winner back a while ago at 10.2:1
Take that out and its 3.52:1 over the 28 trades I have.

I think this is the mark of a good trader tech, not being bothered with what might have been and just moving on to the next trade. I think its a mental trap that a lot of investors fall into. "Oh if only I'd bought those Pure Energy options at 10 cents!!". Having said that I think it would kill my sytem if I used such a tight stop. I think this is a major point of differentiation here tech. I'd prefer to get my expectation in place and get my position right, rather than average up into a successful trade and potentially give something back if the trade moves against me. With your very tight stops I can see how this would work, but you'd have to be watching it like a hawk and I like to get away from the screen for a while. I'd feel like I was constantly chasing the price utilising that style of trading.

Its only a timeframe thing.
Initially it is a pain getting set (taking all I want and getting a feel for stops from tests but can be easy enough.
If I didnt have a couple of screens on the desk and being the "boss" then I couldnt indulge at all.
Its not a style I want to be involved with daily but happy to take advantage of a good run if I see it in the making and erly enough.
I used to have live volume scans from Marketcast and they gave me instant alerts to movers sadly its no longer supported and I havent found anything in instant R/T with refresh at the click of a mouse capability! Pitty made me a lot back years ago.

tech/a · 18 February 2010

Just noticed your thread heading.

Short-term trading strategy discussion

Sorry I have been very specific in my answers to Day Trading!
Short term of a maximum of a week or so is a great topic in itself happy to kick off on that and leave the day trading topic alone as Ive said all I have to say on the topic uless there are questions.

Shorter term trading is quite different in many respects to day trading but for me similar in others.I use a wider timeframe to start.
Generally a 30-60 min frame.Can also be daily

Sir Osisofliver · 19 February 2010

tech/a said:
Just noticed your thread heading.

Short-term trading strategy discussion

Sorry I have been very specific in my answers to Day Trading!
Short term of a maximum of a week or so is a great topic in itself happy to kick off on that and leave the day trading topic alone as Ive said all I have to say on the topic uless there are questions.

Shorter term trading is quite different in many respects to day trading but for me similar in others.I use a wider timeframe to start.
Generally a 30-60 min frame.Can also be daily

Oh Yeah I was aware we were talking specifically about day trading as an exercise - I mention it in the first post. I'm happy to continue discussing other timelengths and trading styles.

tech/a said:
My consolidation areas may look a little different to yours in very short frames.

Click to expand

However in longer timeframes same principal but more range likely. Just timeframe I think.

Looks like a consolidation pattern to me

although I would have drawn the box slightly differently.

Sure I trade methods with 30% winners and 12:1R this very short term trading is skewed by an extreme winner back a while ago at 10.2:1
Take that out and its 3.52:1 over the 28 trades I have.

I've got an extrapolator I built for my short-term trading which is useful when I do back-testing on a new system or strategy. It helps me determine the stability of any system that I employ.

I'm not sure how to attach them in the middle of text like you do tech so hopefully this won't be confusing.

The attachment 30% win 1-1 R shows an extrapolated equity curve with a win ratio of 30% with a 1:1 cents gained cents lost figure. As you can see there is only one direction for such a system...down.

When I use 30 W/L and 3.52:1 CG:CL figures in the model you can see the positive expectancy in such a system you describe, although the line is not stable. This can be seen in the variation that occurs when I plug the numbers in a second time and get a vastly different euity curve line.

What the model does not replicate is the effect of your very tight stops. I imagine that your very tight stops creates a much more stable line (if somewhat flatter).

When I design a system I specifically look for one that gives me a greater than 50% W/L because it gives me a stability that works with my trading style. Anything that I can't get greater than 50% WL I abandon.

The last one is the extrapolation of the equity curve line on my system. (Although it is somewhat distorted, I'm just shy of 50 trades and the system ran at 100% WL for the first 20 trades).

I suppose this is why I've never been attracted to day trading (although I find the topic very interesting) or extremely short time frames as the equity line isn't stable enough for my OCD nature.

