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Skate.
Dump it Here
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Skate.
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Thanks for the update Skate.
I should say, due to not having the 20k, I decided to stick with what I know, rather than trying to partially implement the Action Strategy, as recommended- either all in, or all out.
I had considered using the 5k cash available, for 5 posies, but didn't get past the thought process of how to filter out these 5. I will elaborate further later on. Cheers.
F.Rock
I should say, due to not having the 20k, I decided to stick with what I know, rather than trying to partially implement the Action Strategy, as recommended- either all in, or all out.
I had considered using the 5k cash available, for 5 posies, but didn't get past the thought process of how to filter out these 5. I will elaborate further later on. Cheers.
F.Rock
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Mr Rock, you might want to double check, but I think Mr Skate ranks his picks top to bottom. So the top 5 could be your filter (if this is actually correct).
jog on
duc
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I will just note that for my systems at least it would be hard to only take a few and expect similar proportional outcome, a better option would be to lower the per ticker amount but then you get hit by brokerage
An option i i wou suggest is get cheaper brokerage than mr skate and reduce your amount per ticket proportionally
If $7.5 per trade which i remember reading somewhere, you could play with 15k instead of 20k.
Anyone with me?
All systems i tried so far need a minimum of 12 positions not to become a gamble.
Mr Skate? What do you think?
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I have to agree with @frugal.rock of being either all in or all out. @ducati916 is 100% correct as portfolio position size can vary according to risk which I'll further elaborate on.
@qldfrog position size of a portfolio matters & to some extent can be a decider if the strategy is viable to trade.
Having half a chance of profitability
$20k is a lot of money but there is a high cost that comes with trading, one being brokers commission & many other expenses. Trading accounts under $50K makes trading so much harder. Most traders think you can start with a small amount of money to start trading but anything less than $50k or $60K is quickly swallowed up by commission costs, the cost of doing business. I have taken all this into consideration formulating the Action Strategy & it's imperative trading the Action Strategy commission drag needs to be $10 or under to have a half a chance of profitability.
Frequency of trading
The Action Strategy buys about 50 times a year so it's on the moderate side looking for long term trends. If your trading strategy trades with a high frequency the commission drag will play havoc with your strategy profitability but trading at the level I'm suggesting the drag becomes less.
Commission cost & frequency of your trading style
This consideration should include the commission cost & frequency of your trading style relating to your trading plan. When trading you can divide your capital into five, ten, fifteen or twenty equal amounts it's really up to you. Trading the Action Strategy with less than the optimal number of positions (like 5 positions) the cards are stacked against you. With this exercise, I would be fully in or fully out.
What is annoying - no rebalancing
Commission drag won't allow rebalancing of positions that's why we need to keep position size to $1k bets. Trading such a low-value portfolio with "NO" re-balancing restricts the performance potential of the strategy. Commission drag has already been calculated so it's not possible to increase position sizing (bet sizes) under any circumstances.
Skate.
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Thanks for the feedback, that question of minimum system size is critical for beginners like us
So we will just have to wait for the Action Strategy to turn our $20k into $60k before we can up the game.
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So we will just have to wait for the Action Strategy to turn our $20k into $60k before we can up the game.
@Rsthree, not quite. I have a procedure to take advantage of profits & it's normally done in two ways.
Option (1) adding extra positions when funds become available. Of the initial $20k there should be $389.75 left in our trading account, once that balance exceeds $1,000 we will buy another position. We won't let idle funds sit around being lazy, every dollar needs to earn it keep.
Option (2) is not applicable to the Action Strategy because of commission drag, the commission needs to be less than $10 per trade. This only leaves us with Option (1)
The options to pyramid
1. Increase portfolio position size
2. Increase the bet size
Increasing the portfolio size
This method of pyramiding really needs no explanation as you add extra positions when funds become available.
"Pyramiding Explanation" (positionSize)
Pyramiding "PositionSize" is a re-balancing technique to reinvestment profits. "Pyramiding (re-balancing) my PositionSizes" every soldier is put into the battle to fight the good fight.
How?
Position-sizing uses the trading Bank balance to calculate the size of the next bet. It's simply a way of putting every dollar to work.
What is the Re-Balancing Formula?
Trading Bank Balance/outstanding positions = new "PositionSize"
This will now be the new bet for each & every pending trade (the new PositionSize also calculates the number of shares to buy in the pre-auction)
Skate.
