My results since I made
this post about money management strategy have largely confirmed what I wrote there. My system mainly produces winning trades but winning and losing trades are both making or losing similar amounts of dollars. Since December 1st - when I closed the
disastrous Australian Dollar trade - I have made 66 winning trades and 19 losing trades. The average win is $153 and the average loss $190 for a total of $10,156 of winning trades and $3,618 of losing trades. When I read about most trading systems and the usual advice to cut losses quickly and let winners run and that "it's more important how much you win when you win than how often you are right" I get the distinct impression that those trading signals are not much better than random and it's all in the money management.
I've almost doubled the account since then as I was down to just over $7,000 (I invested $10,000 in the account) and I have done it pretty smoothly:
Based on weekly returns the annual
Sharpe Ratio is 9.7 which is just way off the scale. But based on daily data "the model" tends to have a Sharpe Ratio around 7 and
extreme levels of alpha. Up till now I have only intermittently been able to trade the model correctly. I'm not convinced that I won't see erratic performance again in the future that will significantly reverse the good performance I am currently seeing. There isn't a single down week among those ten weeks since December 1st. But last July and August also looked very good too and then some sharp reversals appeared and my trading was just awful.
4 comments:
Nice blog.
One question: what is your average money at risk for each trade?
Thanks! Sometimes I use stops and sometimes not and so it is hard to give a firm answer on that. I guess one way to look at it is the average loss on losing trades is the average money at risk? ($190). Or the worst loss since Dec 1st: $600 roughly. Or is it the point when IB would start closing my position for violating margin requirements - a lot lot more than that. The smallest closed trade is 1 NQ contract and the largest 4. At the most I have had the equivalent of 6 contracts (in NQ and QQQQ in my other account) = c. $216k underlying nominal value.
Thanks for that detailed answer. I guess what I was getting at was your bet size vs. overall account size.
I don't know much about index futures. Assuming you're trading Naz eminis at maximum leverage those 6 contracts will take up nearly 100% of your account.
Many traders would consider that too risky. Not that I'm critical of your approach. I've been looking at a trading model that holds only one to two positions at a time myself, so I'm interested in learning from your experiences.
Yes it does use up my buying power in my account but I look at the position relative to my net worth.
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