Cheers

Sir O

tech/a · 19 February 2010

You have mis understood me.

Sure I trade methods with 30% winners and 12:1R this very short term trading is skewed by an extreme winner back a while ago at 10.2:1
Take that out and its 3.52:1 over the 28 trades I have.

Was refering to longer term trading as in Techtrader.
In the above day trades over 3
Win rate is 17 from 28 trades havent got a generator so cant plot it.
Simply showed the importance of pulling back risk while getting what we can on the profit side.
Anyway any hints youd like to put forward on the short term trading front.

Synergy · 20 February 2010

Sorry to disturb the little private chat here. Good reading so far though.

Here are a few ideas for discussion. These are a few random thoughts I've written down over my time doing this that I feel don't really get a lot of consideration. All are related to short term systematic trading. Feel free to discuss/tear appart any of them.

- Stops should not only be placed to catch a falling stock, but also to sell a stock that is likely to underperform a new trade.

- It's likely that the point of break even holds little importance to anyone but yourself, yet it's treated like a magical number that holds more importantance than prices either side of it.

- Pyramidding makes sense when the risk:reward of the pyramidded portion of the trade outweighs that of a new trade. Each trade must be taken on it's own merrits, regardless of whether you already have a holding in that stock. (I can't get pyramidding to work with my breakout system. If I could I would be questioning whether my entry needed to be advanced further into the trend)

- More time should be spent matching the number of buy signals to what the system can trade. Excess buy signals means weaker trades could be filtered out. Insufficient signals results in lost oportunity. If the system is not fully invested, buy parameters should be loosened to allow weaker signals to be bought. If taken up, weaker trades should be sold to allow room for trades likely to be more profitable.

- More time should be spent minimising the time in trades. % gained per Day held is an important system performace indicator.

Would be interested to hear what other peoples average trade length is for their short term systems. I wonder if there is a fair amount of similarity or a wide spread.

My breakout system averages around 7 days, with many trades cut at 4 days. I have found this to work well for the asx and the amount of trades my system can buy. If there were more stocks on the asx, my trade duration may well be shortened.

tech/a · 20 February 2010

Sir Osisofliver said:
Oh Yeah I was aware we were talking specifically about day trading as an exercise - I mention it in the first post. I'm happy to continue discussing other timelengths and trading styles.

Looks like a consolidation pattern to me although I would have drawn the box slightly differently.

Yes it is I watch for whats going on in that consolidation.

I've got an extrapolator I built for my short-term trading which is useful when I do back-testing on a new system or strategy. It helps me determine the stability of any system that I employ.

Its just a replication of an equity curve of a known input Win % and R/R.

I'm not sure how to attach them in the middle of text like you do tech so hopefully this won't be confusing.

Simply take a pik of it with say Snag it them load onto Photobucket and copy and paste the tagged name here.

[quote]The attachment 30% win 1-1 R shows an extrapolated equity curve with a win ratio of 30% with a 1:1 cents gained cents lost figure. As you can see there is only one direction for such a system...down.[/quote]

Of course.

[quote]When I use 30 W/L and 3.52:1 CG:CL figures in the model you can see the positive expectancy in such a system you describe, although the line is not stable. This can be seen in the variation that occurs when I plug the numbers in a second time and get a vastly different euity curve line.[/quote]

Of course again having the known inputs.The same would occur with Montecarlo analysis of a known system.

[quote]What the model does not replicate is the effect of your very tight stops. I imagine that your very tight stops creates a much more stable line (if somewhat flatter).[/quote]

Given the inputs above you can run it.
But

It probably replicates it pretty well but as I said there are a few very large R winners and lots of smaller ones averaging to 3.52 the equity curve if I plotted it would look different.

