Dom's notes

Despite having been hammered for posting my sincere feedback re. ATW in the appropriate thread (or may-be, because of ...) I am starting this thread for the benefit of all waanabee traders.

I have no intent of sharing my exact trade setups, however I will share as much as I can - the good, the bad & the ugly, and if someone learn something from this then it won't have been a waste of my time.

I have been a student of the market for over 4 years now. I actually started my education with Investools PhD program (which was a lot of money for not much outcome in my case), trading stocks then options, then started to focus on the SPX (directional Calls/Puts then credit spreads), at some point I discovered the futures / ES in particular and that was a "revelation" ... 1/4pt spread vs 2pt spread for the SPX options, I was sold in no-time.

I purchased Todd Mitchell's system (TradingConcepts), which was a lot less money than Investools but no more outcome in my case, at least it triggered my interest in Fibs (back then, retracements only) and I did a lot of research / backtesting using Fibs - but at the end of the day, the real challenge resides in figuring out which fib level will "hold", and to this day I have to admit I have not solved it.

Anyway, I then spent a lot of time in a couple of "free" trading rooms
learning pure price action, the person that was offering his time teaching PA free for several months later offered a paying program, which I took, but I still couldn't make money live. I took another mentor, recommended on a free forum, and despite he being a nice guy (and why wouldn't he be when students are paying), this also was a failure.

I was about to throw the towel when I found ATW, started with the 101A education, added 3 weeks later the mentorship education, and have been studying / backtesting a lot for now a full year. I reached a point where I can "consistently" make fake-money on sim, however the transition to live trading is a real challenge for me, because of fear I pass on many trade setups and I deviate from my trade management rules.

So, that's the background. I trade CL (Crude Oil "big" contract) which is very liquid, has 1 tick spread throughout the European & US session, and is nicely volatile (day range is on average 250-350 ticks, some days even more - like today : 450 ticks). I find CL to have a lot of momentum, it shows very repetitive "patterns" (at least, for the fib user that I am).

I don't use any indicator, I trade price action using a lot of price projection techniques (best book IMO on this topic is Robert C. Miner "Dynamic Trading").

If I have one advice for new traders, it is look for another way of making a living ... but if you are truly in love with the markets, then I believe it is a must to 1) find an excellent education (this is way more than just reading books, and frankly, there is probably no one-stop education shop) and 2) find a mentor to accelerate your learning curve.

Now that this is out of the way, a brief summary of my week :

Tuesday - tried 1 trade early morning, entry hit no fill, that made me mentally sick for the rest of the day, I passed on 2 setups (both wins), the last setup I tried but my entry wasn't even close to be hit.

Wednesday - 2 setups no-fill, then 1 small winner (got out at 1/2 of my target for pseudo-good reasons - really, lack of discipline), and I passed on the last one (another wouldabe winner :( )

Thursday - passed on 5 setups (4 wins / 1 loss), took 1 small winner (1/2 target again, same lack of discipline), and missed the best setup of the day by being away for 5min

Friday - passed on 1 setup (win), no fill on next 2 setups, then I couldn't focus & called it a day.


Bottom-line - only 2 trades this week, I made ~10% of what I should have made if I had the discipline to follow my plan.

My reversal system did suffer a bit this week ... 3 win / 3 loss / 1 BE ; net -460 (total for the 2 contracts I trade on this system). And this includes a manual exit on one of the trades, which had a calculated target-1 of 57-ticks, just on the opposite side of both day-session-VWAP & 24h-VWAP - I manually took 52-ticks on the fly, good thing as the MFE for that trade ended-up 54-ticks & the stop was not even BE at that time. I will go back and revisit both the target-1 calculation and the trade management for those rare instances.

My other system is coming back to life it seems ... 2 win / 1 loss ; net +1105 (total for the 1 contract I trade on this system).

I spent most of the week working on CRs re. the reversal pattern itself ... I discarded 5 of these, and I am still working on the one-before-last one, which is a major one as it broadens the reversal pattern, which has ripple effects in a number of places in the software. To be honest, I am expecting that in the end this broadened technique won't do any good to the system, but I have no other way than making all the required changes just to backtest it.

My oldest UPS was reporting a failing battery, so I bought a replacement battery & put it in service ... the damn UPS keeps reporting the battery fails self-test :( I suppose I am screwed, it must be the UPS electronics that is actually failing, I will have to buy a new one & use this one as paper-press.

Have a good week-end!

Since you're working with systems you're developing and putting into place over time, what has been the reason(s) they have performed well or poorly than expected going forward in time Dom?

And how much discretion do you employ when trading a system ... whether entering (or especially) exiting a trade? Also, how "discretionarilly" do you choose to keep trading a system or stop trading a system?

Hope the venture is making headway and some money!

MM

Answer to your second question (discretion) is easier, so this is where I will start ... my view on trading an automated trading system is that it requires to take *all* trades exactly as the system was designed, ie. no real-time discretion at all. This is - of course - the only way to get the system's performance, good or bad. I am not saying this is easy, it is actually extremely difficult (for me anyway), as I can always see reasons to do differently (than the system) on each individual trade. This is where I failed in trading my prior systems, as I couldn't stay disciplined and just let these systems trade. Of course, on a winning streak it is relatively easy to do, where it becomes psychologically challenging is during a losing streak / extended drawdown period.