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@Rsthree has me thinking, it's time to get up on the soapbox & make a few general comments. The strategy rules about the "number of positions" in the Action Strategy starts at "20 positions" ramping up to "40 positions" over time, I'm expecting profits & those profits will need to be put to work. Commission drag won't permit "positionsize pyramiding" as each bet needs to be $1k or under. If you think you are going to pocket the profits think again as we want to compound our profits. Let me make a few additional comments so others may understand my thinking.
Years of study
It takes many years of study to learn how to trade correctly let alone make money at this game. Trading live, having skin in the game, allows you to feel a range of emotions not experienced when paper trading. The financial markets are cruel, unkind, dangerous & it's not a level playing field, one place where amateurs are generally fleeced brutally.
The truth
You need money to make money. If you are thinking to turn $20,000 into millions, that's gambling, not trading. Instead, good traders look to make an average of 25% per year so the best we could hope for trading the Action Strategy would be a profit of $5,00 if all goes to plan.
I'm not trading the Action Strategy for average returns
The Action Strategy gives me hope that we can double our portfolio in the first year (if the markets rebound & luck is on our side), I think the strategy is that good. Whether the Action Strategy makes money or not it will be an exciting journey for some & an interest for others. It takes an extreme amount of trust blindly following along risking $20k on a system not fully disclosed or understood. It's hard to understand what motivates any of us to trade but sometimes everything just feels right.
What 25% returns will buy
This is extremely important, but most traders don’t get it, your account size matters. Adding extra positions or increasing the bet size can have a positive impact on every strategy & on the flip side it can have the reverse effect.
Example of portfolio sizes
On a $20,000 account, with a 25% return, you're looking at an average of $5,000 per year.
On a $100,000 account, with a 25% return, you're looking at an average of $25,000 per year.
On a $300,000 account, with a 25% return, you're looking at an average of $75k per year.
On a $1m account, with a 25% return, you're looking at an average of $250k per year.
PositionScore (Ranking your signals)
A good strategy has many key features giving you a fighting chance of longevity & survival. 'PositionScore' is another important ingredient to the profitability of any strategy let alone the Action Strategy.
Skate.
All important points.
I have started my trading with $25000. I probably could have squeezed more into it, but I didn't for a number of reasons. What if I am wrong and there is a mistake with my system? This is the first system I have gone live with, and while I ensured it tested the same under live forward-testing compared to backtests, it still may not add up. Putting $100,000 at stake psychological is also very different to $25,000 for a beginner. Seasoned traders aren't phased by 20% DD on a $100,000 account, but a newbie probably would. It's correct to say that a small account is harmful, but I think $20,000-$30,000 is ok to start with. It is, afterall, money you have to be ok with to lose (well not ok, but it wont bankrupt you or stop you from paying bills).
Seasoned system developers (forgive me I am blanking on a specific name from a book and some podcasts) will test out new systems with a smaller amount and after it has proved profitable, then they scale up the account size for that system. This is pretty sound to me.
Your example on position sizes is important too. Sometimes its better to think about % terms, other times about $ returns. Context is key. I may have only made $350 last week but it was 1.4% in a week (nothing to scoff at, particularly in a half-invested system). Who wouldn't want a 1% return per week! But $350 itself is not much. I would also like to add (and I know you know this too!) that not all systems are scalable to $1mil. 25% on 1mil would be phenomenal to say the least.
I know PositionScore is important for your hybrid strategy. I have tried to find a good positionscore formula too. Honestly, I struggle with this as I have not made any progress. It annoys me to no end. What I use now is something you suggested to me, which is simply the cheapest first. But that will not work for every strategy.
And final point. I have tried backtesting with more than 20 positions. I found my system overtrades and my profitability plummets. I hope the action strategy does not have this problem. Overtrading can be a problem even for mechanical systems.
I have started my trading with $25000. I probably could have squeezed more into it, but I didn't for a number of reasons. What if I am wrong and there is a mistake with my system? This is the first system I have gone live with, and while I ensured it tested the same under live forward-testing compared to backtests, it still may not add up. Putting $100,000 at stake psychological is also very different to $25,000 for a beginner. Seasoned traders aren't phased by 20% DD on a $100,000 account, but a newbie probably would. It's correct to say that a small account is harmful, but I think $20,000-$30,000 is ok to start with. It is, afterall, money you have to be ok with to lose (well not ok, but it wont bankrupt you or stop you from paying bills).
Seasoned system developers (forgive me I am blanking on a specific name from a book and some podcasts) will test out new systems with a smaller amount and after it has proved profitable, then they scale up the account size for that system. This is pretty sound to me.