[quote]When I design a system I specifically look for one that gives me a greater than 50% W/L because it gives me a stability that works with my trading style. Anything that I can't get greater than 50% WL I abandon.[/quote]

Fine but my method isnt a system as such with set rules which govern all the aspects of the trade.
Its a discretionary method which while it has rules are applied as achart develops. While I aim for a high win rate I'm more interested in very low losses and high wins = more reward for Risk.
I would abandon anything which after a period of discretionary trading I found was not returning a positive expectancy.
I certainly would NOT discard a method which showed a positive expecatncy but had a win rate of less than 50% infat the larger majority of Longer term methods have a low win rate characteristic as T/T does but huge R/R.

[quote]The last one is the extrapolation of the equity curve line on my system. (Although it is somewhat distorted, I'm just shy of 50 trades and the system ran at 100% WL for the first 20 trades).

I suppose this is why I've never been attracted to day trading (although I find the topic very interesting) or extremely short time frames as the equity line isn't stable enough for my OCD nature.[/quote]

Perhaps look at your nature!
Outliers have secured my financial future.
Reliable repetitive profits (Business /Trading/ Proprty) maintain my lifestyle while I sit on Trainlines waiting for the next outlier to hit!
A diversification in each has proven for me atleast that 80% of my time Ill be reaping the 20% which keeps me going (Actually more like 95%)
and 20-5% of the time BINGO!

tech/a · 20 February 2010

Synergy said:
Sorry to disturb the little private chat here. Good reading so far though.

Here are a few ideas for discussion. These are a few random thoughts I've written down over my time doing this that I feel don't really get a lot of consideration. All are related to short term systematic trading. Feel free to discuss/tear appart any of them.

Good to have anothers ideas.

- Stops should not only be placed to catch a falling stock, but also to sell a stock that is likely to underperform a new trade.

In short term trading this is normally very clear very quickly the mindset and the placement of stops particularly when trading lower time frame.
Lower time frame charts say 5 min give you 12 bars /hr so similar to trading 12 days in 1 if you know what I mean.

- It's likely that the point of break even holds little importance to anyone but yourself, yet it's treated like a magical number that holds more importance than prices either side of it.

It is a magical number to me if my trade is in profit far enough to move my stop to B/E and then it comes back and takes me out of the trade I'm a very happy guy I can sit and watch what happens at NO COST to my account!

- Pyramidding makes sense when the risk:reward of the pyramidded portion of the trade outweighs that of a new trade. Each trade must be taken on it's own merrits, regardless of whether you already have a holding in that stock. (I can't get pyramidding to work with my breakout system. If I could I would be questioning whether my entry needed to be advanced further into the trend)

I hear that alot---that people cant get it to work.
Trick is I think is to do it really quickly (Again short term) Really quickly for a longer term trade maybe in a week of few so its dependant on Time Frame.
My BRM trade I pyramided into 2 times before selling on Friday.That was over a 2 week period.I wont pyramid every trade either there has to be clear reasoning.Normally that's a low volume corrective move then a low volume continuation Have a look at the bars and volume of the 8/9 and 15th Feb for BRM and see if you see what I saw.

- More time should be spent matching the number of buy signals to what the system can trade. Excess buy signals means weaker trades could be filtered out. Insufficient signals results in lost opportunity. If the system is not fully invested, buy parameters should be loosened to allow weaker signals to be bought. If taken up, weaker trades should be sold to allow room for trades likely to be more profitable.

See what your getting at but I look at it a little differently in that if I don't care which trade I take and it doesn't effect my profitability than I can have 30 signals a day and not care or concern myself if THIS signal is THE signal I should be taking ---I trade in such a way that it DOESNT MATTER.

- More time should be spent minimising the time in trades. % gained per Day held is an important system performance indicator.

Just don't agree.
Few trades go constantly vertical.Pauses are very important and can be a coil for massive moves.

Would be interested to hear what other peoples average trade length is for their short term systems. I wonder if there is a fair amount of similarity or a wide spread.

Varies a day to weeks.

