Futures intraday trading - balancing act!

[Trembling Hand]

Trade and money management is nowhere enough to get by IMO. You need a really healthy edge to get over drawdown periods, commissions and the drag of costs and slow market periods.

 

[tech/a]

Trade and money management is nowhere enough to get by IMO. You need a really healthy edge to get over drawdown periods, commissions and the drag of costs and slow market periods.

I agree.

But from a personal point of view and not one which needs to etch a living from trading.
I find it easiest to simply minimise losses and get the odd excellent run.

Sizing up would make a massive difference to return from the way I trade---futs.
Even doubling the 1-3 contracts currently traded would vastly alter return.

Even shorter term higher success trades with a little size can give a solid consistent return without huge outlay or risk.

 

[payday]

Even shorter term higher success trades with a little size can give a solid consistent return without huge outlay or risk.

Yup. That's my bread and butter right there. Although the odd windfall here and there certainly helps too.

 

[Muttata]

I'm surprised to read that you were going for 8R wins. You did mention that earlier, sorry. 8R even 5R wins are worthwhile targets. With a W% > 50% a AW/AL of 2R is a good edge. 100+ tick wins would be rare in the ES (~25pts), maybe slightly easier in the NQ, but more common in the currencies. If most of your trading is done on the ES then your current results are understandable. The ES has enough liquidity to use a 6 tick SL and most intraday ES traders seem to think that a 2 - 3 point move is great. If you are managing your trades for more, you are on the right track (IMO).

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OK. I can see that I am on the right track, and need to increase the W%.

I reckon that this is the biggest challenge to a random strategy like the 'coin toss' as it is likely that the losses are going to be greater than when you use your intellect to determine high probability entry points. So, the first lesson is that a higher probability entry point equals less underlying losses.

The second part to it is the W%. The W% is no doubt affected by the higher probability entries, but I have noticed that the W% is determined in part on how big the R multiple is. e.g. 4R multiple = higher number wins achieved, and less breakevens. The reverse is true for multiples 8R. So, to get the W% up, the size of a stop loss needs to be considered. Is it better to have a bigger risk factor and higher W% or a smaller risk factor and lower W%. Ideally, a smaller risk factor and higher w% is the holy grail.

This shows that money mngt has limitations on its own. Nevertheless, it is a good start as you say.

You mentioned that you are trading the 30min charts. This confused me for a while. You're not really trading 30min charts as you use a coin toss (random) entry technique. A few authors have stated that traders could make money using a random entry technique and strict loss management. Your results have shown that it is possible and that the most important aspect of trade mgt is restricting your losses to as small amounts as possible. You have also demonstrated how much of a drag even basic commissions are on our accounts. Now you know that your edge has to be much bigger to overcome the basic costs

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Agreed. Another factor determining the W% is how tight your stops are. I have played around with my entry stops and there is a definite relationship between them. Assume risk is X, x/2, x/4 and so on:



As stops are tightened, there is a big drop in W% rate, and a big increase in Av. Gains: Losses. My thinking is that it is important to aim for the big plums and protect against losses at all costs. For me, lots of BE, and a few big Plums is OK. There comes a point where the having a stop too tight becomes counter productive as it reduces your gains disproportionately as shown by X/2 v X/4.

You have demonstrated that you have the skill to keep your losses small. A huge start. Now you need to build on your very small edge as you know it's not enough to support you or reach your goals. The other costs of a trading business will soon erode your capital quickly.

There are two main aspects that you can work on to increase your edge. I discussed them before. Can you identify higher probability entries? This will reduce the number of losses and BE results (adds to your edge). Can you increase the size of your ave win? Once you have improved your edge, creative money mgt will help you reach your goals quicker.

Yes, I think that it has been a worthwhile exercise from that point of view. So, really, there are three things parts to a trader's edge:

1. Keeping Av. Losses Small: I can say I check that box. This means small risk entries and protecting self by moving to a no lose position early.

2. High Probability Entries: I am quite sure I can tick that box also and this will increase my W% and reduce L%.

3. Increase Size of AV Wins: Aim for high multiples 4R, 5R or 8R. I am checking this box. This means being patient though and being willing to let my stops hang back a bit once the market moves and being willing to sacrifice small profits for a few larger ones.

So, really, the next step for me is to move to higher probability entries!
Thanks for your feedback Peter.

 

[Muttata]

Trade and money management is nowhere enough to get by IMO. You need a really healthy edge to get over drawdown periods, commissions and the drag of costs and slow market periods.

Yeah. Can see that now.

I've got plenty of edge from years of study, but what was missing for me was good money mngt....I was crap at it and it has affected psychology, results badly.

I think that my mistake was thinking that having an edge was all that was needed - that is certainly what you are sold on in the market place by so called gurus.

The whole package is needed. I would guess that most people think they have an edge, but don't understand money mngt very well.

If trading is your business, then like any business the money side of it matters.

BTW. I have been reading about your Nothing to Something Scalping strategy...very entertaining as well as educational. Still using it?

 

[Muttata]

I agree.

But from a personal point of view and not one which needs to etch a living from trading.
I find it easiest to simply minimise losses and get the odd excellent run.

Sizing up would make a massive difference to return from the way I trade---futs.
Even doubling the 1-3 contracts currently traded would vastly alter return.

Even shorter term higher success trades with a little size can give a solid consistent return without huge outlay or risk.

That's interesting you find that. I fiddled with the stops on my sim results and I found that 1:1 risk:reward (which is inherently a shorter trade) left me with 51 ticks (a small loss after 120 trades; W% = 50%; Av Gain/Loss Ratio = 1. Whereas,

a 1:2 risk:reward made me about profit 99 ticks, but a W% of 40%; Av Gain/Loss Ratio = 2. Interesting isn't it the affect that halving the risk has. A 10% drop in the W% but big effect in the profit.

Remembering that these trading decisions are made from the flip of a coin is a good results. Imagine what having an intelligent approach could do for profits like Trembling Hand has said.

 

[Trembling Hand]

That's interesting you find that. I fiddled with the stops on my sim results and I found that 1:1 risk:reward (which is inherently a shorter trade) left me with a small loss after 120 trades (W% = 50%;Av Gain/Loss Ratio = 1 tick. Whereas,

a 1:2 risk:reward made me about profit 99 ticks, but a W% of 40%; Av Gain/Loss Ratio = 2. Interesting isn't it the affect that halving the risk has. A 10% drop in the W% but big effect in the profit.

I think Tech is talking about reducing your avg risk to less than 1R.

 

[Muttata]

I think Tech is talking about reducing your avg risk to less than 1R.

Makes sense then. Certainly supports what I have found.