Did not practice today. Instead, I looked through my past practice results trying to see how I can improve my entry. Did not spot anything useful. I know a lot of my entries suck, but I just cannot find any criteria that I can use to filter out the lousy setups.
Perhaps I am attracted by the trend following strategy taught by Richard Dennis, where you expect to get lots of misses, but your hits are large enough to cover for the misses and then some. The turtles use a very simple, systematic entry. I believe it is when prices hit a 50 bar high or 50 bar low, something like that. Their edge is cutting their losses short, but letting their winners ride as long as possible. They also add to winning positions to fully capitalize on their winning trades.
The idea is that trade entry is of lower importance than trade management. Given that trade entry is rather subjective for me, I am placing more emphasis on trade management at the moment. I still want to improve on my setups, but that is going to take more practice.
Was watching this very, very awesome YouTube tutorial (and that is an understatement):
Here are my two biggest takeaways:
- When prices trade in a very tight range and volume dries up, it means that supply is drying up. This is a very bullish sign.
- Scale down when you are not doing well, scale up when you are doing well.
I was inspired by the second point to test another position sizing strategy. Previously, I already experimented with scaling down when not doing well. Today, I tested another strategy, which is almost identical to strategy 7, except that the maximum permissible lot size is 1.5 units, instead of 1 unit.
Hence, strategy 8 is as follows:
- Reduce lot size by 0.1 unit if the past two trades are losers AND both trades exit within 10 days or less (subject to a minimum lot size of 0.25 unit); increase lot size by 0.1 unit if the past 1 trade is a winner (subject to a maximum lot size of 1.5 units)
- Filter using a sector ETF (XLK for NVDA and XLE for SWN). For buy trades, the ETF’s previous week close must be above the 50 Week EMA. For sell trades, the ETF’s previous week close must be below the 50 Week EMA.
- When considering past trades, trades that are filtered out using the sector ETF are NOT considered.
The results are quite promising. Other than PLTR, the new strategy increased profits without increasing the drawdown. In the case of PLTR, drawdown increased by 1%, and profits decreased slightly. Given that the practice period for PLTR is only from 2021 to 2023, more data is needed to determine if this trend persists.
Here are the results:
| Stock | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |
| NVDA | Final | $535,775.20 | $519,712.67 | $319,602.16 | $444,114.22 | $603,843.98 | $495,345.77 | $534,484.08 | $925,870.16 |
| Lowest | $98,552.63 | $98,552.63 | $98,552.63 | $98,552.63 | $99,504.50 | $99,504.50 | $99,504.50 | $99,504.50 | |
| Max DD | -21.71% | -20.70% | -15.61% | -19.12% | -10.10% | -7.65% | -9.05% | -12.92% | |
| SWN | Final | $102,577.56 | $109,679.01 | $110,343.65 | $114,660.12 | $129,416.21 | $124,188.28 | $134,847.54 | $156,854.17 |
| Lowest | $60,035.70 | $67,214.40 | $78,946.28 | $72,273.37 | $73,467.27 | $81,467.93 | $79,460.22 | $79,460.22 | |
| Max DD | -39.96% | -32.79% | -21.05% | -27.73% | -26.53% | -18.53% | -20.54% | -20.54% | |
| PLTR | Final | $102,622.80 | $99,523.79 | $108,250.04 | $98,835.91 | $120,344.46 | $110,519.99 | $115,268.83 | $114,984.22 |
| Lowest | $96,211.73 | $96,211.73 | $96,211.73 | $95,969.06 | $96,211.73 | $96,268.89 | $96,268.89 | $96,268.89 | |
| Max DD | -26.37% | -25.27% | -15.21% | -24.06% | -11.33% | -11.14% | -11.00% | -12.09% |
Going forward, I will practice on more stocks and test the different exit strategies. Trades will be filtered using a relevant sector ETF.
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