My breakout system averages around 7 days, with many trades cut at 4 days. I have found this to work well for the asx and the amount of trades my system can buy. If there were more stocks on the asx, my trade duration may well be shortened.

I wait for price to take out a buy normally but if these is a quick mover I'll buy at market.I have 40 or so on watch and signals appear (VSA) regularly---then from a discretionary view I quickly evaluate a buy at limit or just get on!

Synergy · 21 February 2010

tech/a said:
Fine but my method isnt a system as such with set rules which govern all the aspects of the trade.
Its a discretionary method which while it has rules are applied as achart develops. While I aim for a high win rate I'm more interested in very low losses and high wins = more reward for Risk.

I don't care which trade I take and it doesn't effect my profitability than I can have 30 signals a day and not care or concern myself if THIS signal is THE signal I should be taking ---I trade in such a way that it DOESNT MATTER.

Unlike yours, my trading is fully mechanical. But otherwise seems quite similar. I enter at a fixed amount below the previous close. I don't care which of my orders are filled. I aim for small losses and big wins.

Of those 30 signals, obviously some would turn out to be more profitable than others. Could more rules be applied to filter out groups of trades that are less profitable?

I find the advantage with being fully mechanical is that I can tune the number of buy signals to fit the system. If I find I'm getting too many, or to few buy signals I can tighten or loosen the criteria to fit the system. It's not something I have changed often, because the original design is still providing a good number of buy signals.

My BRM trade I pyramided into 2 times before selling on Friday.That was over a 2 week period.I wont pyramid every trade either there has to be clear reasoning.Normally that's a low volume corrective move then a low volume continuation Have a look at the bars and volume of the 8/9 and 15th Feb for BRM and see if you see what I saw.

Yes I see your reasoning. Funny you mention BRM... I pyramidded this one too before i started system trading. It was YML then though. One that i shouldn't have sold maybe.

Just don't agree.
Few trades go constantly vertical.Pauses are very important and can be a coil for massive moves.

Once a trade moves i am happy to give it time to pause. But if a trade doesn't move at all after 4 days, it's gone.

Outliers have secured my financial future.

Did you realise before they occured that this was likely going to be the case?
Or rather, did you plan for it to turn out that way?

I'm wondering if they were actually outliers or predictable good results.

tech/a · 21 February 2010

Synergy said:
Unlike yours, my trading is fully mechanical. But otherwise seems quite similar. I enter at a fixed amount below the previous close. I don't care which of my orders are filled. I aim for small losses and big wins.

Of those 30 signals, obviously some would turn out to be more profitable than others. Could more rules be applied to filter out groups of trades that are less profitable?

Prior to all trades running their course it isn't possible to detect which of a group of signalled trade setups is going to the the one which runs the longest and retraces less.
Unfortunately all we can do is place ourselves in front of trades and take what the market will give us. Our skill is in MILKING as much as we can.
By Leverage/Compounding/minimising loss maximising profit.

I find the advantage with being fully mechanical is that I can tune the number of buy signals to fit the system. If I find I'm getting too many, or to few buy signals I can tighten or loosen the criteria to fit the system. It's not something I have changed often, because the original design is still providing a good number of buy signals.

While I understand what your doing I question its effectiveness in the overall result of your method.

Yes I see your reasoning. Funny you mention BRM... I pyramided this one too before i started system trading. It was YML then though. One that i shouldn't have sold maybe.

And one I should have bought earlier! This just reinforced my point about "Prediction". We cant! We like to think we can and some are sure they do!---They don't.

Once a trade moves i am happy to give it time to pause. But if a trade doesn't move at all after 4 days, it's gone.

Fair enough dependant on time frame mine may last far shorter or longer.
We both have our criteria.

Did you realise before they occurred that this was likely going to be the case?
Or rather, did you plan for it to turn out that way?

I'm wondering if they were actually outliers or predictable good results.

