Sunday, January 29, 2012

Meantrades in a slump; What would Jesus do?

As is usually the case, a trading system goes through periods of immaculate fluidity where almost every signal follows the market precisely. Meantrades had several months last year where profits became so much the norm that I briefly began to think it could be automated due to its steady ability to produce consistent and robust profits. Well, the past two months have put a real damper on my confidence in that regard. Granted, meantrades has, historically, never been very good in December and January. This year however, it's just worthless. There have been periods of more than 3 trading days where not a single currency pair I trade has produced break even results. Normally meantrades is very good at capturing ranging markets and occasionally a few reversal trades which turn into huge winners. This is the secret sauce to meantrades. It needs a few huge winners each month to make it truly profitable. Without that expectation, there is no reason to "blindly" take its signals. Expectancy is the Jesus factor.

Without faith there can be no commitment to the system. Once this is the case we are back to speculation and playing with randomness. Not a happy place for an independent retail trader to be.

So, where to go from here? Scale back. Trade smaller size and wait for the markets to come to me. No reason to think that there has been some fundamental shift in the pricing behavior of intraday markets. Perhaps contraction of overnight volatility paired with anemic global trade has taken many of the pricing spikes out of the market. I'm not an economist and I don't work at a bank but there is no reason to toss a system which has performed so well in the past just because of a few unprofitable weeks (no matter how painful that experience can be).

I will however keep trading my intraday trend system running to keep some balance in the portfolio. The trend system has performed quite respectably. Most days it can take a quick 30 pips from the market. Not always, that's why I have not completely abandoned meantrades in the past. The polar opposite approach of reversion to the mean trading is probably not trend trading but the two strategies complement each other with delightful symmetry.

A rare profitable day for meantrades on Friday, +59 before the NY open.

Markets seem to be headed into choppy waters for the foreseeable future I am prepared for the inevitability of contracting equity curves. Wish you the best in your own mechanical system equity journey.

Thursday, January 5, 2012

Goals for the coming year

With a new year comes renewed enthusiasm for my trading. I anticipate this will be my breakout year where I finally break the nut which has proved so elusive: consistent trading profits.

My first primary goal is consistency. I intend to trade 2 systems on the forex and spot gold markets.

The first system is meantrades classic. Depending on the prior months results I will either use 10 range or 20 range bars to maximize profitability.

The second system is a momentum based system which does not use support and resistance levels. A pure trend trade system which will test my patience as well as my beliefs about the forex market.

Another goal very much on my mind is the use of stops. Last year I discovered that the best thing about constant range bars was not their clarity of trend but their ability to reduce stops to the smallest level possible (but not any smaller). Thus my goal is to apply stops on a absolute dogmatic level.

In the past few months I have discoevred the world of online poker and have experienced some modest success. The exercise of playing another game of skill with money has helped me realize just how essential stops are in the longevity of a trading system. For years I struggled with this. Meantrades did not employ price stops and although the returns were outstanding, in other periods the draw downs were just unbearable.

On the mental side of things my goal is to not respond so emotionally to situations I find uncomfortable. Just try and take things in stride. I'm 36 years old, it's time to find some peace of mind in my life experiences. Some things in life are just unpleasant. Better to face them head on than the rant and rave about how distasteful they are.

Hope the New Year is a good one for you too.

Good trading