Saturday, March 7, 2009

Weekend Update: Greedy Bastard Edition

First things first since I didn't take any trades on Friday (there was money but I didn't trade - more on this in a minute) so to wrap things up on the weekly P/L. Overall we made money but we were still fine tuning things a bit and our execution was shit. Somehow we still ended making +175.00 on the week.

In other news, this weekend is serving as the time where I really need to sell myself on my methodology and finish the tweaking for good. One of the primary reasons I feel I was successful in the month of January was not because of the method - it was because of the execution. I traded my system and I traded it well. That ability came from the confidence I had in the method.

This week I "knew" that the method worked but to be quite honest I hadn't done any hard data backtesting on the entries to see what kind of win rates to expect, draw downs, and overall profitability could be achieved. This lack of proof planted a little seed of doubt in the back of my mind that caused hesitation, which caused fear, which caused missed opportunity and profit. That's unacceptable. So I realized I really needed to get hard data to give myself confidence in my entries so I could perform to the maximum of my abilities.

Furthermore, as I had mentioned in my last post I was refining my entry technique just a tad. I found I was getting in a bit TOO late with my last change in some instances so I split the extremes and did some backtesting on three separate five day periods chosen at random over the past three years. The results are below:

As you can see the "Entry 1" (what I was using for the first half of the week) is consistently the WORST performer. It scored the lowest win rates and lowest overall profitability in every instance. "Entry 3" is what I was using the last half of the week and while an improvement on "Entry 1" it was too late to the games that caused a lot of missed trades which negatively impacted its overall profit. "Entry 2" was the compromise between the two and it performed the best nearly every time. The exception being the final week in the backtest and it really came down to ONE trade that you would've avoided using the more lax entries. But I feel it provides the best overall compromise and is what I will be using come Monday.

What I needed to know almost as much as my entry criteria was that the method made money in EVERY random selection of data. It wasn't always pretty and you didn't avoid all the losses you wanted. In fact sometimes you got thrown around pretty damn well but as long as you stuck with the entries and could execute on every trade you were profitable at the end of every week. Knowing that fact gives me not only the confidence to do just that but reaffirms the reason WHY I need to do just that on every setup that comes along.

I spent so much time in the past week trying to figure out how to avoid the "end of trend" trades. I started falling down that rabbit hole of trying to erase every loss. But you know what? The losses are there so I can take the wins. And the wins outnumber the losses so why even worry about it? If you make any attempt to filter losses you ended up filtering wins and the wins were what kept you ahead of the game. So I am just leaving it at that and will be more than happy to take on the thousands of losses that will occur in this method over the coming years. Once you make peace with that fact your on your way to becoming a greedy bastard. And that's what traders are. We aren't in this game to make a little bit of money. We are at the screen every day to make obscene amounts of money every day, week, and month of the year. If you aren't you are in the wrong profession.

My advice to all of you is to embrace your inner greedy bastard. I finally have. I'm about to prove it to you all.

1 comment:

Michael said...

You must have seen "A Good Year", great movie!