No they were outliers.
I had planned to profit from analysis but I hadn't planned to profit anywhere near as generously as things turned out.
Right place right time---I keep placing myself in places--anticipating "The Right Time"
Not an expert at it by any means even when I see them clearly often I don't follow up.
EG Shorting the market at 6880ish which was considered by me and many others as "The" top.
Belting long at 3220 same as above.
Gold when Radge called long at $275.
Oil at 25/barrel and of course the rise of the AU$

Missed far more than I have got on---BUT it only takes ONE!

$20shoes · 21 February 2010

tech/a said:
No they were outliers.
I had planned to profit from analysis but I hadn't planned to profit anywhere near as generously as things turned out.
Right place right time---I keep placing myself in places--anticipating "The Right Time"

Missed far more than I have got on---BUT it only takes ONE!

Which is even what professional fund managers are looking for too, Tech. They're not just diversifying to minimise sector exposure, but are reasoning that if they cast their net far and wide they'll hopefully catch an outlier or two.

Most think its much more complex than this, but at its core it's "how do i know i'm going to be profitable". If your trading gives you the opportunity to catch outliers, there is one possible answer.

Sir Osisofliver · 22 February 2010

tech/a said:
Its just a replication of an equity curve of a known input Win % and R/R.

Yup - still useful when comparing multiple strategies though

Simply take a pik of it with say Snag it them load onto Photobucket and copy and paste the tagged name here.
[/quote]
Bah sounds like too much time/effort. If no objections I'll keep doing what I'm doing[quote]

Fine but my method isnt a system as such with set rules which govern all the aspects of the trade.
Its a discretionary method which while it has rules are applied as achart develops. While I aim for a high win rate I'm more interested in very low losses and high wins = more reward for Risk.
I would abandon anything which after a period of discretionary trading I found was not returning a positive expectancy.
I certainly would NOT discard a method which showed a positive expecatncy but had a win rate of less than 50% infat the larger majority of Longer term methods have a low win rate characteristic as T/T does but huge R/R.

[/quote]

This may be another major point of difference between us tech, I like to try and set rules that will enable me the greatest automation possible. That way if something occurs I don't have to analyse each and every individual situation as if it's unique.

[quote]
Perhaps look at your nature!
Outliers have secured my financial future.
Reliable repetitive profits (Business /Trading/ Proprty) maintain my lifestyle while I sit on Trainlines waiting for the next outlier to hit!
A diversification in each has proven for me atleast that 80% of my time Ill be reaping the 20% which keeps me going (Actually more like 95%)
and 20-5% of the time BINGO![/QUOTE]

Oh I've had my fair share of outliers tech. Remember when I spoke about Pure Energy trade I did and you challenged me on it? That was an outlier (and one of my best ever trades which is why I was proud of it). The question for me though is one of consistency, sure if I can literally smell the money wafting off the trade I'll break my own rules and have what I consider to be a punt, but for me it's not a repeatable and predictable occurance.

I'd much rather have a system that gets me 4-6% a week consistently, than get a half dozen speccy trades that get me 1000% in a year. I know I might be missing out - but hey - no stress ulcer yet.

[quote="Synergy, post: 534424"]Sorry to disturb the little private chat here. Good reading so far though.
[/quote]

Welcome - although my posting rate tends to be a little unpredictable so don't be surprised if it takes me some time to answer.[quote]

Here are a few ideas for discussion. These are a few random thoughts I've written down over my time doing this that I feel don't really get a lot of consideration. All are related to short term systematic trading. Feel free to discuss/tear appart any of them.

- Stops should not only be placed to catch a falling stock, but also to sell a stock that is likely to underperform a new trade.
[/quote]
define "likely" with math for me.

You must have had a reason to enter the first trade, a target price or expectation of movement, otherwise you would never have entered it. Given what I would consider to be an appropriate level of diversification across your trades, you should have scope to enter a great many trades. I can only speak for my system (which uses leverage), but it's rare that I will use any more than about 70% of the available funds.

