Friday, 14 January 2011

Trading Every Day to Make a Living: Part 2

Following on from Part 1:

OK, you have an 80% win rate and the drop dead stops look alright. The system is profitable, but perhaps only marginally, as you have used a reasonable first target to ensure a high win rate. Many times traders sacrifice the win rate by changing the targets, in order to become profitable on paper. They often do this to the point where the win rate drops to as low as, say, 35%. In the experience I have had with many traders, when this target changing happens, the trader can't follow the system, as he doesn't know when it's broken. Usually the system is curve fitted and, from the trader's experience, if he followed it he would lose all his money.

So, that doesn't work but what does? What I do is to keep the win rate, use it as a first scale out point and then manually manage the trade in accordance with rules that I can't program, as they are so context sensitive. I codify my rules in my TP so I have consistency.

The outcome is a high win rate and good profitability with low drawdown.

Today's early trades in the Euro future are a good example. The Flo managed trades were great, but the one I exited manually was obviously in trouble, so I used my rules to manually exit and saved the $300 drawdown and spent about $165 instead. If I do this every day, then the difference at the end of the month is very considerable. It's the EXIT to the trade that makes the difference.

More in Part 3.


  1. Your losers are three times as big as your winners so wouldn't the drawdowns (troughs) be large? Also, with a high win rate, wouldn't a martingale strategy work best?

  2. Anon 16:13. Using a Martingale based strategy, doubling trade size after a loss, is not something I do. I still remember having 15 blacks in a row when I tried it at roulette and I was betting red. You are still missing a piece of the puzzle. Read today's (Monday's) post to tie it together a bit more.