Your example on position sizes is important too. Sometimes its better to think about % terms, other times about $ returns. Context is key. I may have only made $350 last week but it was 1.4% in a week (nothing to scoff at, particularly in a half-invested system). Who wouldn't want a 1% return per week! But $350 itself is not much. I would also like to add (and I know you know this too!) that not all systems are scalable to $1mil. 25% on 1mil would be phenomenal to say the least.
I know PositionScore is important for your hybrid strategy. I have tried to find a good positionscore formula too. Honestly, I struggle with this as I have not made any progress. It annoys me to no end. What I use now is something you suggested to me, which is simply the cheapest first. But that will not work for every strategy.
And final point. I have tried backtesting with more than 20 positions. I found my system overtrades and my profitability plummets. I hope the action strategy does not have this problem. Overtrading can be a problem even for mechanical systems.
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Hi @Skate , I am not sure if I missed in the Action Strategy rules the stop loss?
Since the buy and sell placed during pre-market Monday, what is the strategy if the Market crash / retest March lows and happened early in the week? Or did I get the sell at Pre- Market Monday wrong and happens anytime the system gives the sell signal?
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@Bazzi, I'm glad you have raised the issue of rules, exits rules in particular. Trading a "weekly trend following system" we are locked into trading the pre-auction on Monday morning or the first trading day after Sunday when the markets re-open. This is the only time we will exit a position no matter what happens during the week. Let me answer your questions then in the next few posts I'll recap what constitutes an exit & I'll explain how signals are generated.
Question #1
"Since the buy and sell placed during pre-market Monday, what is the strategy if the Market crash / retest March lows and happened early in the week?"
To answer you succinctly NOTHING, we don't panic, we wait for a sell signal at the end of trade on Friday. With trading, some days are lemons & some days lemonade. How you handle your positions while controlling your emotions will eventually decide how successful you will be as a trader. Trading has a high attrition rate when the going gets tough.
Question #2
"Or did I get the sell at Pre- Market Monday wrong and happens anytime the system gives the sell signal?"
Let's talk about signals & how often are they generated. Every time you run an exploration "signals are generated" & the signals change with new information. But here's the rub, we only action Exploration signals after the close on Friday or the end of the last trading day of the week. Trading a mechanical system using Amibroker there are two ways to generate signals (a) by using Exploration mode or (b) using "Add artificial futures bar" in the settings, you can generate signals using the Backtest mode. However, this should not be confused with Backtesting a strategy as they are two different beasts. I prefer to generate signals using the "Exploration Analysis" for a few reasons & the explanation would be lengthy & boring to read.
Skate.
The real test of mettle will be if the market makes a sharp drop on a Monday and continues to freefall during the week. But I'm hoping that all the smart indicators would have set some alarms off a week or two before. Otherwise it will be a real test of internal fortitude and faith in the system.
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@Rsthree now you understand why everyone is looking for the perfect strategy, a foolproof method, but there isn't any. Trading the Action Strategy in a disciplined manner might be the best we can hope for. Trading is stressful & emotional when your money is on the line. Bloody hell it takes an enormous amount of time & effort to be consistently profitable because you are required to develop skills & attributes for successful trading, (your words) "internal fortitude & faith in the system" are just two of them.
When in doubt
When in doubt, some would rather adopt others’ opinions blindly, rather than form their own as you are doing by asking questions. The more you understand the less fear you will have if it all goes pear-shaped. The smart indicator the "volatility dependent stop" unfortunately, on a weekly system has in-built lag which is a real shame. Simply jumping to a conclusion without bothering to assess the full range of possibilities is an inbuilt weakness we all suffer that's why we need to be 100% committed to the system.
The Action Strategy exit strategy
The exit conditions of the Action Strategy is complex as there are 3 drivers all looking to exit a position to protect our winnings or to avoid further losses & they are:
(1) a variable trailing stop
(2) a volatility dependent stop &
(3) a stale stop
Complexity
The financial market is complex, but that doesn’t mean it requires a complex strategy. Information is important, but understanding what drives the market is the key that leads to making a better decision & the Action Strategy incorporates both "volume & volatility". Trading in it's simplest form is a game of mathematics & probabilities. Risks can be minimised & returns can be magnified with the right strategy. Anyone can buy and sell shares, it’s how we choose these shares & then how we manage our position dictates how successful we will be.
Skate.
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I want to talk about perception
I was asked what does the green & red arrows signify in the logo above?.
Simply the green "up arrow" signifies profits & "down red arrow" losses.
That I understand, but why the "S" in the middle?.
