|
PureBytes Links
Trading Reference Links
|
Bob,
<stuff about omega-list deleted>
Like you, I've developed my own software. There is no substitute for
handcrafted software, because you know if you don't like something you
can change it.
About a year and a half ago, I traded a system based upon "scaling" as
you call it. In fact, it is very much the same as you describe below.
Entries/exits are based upon wilder's SAR plus some extra things like
the necessary stop loss, lock, etc. While the system was profitable, I
eventually had to drop it. I could not trade it, and I suspect very few
can.
Balls of steel and a stomach made of concrete are a minimum requirement.
You never sleep: since you have *many* losers, each trade you engage
will give you the feeling it will not work. And if it does work the
stakes quickly get higher and higher. That glorious feeling will exhaust
you, because when you've scaled up a couple of times your profits will
be skyrocketing. At the same time scare you because you know you will
give a lot of the profits back to the market.
Plus: you need a lot of capital to trade such a system effectively. That
might not be a concern for everyone, but for me it did.
To me, the idea behind the system is what makes it beautiful. You see,
it doesn't really rely on entry techniques. You can just as easily pick
something else without changing the performance of the system that much.
Instead, the real key is to keep your risk linear while allowing your
profits to grow exponentially. The only premisse for it to work is that
there are trends in the market.
Mark.
> The scaling strategy I mentioned cannot be done in
> TradeStation because it
> involves portfolio level money management, which TradeStation
> does not
> support. For example, a simple example would be to start with
> the strategy
> of never risking more than 5% of your account on one trade or
> 20% of your
> account on all open trades. Say your system uses a trailing
> stop. As a
> trade moves profitable, the trailing stop will eventually
> reach the trade
> entry price. Your risk on that trade is now $0 (of course, this is
> discussion is excluding slippage). So, here is an interesting
> idea. Since
> you were willing to risk 5% on the initial trade you could
> consider adding
> more contracts to the trade at this break even point and
> bring your current
> $0 risk back up to the 5% of account level. Also, (somewhat
> as an aside)
> let's not forget that it is also necessary still limit the
> new position
> size upon the scale up to stay within the constraint that the
> risk of all
> trades in all markets (and possibly additional systems
> trading the same
> markets if you are trading multiple systems) cannot exceed
> 20% of account
> equity.
>
> The advantage of this scaling up approach is that you will
> end up trading
> larger position sizes while still staying within the risk
> constraints of
> the money management strategy. The disadvantage is that on profitable
> trades you are holding more risk for longer by max'ing out
> your risk a
> second time with the scale up. Whether this is a good
> tradeoff will likely
> depend on the nature of the trading system. In particular,
> what tends to
> happen as trades move profitable? In general, a trade moving
> profitable
> could be viewed as a confirmation of the trend. If this
> confirmation means
> that expectations for the ultimate outcome of trade become
> better, it might
> be a good tradeoff to carry some risk for longer by taking
> the scale up. In
> exchange you get a larger position size, and therefore
> increased profit for
> the winning trades that catch a sustained trend. In other
> words, if the
> nature of the system is that once a trade moves profitable
> the trend tends
> to continue, then this could be a good tradeoff which will increase
> ultimate profits.
>
> I find this an interesting concept. With the scaling feature
> I am working
> on, it will be possible to historically test how adding these
> scale ups as
> trades become profitable affects long term performance.
>
> This is a portfolio level money management strategy because
> when I say "5%
> of your account", in historical testing that means 5% of
> total combined
> portfolio equity. It requires that the trading strategy have
> access to, at
> the end of each bar, the current combined portfolio equity
> for all markets
> and systems being traded. Then, this combined portfolio
> equity is used to
> make the percent risk position sizing decisions about new
> trades and scale ups.
>
> Another reason why this a portfolio level strategy is because
> of the rule
> about never risking more than 20% of your account on all open
> trades. That
> requires not only combined portfolio equity at the end of
> each bar, but
> also knowledge of the open risk of the current open trades in
> other markets
> and systems.
>
> What I describe above is only the start of the capabilities
> of the scaling
> feature I am working on. I am describing the simplest example
> I can think
> of that explains why this is something that cannot be done
> with TradeStation.
>
> Bob Bolotin
> President, RDB Computing, Inc.
> Developer of "PowerST: The Power System Tester"
http://www.powertesting.com bob@xxxxxxxxxxxxxxxx 847-982-1910
|