To take this week's example, I have to admit it was an error to overide the system's target, even though it made money on that trade. But if I was to shave $50 off every target-1, on the 2 year backtesting period that would reduce the target-1 P&L by over $13,000 (I cannot evaluate instantaneously how many losing trades that would save, but certainly not enough to offset that $13,000 loss).

Re. the decision to keep trading or stop a system, I use MonteCarlo simulations based on the system performance in backtesting, to compute a maximum drawdown that I am willing to let the system run into (max drawdown from the last P&L peak)... but this applies more to the long-term operation of a system. In the early stage of live trading of a new system, I also monitor the system performance on the current number of trades (since I went live) vs MonteCarlo simulation on the same number of trades. This provides a faster reaction to an immediately failing system. Either way, the idea is to make that decision as objective as possible.

Objective reasons for prior systems failing ... I'd say #1 reason was lack of discipline (both in real-time execution of trades, and in the decision to stop trading these systems). #2 reason was (for most of them) an unfavorable reward:risk factor ... #3 reason would have to be backtesting on a too small sample of trades and/or period of time (even though in most cases I had at least 400 trades in the backtesting period - but it is still too easy to unintentionally overoptimize a system on 400 trades) #4 reason would be using unreliable tools (indicators, especially timeframes) for trade setup identification. Even something as basic as pivots (High / Low) is extremely difficult to mechanically identify correctly (I am currently checking time, price & volume on both side of each pivot to assess their validity, but even then, if I place the threshold say at 1000 contracts traded on both side, I am screwed if 1 side only has 990 ... I suppose in my next system I will use a rating system for each aspect (time / price / volume) and will use loose thresholds on each independently, as well as a more stringent threshold on the aggregate rating.

Go Dom.
I am impressed.
I'll have to re read this post a few times.

Thanks Raef

Despite the ongoing volatility, this week was very quiet for the reversal system, with only 1 trade: 1 win +310. (actually there were a few more setups with missed entries).

My other system had 4 trades, 3 win / 1 loss for a net result this week of +250. Not too exiting, but I did actually override the system on Friday and lost 250 vs the system exit :(

I guess the last few weeks have been eroding my patience & discipline, and I must rebuilt these or I will fail trading these systems like I did in the past!

It was a negative week for both systems :(

The reversal system did 2 win / 3 loss for a net -550. The other system managed to take only 2 trades which both turned out losers for a net -1180.

That brings my P&L for October to -240, and is giving way too much importance to Monday October 31 (trick or treat ?!).

On the R&D front, I validated today a new software version for the reversal system, essentially fixing a few bugs, but also providing the basis for some possible refinements of that setup - but I will first have to analyze all the data that this version has captured during its detailed backtesting, and see if I can make some sense of it.

Happy Halloween!

So the month is over ... the reversal system had another losing trade today (-620), and it ends the month at -1020 (October-only P&L). My other system had a winning trade (+715), it ends the month at +875 (October-only P&L). Combined P&L for October -145 for a total of 33 trades (53 contracts traded).

Needless to say, I am disappointed - in particular with the reversal system, for which this last month is the worst performance in 2 years.

I'm sure you've looked at the stats of the outcome when you've overridden a system vs. not. Have you found that if you have not "intervened," that the outcome was more profitable or less profitable (or virtually the same)?

And I guess I'm referring to all aspects of each system, the entry, management and exit. And are you employing them all every day, or do you have criteria for running one or more at times and other times not?

The week was terrible for the reversal system: 6 losses / 3 wins (of which 1 is a system loss, only saved by a manual exit) for a net -2080. The short side especially was bad, and as I looked back it has been poorly performing since mid-august, to the point I have decided to stop trading shorts for that system until I understand what's going on. I will keep trading longs for now (of course, that could very well turn out to be a poor decision, as longs could start going just as bad - but I am willing to find out the hard way).

The other system had 3 wins, for a net +1605 (I exited manually the last trade & lost $100 vs the system exit). That system has been going essentially sideways since I started trading it mid-July...

To (partially) answer MM questions, I do trade these systems everyday, fully automated. I consider any "real-time" intervention an error, since it is a deviation from the trading plan. Re. stopping trading a system, like I am doing for the short side of the reversal system, I base that decision on risk-management guidelines I have written in my business plan. Usually I would stop trading the system altogether, however for this one the short side has an "historical" weakness vs the long side, which is why I am taking that decision.

I actually decided to suspend trading both side of the reversal system, until I get a good handle on what's going on & a proper way to address it, or the system recovers by itself with enough conviction to entice me getting back to trading it.

I am doing this not only to preserve my $$$ capital, but also to preserve my psychological capital which I need for trading my other system.

Dom that equity curve looks too good to be true so I'd be scared but hope it trades like that in real time....what became of your trading contest...? how did Chuck Huges do ? He wants me to spend almost 4 k on options recomendations