Thursday, October 31, 2013

Cool interview with Robert Pardo of Pardo Capital Management

Some neat quotes here. Check it out - link.

"That’s typical of the amateur. They’re willing to take more risks than they actually should, and when they finally get a winner going, it seems so unusual to them that they don’t give it a chance to run"

"One of the really important things about evaluating weightings and risk is that it is your prime determinate of how much money you need to trade a system"

"You can have a good system and still lose money if you don’t know how to trade it with the appropriate amount of capital. The minimum thing you have to do with money management is make sure you don’t overtrade; that you have enough money to weather the storm. The best thing you can do is figure out the ways to leverage your money to the maximum degree and still have enough to survive the worst market downturns."

"Gann had a great statement in one of his many books. He said a doctor goes to school for four years, then he’s an intern for four more years. A lawyer goes to college and then four more years. Why does somebody think that just because they have $10,000, they’re an expert in trading commodities?"

Wednesday, October 30, 2013

FOMC Wednesday

Pretty uneventful last 2 days, and thus my trading results were uneventful as well.

Monday - 1 trade - long 135 '05 - held it all day and exited EOD for a 2 tick loss.
Tuesday - 2 trades -
    short 135 '03 - stopped out at 135 '06 for -3 ticks.
    long 135 '06 and exited EOD at 135 '10 for 4 ticks.

So after a nothing Monday and Tuesday, was hoping for some action today, since its the FOMC day.

Trend was down when I woke up.
first trade was shorting 135 '13 - stopped out at 135 '20.
Second trade was long 135 '20 - held this into the FOMC announcement. Stopped out at 135 '08 and
Third trade was to short 135 '08 - I stopped out with 2X contracts so I was short. Covered EOD for +16 ticks.

There was a downside break, but not as much as I was expecting ofcourse, but I take what the market gives me and move on.

Sunday, October 27, 2013

The core system that I trade - passive short term trend following

So the core system that I trade is a short term trend following system, based on detecting and following the 5 minute trend. It uses the Average true range as a factor in entering and managing the trade through a trailing stop.

1. Entering a trade  - Entering a trade here is based on the price rallying long enough to trigger a change in "trend". How a trend change is determined is something I wont go into over here. But basically, this system does not guess at tops or bottoms, but waits for price to rally long enough to trigger a change in certain parameters. This brings me to the next topic, what if one is already in a trade? How long would you wait before you exit a winning position?

2. Exiting a trade - Exiting a position is done the same way as entering a position, I trail a stop based on the average true range, so when price retraces enough to stop me out, it also simultaneously gets me into the opposite direction. So if I am long and price retraces enough, I exit the long position and switch to a short. So I ride the trend as long as it goes. Only 2 other conditions get me out of a position sooner - one is if there is a 32 tick profit, or if its the end of day. Exiting a losing trade is the same way.

3. Risk management - To manage a trade this way, with a calm mind where retraces against your position do not bother you mentally - the risk management needs to be proper. With this system, I always know the spot where I'm wrong. So that gives me confidence.

4. Position sizing - The maximum risk per trade is 2% of equity at the moment. I almost always risk less than that, but am working on tests to see how my system would perform if I always bet a constant amount. That is, the number of contracts traded could vary, but the risk stays constant, say 1-2% of my equity.

The win rate of the system is around 45-55%, but each win is approximately 2X the times of the average loser, so its easy to see how this system will do well over the long run.

Few other stats of interest -

Average winner - 14 ticks
Average loser - 9 ticks
Maximum number of consecutive losers - 13
Maximum number of consecutive winners - 8

Performance curve over the last 10 years is below

Friday, October 25, 2013

Thats a wrap - Oct 20 to Oct 25 summary

Thus ends another trading week. Was a good one. Results below -

Num trades: 9
Winners: 5
Losers: 4
Avg winner: 10.2 ticks
Avg Loser: -4.5 ticks
Avg risk per trade: -9.6 ticks

So thats about 33 ticks. Number of trades was average, about 2 a day, with one quick loser ( about 30-60 minutes in the trade) and rest of the day spent in riding the trend.

Average winner was bigger last week, but average loser last week was bigger as well. Apart from the Non-farm payroll day, it was a small range week, so as a passive trend follower - I take what the market gives me.

Have a good weekend. Will try to post more often. Going to do one post tomorrow or on Sunday about the system I'm trading. 

Tuesday, October 22, 2013

Anatomy of a NFP trade

So I'm currently long ZB. I bought it right before the NFP number. Ridiculous right? Well, the 30 minute trend was flipping long, so I "had to" buy. Took balls of steel, and I was nervous as fuck buying it, but my new mentality is that since I know exactly what I'm risking, and I'm comfortable with the risk and position size - I just buy.

Look at how the trade is playing out so far.

Ofcourse I'm still in it, my target of 135 '04 may or may not hit. But its a risk free trade at the moment and thats all I care about.