Why the "S" in the middle of the logo?
This is where perception raises its head, some see an "S" where I see a dollar sign ("$"), you will see one or the other. Perception in trading has the ability to drive your reactions & sometimes that isn't a good thing. Traders understand the markets are based on human behaviour & our perceptions about what's happening in the markets at any given time. While one person sees buying opportunities of a lifetime, others will see a complete meltdown of the markets. Thus, it’s our perception that creates the value at any given time.
Sometimes "good enough" is "good enough"
Searching for better entries, exits or positionscore believing there must be something better is an approach that often leads us down the wrong path, a path of frustration because we just can't find the perfect one. One of the main reasons traders fail in the market is not because they don’t have a plan, it's because they don’t follow it. Trading is a probabilistic endeavour, there is a probability that a position will be a winner & there is also a probability that it will turn out to be a loser. Loss aversion is a significant psychological hurdle to overcome no matter where you are in your trading journey. It's important to remember every strategy will have losing trades, accepting this & your halfway there as a trader.
Skate.
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I've got no idea if this post will have any educational value or interest for those who don't use Amibroker. At least the post will be something different, a little beyond "beginner level" but as it's part of the Action Strategy for those following along it may hold some interest. I believe the more you know about the Action Strategy the better understanding you will have, even if it's a dry subject.
Where are the Action Strategy signals coming from?
Signals can be generated using either the Backtest mode or the Exploration Analysis mode. Both will generate signals but they are different beasts entirely. To explain - the "Exploration Analysis" displays each bar when a "Filter Condition" is met with no other constraints. Whereas the "Backtest" is subject to multiple portfolio constraints. The exploration falls well short of what the backtesting is capable of but as a signal generator, it does a mighty fine job.
PositionScore
The PositionScore decides which trades should be entered if there are more entry signals than the maximum allowable number of open positions or available funds by ranking them in numerical order. In such a case, AmiBroker will use the absolute value of PositionScore to decide which trades are preferred. PositionScore affects only backtest & optimization this is the reason we need to add a filter, without an additional filter it wouldn't display the ranking in the Exploration Analysis. The PositionScore is important when it comes to the profitability of the Action Strategy.
Exploration Analysis
PositionScore has no meaning & no effect on the "Exploration Analysis" as the exploration just outputs raw signals with no trade picks as the Backtester does, that's why we need to define the PositionScore as a "Filter Variable". It's worth noting that the exploration does not have the same portfolio feature as the backtester when it comes to trading output signals. That feature is in the backtest but not in the exploration analysis, it's the very reason why we need the "Filter". The idea behind an exploration filter is to control which symbols are accepted & displayed. If "true" is assigned to that variable it will be displayed in the "Exploration Analysis" report - it's that simple.
The Backtester
Backtesting lets you combine trading signals & trade sizing which exactly mimic the way you would trade in real-time. The Backtester has the ability to perform money management & risk control at the portfolio level just like in reality. I code my strategies to use either the "Backtest mode" or "Exploration mode" without the need for switching settings.
Skate.
Week 14: Update on my MAP paper trading portfolio.
Going through my spreadsheet I found an error in that I was not including brokerage costs to my trades. I have fixed this now. The total brokerage costs so far have been deducted from the "Total Return".
This portfolio gained $433.00 this week.
BUYS:
I entered into 3 trades last week and they were AEF, CAN and ELD.
One buysignal this week.
SELLS:
No sells this week
Going through my spreadsheet I found an error in that I was not including brokerage costs to my trades. I have fixed this now. The total brokerage costs so far have been deducted from the "Total Return".
This portfolio gained $433.00 this week.
BUYS:
I entered into 3 trades last week and they were AEF, CAN and ELD.
One buysignal this week.
SELLS:
No sells this week
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HI Skate (and all)
Im just getting back into trading after a 20 year break and spent hours reading this thread on the weekend - very interesting, thanks. Its probably been mentioned, but when backtesting, what 'group' of ASX stocks are you using? eg ASX300, mid caps etc. I dont see any top 100 stocks in your lists (BHP, CBA etc), so interested to know your grouping/s of stocks you consider to trade and back test
cheers
Marty
Im just getting back into trading after a 20 year break and spent hours reading this thread on the weekend - very interesting, thanks. Its probably been mentioned, but when backtesting, what 'group' of ASX stocks are you using? eg ASX300, mid caps etc. I dont see any top 100 stocks in your lists (BHP, CBA etc), so interested to know your grouping/s of stocks you consider to trade and back test
cheers
Marty
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