Tuesday, 15 December 2009

More Money Management

Those who are regular reader of this blog know how I stress the importance of a very detailed trading plan. I built my plan through observation and back testing, both by computer and by hand scouring my charts. Lots of hard work that makes the later work of trading easier. Part of this effort was listing entries and exits, profit and loss on a spreadsheet that I then used for further analysis.

I showed Kiki how to do this. Her reaction was to ask why there wasn't an easier way of doing this as we weren't re-inventing the wheel - what we wanted to do must have been done by lots of others. Of course she was right. A few years ago I trialed a program called Market System Analyzer. I have recently had another look at it (http://www.adaptrade.com) and have decided to try it again. It has the ability to get right inside your trading plan, take your trades over a statistically significant period and allow you to do a lot of "what ifs". You can see if your money management can be improved. Are you risking the optimum amount of your capital per trade?  Is using $5,000 per contract best? Are you scaling out the best way you can? Should you trade during NY lunchtime? And lots more.

I have a continual self improvement policy, and I am constantly looking for ways I can improve my performance. The numbers tell it all for me. My base methodology doesn't change but I believe that I can make more money by examining my money management. As I get this tool working in the next few weeks I'll report back my findings.

Now for today's trades. I love it when a plan comes together. 2 trades made over $900 on a 3 contract basis and we took no heat in either trade.

Click to enlarge


  1. It appears that the Globex overnight session is wagging the dog, as the RTH has reduced range and volatility in the stock indices. Hopefully this will change tomorrow somewhat, at least for a day. Currencies and grains are providing the bread and butter here for now. I agree with you that money management (including position sizing) are key to improving performance, given an identified edge/methodology and flawless execution.

  2. Thank you for a excellent blog. It's great to hear and learn from a seasoned pro. I'm attempting to follow your methodology/trades with MarketDelta. Is it possible to share the chart definition file to accurately tag along?

    Thank You

  3. Have a question about cumulating the volume break down on a daily basis. Since the trades are very short term, I would think what matters is the immediate order flow here and now - no matter what the trend has been on multiple days. I can understand looking at volume for the full 24 hour session, but for a day trading strategy the significance of cumulative volume data over multiple days or continually escapes me. Does it help to decide whether the price move is a retracement or reversal or are there other nuances? TIA.

  4. Richard, send me an email and I will email you back with the chart definition.
    Geo, the lookback is to make the CVD work properly. I am interested in the "swing" of the CVD as I want to see the trand of the order flow as well as new highs and lows in the totals. The VB only shows what is happening in a particular bar. Lots and Lots of nuances. That's what all the SIM and replay teach you.

  5. Tom,
    do you ever combine daily profiles when they have overlapping value areas to get your VAL/VAH numbers? Like the last two days (14-15th) in EuroStoxx for example.


  6. Mpem yes, definitely. I split and merge so that what I get makes the most sense to me. I split as soon as I see a change in momentum, usually a suddenly longer bar.

  7. Hi Tom,

    This blog is amazing! I can't thank you enough for the wealth of information you are sharing. I agree with Steven from Dec 1... When I'm in CP and exceeding expenses I fully intend to donate generously to your chosen charity. It's the least I can do by way of thanks.

    I have a couple of questions if you don't mind.

    In relation to your response above, when you say "I split as soon as I see a change in momentum, usually a suddenly longer bar"...All range bars are the same size. What do you mean?

    Secondly, as a platform I am using Ninja Trader with a Zen-Fire data feed. I use GOM volume indicators (I run the GOMRecorder indicator too which stores historical volume delta information so that if the chart is reloaded the VD info is not lost which is of course fantastic for reviewing historical trading opportunities). However, the GOMdata is saved/calculated every second. That is,the bid/ask delta volume info is only calculated every second. Having done my research IQ.DTN records and time stamps every singly tick of volume data (I have seen comments on various blogs that place IQDTN on par with the professional data feeds that cost in excess of US$2000 per month). Using DTM.IQ requires more processing power on the computer to handle the millisecond calculations but it would seem then that a platform such as Market Delta connected to IQDTN, computer processing capabilities assumed, would provide potentially far more accurate Volume Delta and associated derivative information. Given the speed and volume of transactions today on the exchanges do you think this additional accuracy is significant for your day trading?