|
PureBytes Links
Trading Reference Links
|
I've been reviewing my performance over these 1000 trades, and I want to
share some of what I've been thinking.
This post is for novice S&P daytraders, and for those who are
considering daytrading. It contains information I was looking for when
I first started, but couldn't find: what are some realistic expectations
for this business? I found lots of theory, but no specific experiences.
Lots of sources cite a (mythological?) 95% failure rate. I didn't want
to be one of the failures, but I had no models of what success looked
like.
I want to show what's possible. I've made lots of mistakes, and no doubt
many have done it better, but these are my results. The good news for me
is that there's lots of room for improvement!
SUMMARY. As of today, I've made 1000 daytrades since moving to Florida
and starting to trade fulltime. I started with $42,325 of risk capital
on September 24, 1997. Today (February 18, 1999) I ended with $117,217.
A trade-by-trade equity chart is attached. My maximum drawdown over the
past 500 trades has been 12.5%. My account has increased 125% during the
same period. Over the past four weeks I have averaged 6.9 trades per
day, with 63% being winners, and gained $1783 per day after commissions.
Also over the past four weeks, my best single day was $9600, and worst
single day was -$4800; the best single trade gained 710 points (4-lot),
and the worst lost 500 points (1-lot).
BUSINESS STRATEGY. I am a discretionary daytrader/scalper. My daily
objective (quota) is 100 points per contract traded. I trade 1 contract
for every $20K of risk capital. As of today, I have achieved 84% of
quota since inception, 71% after commission. Since January 1, 1999, I've
achieved 165% of quota (after commission). My account size currently
allows me to trade 5-lots, so my daily quota is 500 points, on a
1-contract basis. Even though my confidence level only lets me trade
4-lots (crazy, isn't it?), I still hold myself to the full 500 point
quota. "Quota" is what I consider to be my minimum level of acceptable
performance. My personal goal is currently 1000-2000 points per day, on
a 1-contract basis, which is 400 points on a 5-lot. I consider this to
be achievable.
A note on "quota". This is a remarkable number. 100 points per day.
Should be easy. Making quota for one month (20 trading days) nets $5,000
per contract. This represents a return on risk capital ($20K per
contract) of 25%. Per month! Assuming gains are reinvested, the account
doubles every three months or so. Remarkable. And all from 100 points
per day, on average. Obviously there are limits to growth and the
doubling can't go on forever. Right now I don't have a good feel for how
many contracts I can trade at one time using this scalping style - some
say 10, others say 30. But even at 10, making quota means $50,000. Per
month. Or $600K per year.
TRADING STRATEGY. I only enter on pullbacks from the trend. (This was
very hard to learn.) For indicators, I use triple exponential averages
on two timeframes; Keltner Channels (as taught by John Stenberg); a
momentum oscillator (proprietary to John Stenberg); my own proprietary
fast and slow trend indicators; and my own proprietary market balance
indicator. All of these fit on my one-tick chart. I get 12-15 setups per
day, each of which is worth 100 to 300 points, so I can wait for trades
I have high confidence will win. I rarely stay in a trade more than 10
minutes. I enter on limit orders exclusively, and generally exit at the
market while its still running in my direction. I always place a
deer-in-the-headlights stop 400 points away from my fill, just in case.
PERSONAL GOALS FOR THE NEXT 200 TRADES. (1) I want to stay in a trade
longer. (2) I want to recognize a trend change faster so I can enter at
the root of the trend instead of scamming a few hundred points after its
exhausted. (3) I want to exit before my 400 point deer-in-the-headlights
stop is hit.
QUESTIONS:
Why are you daytrading? Mostly because I like being flat at the end of
the day. When I was position trading currencies and grains (which I had
to do when I was working a real job), I would obsess over the
profit/loss overnight. So I didn't get the most restful sleep. Now I
sleep fine.
Why don't you use a mechanical system? I never found one that worked for
me. I bought several (the best was Ace Currencies, but after going up
50% it suffered its biggest drawdown ever, and I would have been bust if
I'd stayed with it. As it was, I lost half my original stake). I
programmed several for other traders, but backtesting convinced me not
to trade them with real money. And Joe Ross convinced me of the futility
of backtesting anyway. So I finally decided to give up searching for a
mechanical grail and to teach myself actual, real-time trading skills.
What books and/or teachers do you recommend for anyone just starting
out? For books, I always recommend Tewles and Jones "The Futures Game",
and Kaufman's "Trading Systems and Methods". And Douglas' "The
Disciplined Trader". There are lots of other good books, too - I've got
a shelffull - just keep reading. Each book is valuable in its own way.
As far as teachers are concerned, I've been to many (expensive) seminars
and purchased many (expensive) trading manuals. The material always
seemed to work for the presenter, but I couldn't make it work for me
when I got home. The first teacher who made it all "click" for me was
John Stenberg. I remember the first $500 I got from a single trade - it
was using his techniques. (In my exuberance, I posted my results to
misc.invest.futures and got resoundingly pilloried by people who said I
was lying - I won't make that mistake again!) The other teacher who had
a positive effect on me and my trading was Joe Ross. Our political
agendas are different, but I learned a lot from him. I think I went to
all the seminars he was offering at the time.
Your equity graph shows four distinct periods. What was going on there?
The initial run-up must have been luck because I couldn't maintain that
performance consistently. I gave back half my gain. It was a horrible
four month period of sideways action. But it was during that period that
I learned the importance of trading with the trend. Instinctively I
guess I'm a counter-trend trader. I "know" when the move is over. Well,
sometimes I'm right and sometimes not. So for several weeks I tracked my
trades in two columns, one labeled "trend trades" and one labeled
"counter-trend trades". I was stunned by the results. My trend trades
made a lot of money, but I gave it all back with my counter-trend
trades. It sure made a believer out of me: trend following is the way
for me to go. Ultimately I compromised with myself: I still only take
trend trades in my timeframe, but I note that entering on a pullback is
the same thing as taking a counter-trend trade on a shorter timeframe.
So it works for me. That period ended for me around trade 500, when I
coincidentally took a vacation. On my return (roughly August 1) I had an
inspiration and created a second set of trend indicators. Using two
timeframes, they gave me spectacular entries. This went on for about 200
trades. Then for a while it seemed like they didn't work anymore. But it
wasn't them, it was me. Finally around trade 800 I successfully dealt
with some inner demons and started regular cardiovascular and resistance
training. Mens sana in corpore sano. These past four weeks have seen my
best trading yet, and I know I can do better.
[image can be found at: ftp://ftp.eskimo.com/u/j/jimo/gwood-equity.jpg]
|
