Stopping Daytrading

Well, that didn't last long. I think it is definitely possible to make money using this daytrading method, but it is definitely not for me. The problem is that though entry to positions is "automated" the exit is discretionary. If you say it is the end of the session, then you can't do it exactly at the end  -say at 4:30pm for the ASX200 futures. So, do you do it at 4:00 pm? 4:10pm? 4:30pm?, 5:10pm? or what? There is a temptation to hang on for the price to improve. And I seem to have a strong self-destructive tendency, which I need to control with rules based trading.

Long Only Bitcoin Trading

I continue to struggle psychologically with shorting Bitcoin futures and as a result make mistakes and lose money. So, I investigated how taking only the long trades would perform. If the "model" says to short Bitcoin, we close the long and stay out of the market. This is equivalent to being always long 1 unit of Bitcoin and going long or short one unit in addition.

Statistics since March 2018 for long trades only are very similar to the statistics for all trades. But because you are in the market only half the time, total returns will be lower. Since the beginning of 2019 total returns have been the same - short trades have added nothing to returns. Winning long trades outnumber losing long trades 10 to 6. Losing short trades outnumbered winning short trades 10 to 5.

So, I think that in the interim I will only take long trades in Bitcoin.

Note that in the last 10 months of 2018, long only trades gained a total of 18% while Bitcoin lost 65%. So, taking long only trades doesn't mean losing if Bitcoin returns to a bear market.

Trading Account Equity Curves

Thought I'd just post the "equity curves" from our three trading accounts. Moominpapa:

There is trading in the first half of last year and then in this year. In between, I didn't trade in this account for tax reasons and then because I wasn't trading over the Australian summer.

Here is Moominmama's account (which I trade too):

There is trading in the second half of last year instead. Most of the recent moves in this account and Bitcoin long trades. The short trades are in Moominpapa's account.

Plus 500 CFD account:

This is mostly long Bitcoin trades. As it is expensive to trade in this account I use it for hedging Bitcoin positions over the weekend and for experimental trades at a smaller scale than I can do with futures contracts.

Generally, the curves show a two steps forward one step back pattern. Hopefully, we can recover from the recent drawdown soon.

Trading the SPI

The graph compares idealized trading of the ASX200 futures contract, known as the "SPI" (share price index) vs. buy and hold. The trading uses my new day-trading approach. I actually transcribed by hand all the opening, high, low, and close values off a chart of the past month with 8 hour bars to get the data. The ticks are each of the five daily 8 hour bars. Yes, they're not all actually 8 hours long. 9:50-10:00am is one of them! Each index point is worth AUD 25 per contract and this tracks trading one contract.

The good news is that trading would have made money over the past month. On the other hand, buy and hold would have done just as well. But trading is less volatile. Hopefully, trading also does better in down markets. As I started near the end of this chart, so far I have lost money. But I have been making money in daytrading the Australian Dollar and the S&P 500 index in the last week. I also did a rough backtest on the NASDAQ 100 Index. But as I don't have access to bulk hourly data I can't do very extensive backtesting. Either I need to get that data or I need to just trade at a small scale until the results are statistically significant.

Worst Loss on Bitcoin

Just got stopped out for a 7.06% loss on Bitcoin trading. That is the worst loss that the Bitcoin model has suffered so far. So, most losses won't be as bad as that. Back to short...

This position was never in the money. The position was entered on a spike in price, which just triggered the stop. But I exactly followed my approach. 

This is our equity curve (USD) so far in trading Bitcoin futures:

We also had some profits trading Bitcoin CFDs.

New Macro Trade

I've started another long-term macro trade by buying a treasury note futures spread. The spread is short one ten year treasury note futures contract and long two two year treasury futures contracts. You can execute this with one trade using the TUT ticker. The face value of a two year contract is $200,000 and for a ten year contract, $100,000, so actually the trade is long four times as many two year notes as it is short ten year notes. The idea is that this spread will gain value as the yield curve steepens, which following a yield curve inversion, it already seems to be doing. The curve would steepen mainly because the Federal Reserve would cut short term interest rates. So, if they don't cut much the trade will lose. The more they cut the more likely it is to make money.

My other macro trade is gold. Though that is also a bit more like an investment as we plan to allocate to gold in the long term and I am using the IAU ETF for tax and psychological reasons. I've increased my position at this point to 4.89% of assets. The net treasuries position is nominally $302k, which is much bigger than that.

I've also been thinking about how to improve my new day-trading strategy. I think that I will add exit stops to each order I place. This means, for example, if we go long initially in a "headfake"and then the market falls and the sell stop order is triggered, rather than getting out of the market it will initiate a short position. That would have been a profitable trade in the S&P 500 futures on 16th and 19th of July. The resulting short gained more than the stopped out long lost. Also, I am thinking to keep half of the position as a turtle style trend following position rather than an actual daytrade. The difference to the medium term turtle trading is that the stop is moved each day based on action in the first part of the day rather than action over the last few days.

So I now have three time frames of trades. I am hoping that this diversification, while requiring entering more orders, actually results in me being less anxious about the trades and so actually spending less time looking at the market. We will see.

Systematic Day Trading

I figured out a way to adapt the turtle trading method to systematic day-trading. I plan to apply it to markets which tend to move strongly after the release of US economic news at 8:30am Eastern Time on many days and which have elevated volume when US cash markets are open. The idea is to put buy and sell orders in for these markets at around 8:00am (currently 10pm here in Australia) based on the movement of the futures markets over the day up to that point. If there is a breakout of that range you go long or short automatically. Then you close the positions at the end of the trading day. This is a day trading method where you don't look at the market all day.

I don't have access to historic hourly data at the moment but I have backtested the idea for a couple of months by looking at charts for the NASDAQ 100 futures. It seems that the approach wins more times than it loses, though average wins and losses are about equal in size. Once the market starts moving in a given direction intraday it tends to keep moving in that direction. It looks like it would work well for stocks, bonds, gold, Australian Dollars... It doesn't look like it would work for oil, soybeans etc. These commodities typically expand their trading range in both directions when the market gets more active. As a result trades would tend to get stopped out.

I'll start trading it using the new micro-futures that are a 10th of the size of the e-mini NASDAQ and S&P contracts as well as with CFDs for gold (trading 10 ounces say) and Australian Dollars (starting with AUD 10k) and see how we go.