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GeneTrash

Realistic Trade System 1 Contract/month P/L?

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Hi Everyone,

 

It's been an few months since I last posted. I have been working very hard on a couple of systems and have a few questions some of the more experienced chaps could help me with. I have been developing two trading systems which I am looking to begin trading live on the ER2. I have back tested both systems one year back so far. (It is very time consuming as I prefer to do it manually.) The two systems have combined for ~+$4000 average a month using a two contract scale- in entry system. (Includes all fees/commissions, slippage is not an issue.) As of yet I have not had a losing month and the biggest draw-down period has been ~$1900. I have put a lot of work into the systems to minimize my initial trade risk, lowering the draw-down. I plan to back test to three-five years. My question is are these numbers poor, average, good, or great?

 

The systems works on e-minis and the few commodities I have looked at, as the ideas are fairly simple. I have also made a effort to make the systems as robust as possible with minimal discretionary trade management needed. I believe live results should be close to those on paper. The systems are very easy to trade and require no emotion. The only thing that would change results would be sporadic trading.

 

With your experience and such what is a good 1 contract/month P/L number to look at when building or evaluating a system? I have come across some numbers in my reading/surfing ($3000, $6000 and some crazy P/L on those pre-made mail-order systems, though I don't put any stock in those.) Should I be moving on to other ideas or trying to optimize more or should I continue back-testing what I have?

 

This may sound like a dumb question to some but sometimes after all the hard work I can get discouraged if the data is not generating what feels like a ton of money haha. I know it's a newbie feeling to want to make lots of money right away but I realized I really didn't know what is good or bad as far as systems go.

 

So what kind of numbers do your trade systems generate per month per contract?

 

P.S. Keep in mind the R/R ratio and and win/lose percentage of the systems are good.

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If I may ask, what are the r/r and win %? How many trades does it make?

 

Those are petty good stats, especially if it's more mechanical than not. I would go ahead and backtest it over as much as you can, and as many different market conditions as you can. Does the system favor certain conditions? Moving from here, you want to pay attention to the maximum drawdown. $1900 is pretty steep, especially if it's making a lot of trades, and that's only 1 year. If you allocated $5k per contract, you'd be looking at an almost 40% drawdown. Could you handle that? Do other years have similar / worse drawdowns?

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$1900 is not steep for ER2, IMHO.

Gene- you said slippage is not an issue... does that mean you have limit orders? Curious because slippage is ALWAYS an issue, maybe in ways you don't suspect.

#1 problem is the word "Limit" order. These often don't get filled for winners, and ALWAYS get filled for losers. So you have to go back and make sure you had at LEAST one tick in your direction.

If you are using market orders, a fast market can give you terrible fills, but your system will trade it perfectly. ER2 is not always the most liquid market.

 

So the best question here is, what is your average win/loss $ size per contract?

 

Don't worry about the profit # for the system. If the system is good, you can scale it up as you go and trade 100 contracts, $1000/point. You are a long way from scaling up though.

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I don't see how the magnitude of the pnl of a system is all that meaningfull, its somewhat of a number without context.

Since the system seems to be working nice over the past year it obviously enjoys volatility. I would test it against highly correlated instruments over the past year just to make sure that you didn't just get lucky with the data you picked to test on and that you are truely capturing something that profits from volatility.

Then test it against data from a time period with lower volatility. Even if the system doesn't work as well you can just add filters to make sure it only trades when there is enough volatility for the system to work. VIX > X is a nice simple tool for this.

The most dangerous thing I would think you want to protect against is that everything looks good in the rear view mirror, volatility then dries up and your system is then trading market conditions that it simply can't perform in.

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I don't see how the magnitude of the pnl of a system is all that meaningfull, its somewhat of a number without context.

 

Magnitude without vector is meaningless. Add vector (such as + or -) and things come into focus.

 

Still, knowing whether your P&L is enough to overcome transaction costs such as slippage and commission is very important too.

 

Then you can judge whether the system is scalable, that is, tradeable with increased size.

 

-fs

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