In many circumstances trading is a negative sum game in that you have to pay for brokerage to enter and exit. If you stop it out merely because you [I]think[/I] you see something better, your opportunity cost is therefore the exit, entry and exit cost of your brokerage on the old trade and new trade. IE you increase your costs significantly to enter the new trade. That means that the new trade has to perform that much better to make it worth your while. I'd be hesitant to close something out just because something else looks better right now. Having said that I do have a time-orientated rule built into my system.[quote]

- It's likely that the point of break even holds little importance to anyone but yourself, yet it's treated like a magical number that holds more importantance than prices either side of it.
[/quote]

It's not something I pay massive attention to except in specific time orientated circumstances.
[quote]

- Pyramidding makes sense when the risk:reward of the pyramidded portion of the trade outweighs that of a new trade. Each trade must be taken on it's own merrits, regardless of whether you already have a holding in that stock. (I can't get pyramidding to work with my breakout system. If I could I would be questioning whether my entry needed to be advanced further into the trend)

[/quote]
I don't like to average up or down on trades over the time period that I trade, but then I have quite a complex positional model that I took me a while to build...and it works.
[quote]

- More time should be spent matching the number of buy signals to what the system can trade. Excess buy signals means weaker trades could be filtered out. Insufficient signals results in lost oportunity. If the system is not fully invested, buy parameters should be loosened to allow weaker signals to be bought. If taken up, weaker trades should be sold to allow room for trades likely to be more profitable.

[/quote]
Once again define "weaker" with math for me. I firmly believe that the nature of our markets is not ordered and completely predictable. Rather it is chaotic in nature, and subject to influences that are beyond control. If I were to attempt what you describe in my system I would need to put some values around what I consider to be weaker and stronger trades and then back-test. I get the feeling I would be testing for a very long time for not very much additional return. [quote]

- More time should be spent minimising the time in trades. % gained per Day held is an important system performace indicator.

[/quote] I agree with tech. The risk of closing out a potential big winner simply because it has a small mid cycle consolidation on the basis of some derived number would be significant. [quote]

Would be interested to hear what other peoples average trade length is for their short term systems. I wonder if there is a fair amount of similarity or a wide spread.

[/quote] My average length in trade is just under three weeks[quote]

My breakout system averages around 7 days, with many trades cut at 4 days. I have found this to work well for the asx and the amount of trades my system can buy. If there were more stocks on the asx, my trade duration may well be shortened.[/QUOTE]

Well if it works for you....keep doing it :)

Cheers

Sir O

Trembling Hand · 22 February 2010

Sir Osisofliver said:
My average length in trade is just under three weeks

That would hardly put it into the Short-term category?

tech/a · 22 February 2010

Sir Osisofliver said:
Yup - still useful when comparing multiple strategies though

Bah sounds like too much time/effort. If no objections I'll keep doing what I'm doing

OK

This may be another major point of difference between us tech, I like to try and set rules that will enable me the greatest automation possible. That way if something occurs I don't have to analyse each and every individual situation as if it's unique.

Something I have not done.But should particularly if it chugged away all day or night for that matter picking up 5-10% with regular monotony.

Oh I've had my fair share of outliers tech. Remember when I spoke about Pure Energy trade I did and you challenged me on it? That was an outlier (and one of my best ever trades which is why I was proud of it). The question for me though is one of consistency, sure if I can literally smell the money wafting off the trade I'll break my own rules and have what I consider to be a punt, but for me it's not a repeatable and predictable occurance.

Haha yes you have.
Infact that outlier (the fact you werent full of it) cost me $500--bloody outliers can bite as well!

I'd much rather have a system that gets me 4-6% a week consistently, than get a half dozen speccy trades that get me 1000% in a year. I know I might be missing out - but hey - no stress ulcer yet.

Extremely benificial and frankly crazy if you dont.
Must work on my crazy!

Trembling Hand said:
That would hardly put it into the Short-term category?

Anything over 5 mins is a position trade for you!

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