Friday, March 19, 2010

Taking a Step Back

Behind the scenes there has been a lot of trade "tweaking" and creation over the past 14 days that I have neglected to share with you all. So I wanted to take a moment to explain what those changes were and their potential impact on my performance.

First BIG change. You remember my first week live? All looking fine initially, but it somehow just didn't come together? Well during that time I was trading 2 different pullback setups, lets call them Type 1 and Type 2. Now, I had combined their results in the back-test the week ahead to get my results, and while the Type 1's weren't hitting it out of the park I thought they were at least holding their own in profitability. Problem was, they were JUST barley able to do that.

Here are the back-test results filtered into each type rather than combined together.

Type 1:

Type 2:

Notice anything glaring? I certainly did. What befuddles me (yes I just used the word befuddles) is that it had snuck past me before. Take a look at my live results with the same filter applied... real trades I took were bang on and performing to expectation but were wiped out by all the bad Type 1 trades. Had I filtered my results to only take type 2's I would've been making consistent money.



I was taking good trades, but they just were being covered up by the bad ones. However, remember last Friday and my back to back max losses on that pullback trade in the 6E? Well I do. So I started looking at my trades a bit closer and something blatant jumped out at me. And voila a new filter was born that kept 80% of the winners and cut out a lot of the inefficient pars and losses.

However, my new filter on my pullback trades meant they were going to be occurring less and less. For example we had two of them this entire week - BUT they were solid winners each time. So to offset the lack of trades I decided to push ahead with the setup i've been refining for weeks now.

The inclusion of "reversal trades" in my trading plan started early this week. Problem was I was still refining some of the rules and I shouldn't have gone live until those rules were set in stone. The winner on Wednesday that I screwed up would still be valid, and my loser on Monday wouldn't have. The back-tests of these trades is not as high of a Profit Factor as the other setups but it still is around ~2.0 when tested on 24 hour back-tests in all Forex markets and the ES, GCL, EMD, NQ, YM, TF, as well.

The Profit Factors during my actual live trade hours in the Forex markets have been greater than 5 which is something I can live with. Again, these trades are like the pullback trades in that they don't occur all that often due to the highly filtered nature of the setup but when they do they have proven to be very reliable.

The last change is one more setup that is another version of the reversal. Difference being that this setup looks to hit big runners each time by getting in earlier and holding for gold. These trades are frankly - rare. During my live trade hours I might get maybe 1 or 2 a week. But my oh my how they can win when they occur. I tested them on all the futures markets again using 24 hour charts and they came back with a ~90% win rate and a profit factor of 8.8!

To be honest this trade setup has got me seriously considering trading the Asian Session open in the evenings till around 12PM CST. Its just so damn consistent when it occurs.

All in all i've had a frustrating, yet illuminating week. With my trade rules set in stone now I finally need to lock everything down and go into a "no change zone" for two weeks. I have to see how the method can perform as it sits right now before changing anything else. I've spoken to the issue of too much continual change in a trading plan being counter productive and working against consistency and performance. I have to take my own advice and see whats what. Its impossible to say something needs to be fixed if I can't verify its broken in the first place.

As for today's action I had one of my nice pullback trades in the 6B and after it finished chopping back and forth she dropped like a rock. I took profit at the predefined target and walked away with +11.

Trade Results:
1 Trade, 1 Winner
Gross P/L: $68.75/per

Weekly Results:
Gross P/L: $31.25/per
Net P/L After Commissions: $4.00/per
Win/Loss: 66%
Win+Par/Loss: 80%
Profit Factor: .056

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