As planned, I started to trade the firmly developed strategy live from the beginning of this week. Just prior to that I also reviewed and firmed up my daily routines – trying to build good trading habits and to make things process-based.
Thus far I am down 4.5R after 15 trades. Yikes!
- Did I trade well?
- Is my strategy not profitable?
- Have the market conditions not been right?
Answers in brief:
1. Did I trade well? Yes, I traded very well. I have been following my plans. Here are screenshots of the 15 trades I took.
2. Is my strategy profitable? According to my testing the strategy is profitable. It does not seem to be hugely profitable but it should be in the black in the long run.
In my last batch of testing, using the final version of the strategy and comprising four instruments, I had a max drawdown of 5-6R. This week I have been monitoring 30 financial instruments. It would reasonable for me to expect a larger drawdown when doing 30 instruments.
Do I simply multiply 5-6R by 7.5 (30 instruments are 7.5 times as many as 4 instruments) ?My gut feel is that the variance (i.e. upswings and downswings) should be driven by the square root of the number of instruments, rather than the outright number of instruments. I am not sure whether this hypothesis is correct – it’s just my gut feel. Thus, I multiply the 5-6R by the square root of 7.5 (i.e. 2.7) – resulting in an estimate of max drawdown of 13-16R. A drawdown of 4.5R is well within that reach.
[if all those references to ‘R’ seem confusing then run a search on the “risk & money management” category on my blog]
What is the likelihood that I would start trading live and immediately happen to hit one of the worst market conditions for the trading strategy? Seems pretty unfortunate.
Simultaneously taking correlated setups
I am regularly entered trades that seem to be correlated – for example yesterday I entered short USDJPY, short EURJPY and long XAUUSD (Gold) all at the same time. This type of approach should increase variance. Most likely either all three trades will be winners, or all three trades will be losers.
All in all, it’s possible that the trading strategy is not profitable – but more likely than not, it is in fact profitable, as indicated by my extensive testing.
3. Have the market conditions not been right?
It’s quite possible that the market conditions just happen to be a bit off thus far this week, or that they have been right, but I just happen to have a bit of a bad run.
Let’s keep on trading really well – following all my rules and parameters, get more trades under my belt – and see how it all looks after a larger number of trades.
I’d be interested to hear views from blog readers – am all ears!