Trading strategies and discussion

General discussions about futures.
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leonardo
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Post by leonardo » Mon Mar 22, 2004 5:10 pm

paris
By the way Leonardo, would you say the principles of successful trading (as you see them) are still the same despite all the modernday bells and whistles? Do you still trade the same instruments now that you traded, say, 20 years ago? Perhaps you could throw in your two cents on Trading Psychology, particularly as relates to being a young punk trader hoping to get started with the right mindset.
I believe successful trading has exactly the same ingredients today as 100 years ago. It is just easier in someways to do it well today, because of the 'bells and whistles'. And harder because of all the options you can take advantage of. You have to mind your own edge.

It is the individual who is the weak link in all of trading. Willingness to put up with necessary drawdowns, and unwillingness to put up with unnecessary drawdowns is often the key to making money versus being in the situation of "I was in the beans (copper, cotton, crude, gold, silver, etc) back when they were XX.XX and got knocked out before they took off!!!!

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Post by MCT » Mon Mar 22, 2004 10:25 pm

Leonardo,

Given your trading strategy, what is your thought regarding diversification?

Cheers,

Menelik

leonardo
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Post by leonardo » Tue Mar 23, 2004 2:26 pm

MCT

My thoughts about diversification are similar to the turtles. Since I've been trading to make a living primarily, I shoot for 100% years like the great-shelled-ones too. Ask me if I've ever had a 50% drawdown. :lol:

I trade the two strongest/weakest markets in each of the six market categories. With a maximum initial risk of 2.5 percent per market. Usually start trading a market with .5% increments until it gets going. I try to make sure if all my stops got hit on my positions in one day I wouldn't lose more than 25-30% of my total value from the night before.

I turn low risk ancillary trades into longer term trades whenever possible, increasing my net size in the trend without additional initial risk.

I highly recommend this additional method of adding to positions because sometimes it doubles my annual return with very little extra risk.

-Leonardo--

___________________________

I've rarely seen a new high that I didn't want to buy.

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Post by Kiwi » Tue Mar 23, 2004 6:35 pm

Very nice Leonardo,

I took up day trading to achieve a similar objective but have often wondered about building up currency positions taking 4-7 ticks risk at a time. I might see if I can work out a strategy when I have time.

John

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Post by DrHendricks » Tue Mar 23, 2004 8:10 pm

I turn low risk ancillary trades into longer term trades whenever possible, increasing my net size in the trend without additional initial risk.
Leonardo would you care to illustrate what you mean by this with an example.

Thanks

David

MCT
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Post by MCT » Wed Mar 24, 2004 10:23 am

Leonardo,

Your posts are interesting …

.. and what’s your thought on timing? Do you believe simple entries and exits suffice? Is a simple breakout reason enough to accept 50-100 or more trades in a given year?

No, I’m not a fundamentalist. After a long study of patterns and sentiment, I make buy or sell decisions only 2-6 times a year. In a given year, I’m unable to find more reasons than that to make a buy or sell decision. Is it boring and volatile? You bet.

thanks for your input,

MCT

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Post by leonardo » Wed Mar 24, 2004 11:23 am

-MCT
.. and what’s your thought on timing? Do you believe simple entries and exits suffice? Is a simple breakout reason enough to accept 50-100 or more trades in a given year?
Yes, simple entries and exits work just fine. Simple breakouts work too, but then one gets into what is "simple".

I would not be afraid to buy any market at new yearly highs with the exit trailing at last month lows. Simple, but amazingly hardy. (or the reverse of the above for selling)

--Leonardo--

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Post by MCT » Wed Mar 24, 2004 4:36 pm

Leonardo,
"I would not be afraid to buy any market at new yearly highs with the exit trailing at last month lows."
... interesting & simple. How often do you make such decisions, given your risk controls?

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Post by leonardo » Thu Mar 25, 2004 12:24 pm

-MCT-

I almost hesitate to speak about this way of trading. Feel free to test it.

It worked 30 years ago when I started using it and works exactly the same now. You trade about 2 times a year per market with usually 50% or greater winners, about 35% in the market, and high profit factors are the norm. And you never miss any "can't miss this" type of moves. As is the case with many extremely long term style systems, I believe that it would be hard psycologically for someone to trade this system mechanically. But it would be simple to trade. I feel it is a great indicator system to use to make sure that you're always in the hot markets.

Leonardo--

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Post by leonardo » Thu Mar 25, 2004 1:35 pm

DrHendricks

I'm sorry, I didn't see your your question until a minute ago.
Quote:
I turn low risk ancillary trades into longer term trades whenever possible, increasing my net size in the trend without additional initial risk.



Leonardo would you care to illustrate what you mean by this with an example.


A recent example from my own trading was on March 9th in May Corn.

I had been positioned long since January 12th, like many here. I had my full load on by the first of February. On March 9, I had a shorter term trade (typically a 65% accurate/ 1:1) signal to buy 20 May corn @ 298.50 with a sell stop of 291.00. I exited 15 contracts on March 10 at my target of 302, and still held 5 contracts with a stop at 291.00. The stop on the remaining five stays at 291.00 until the trailing stop on my longer term system gets up to 291 or higher, at which point it takes over.

In this scenario, if the market should go back and hit the 291 stop, I still would make a profit of $750 (minus commissions) on the short term trade. At best, infinite. The stop hasn't been hit yet, and my long term stop is still beneath it.

In the last month I have used the additional-adding-technique on bonds, sugar, corn, beans, meal, silver, and live hogs.

This style of trading is probably not unique to me, as many floor traders do the same thing, albeit on a much shorter time frame. But you do have to have a durable shorter term trading methodology which really works in the real world.

Leonardo--

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Post by phoenix » Sun May 09, 2004 9:28 pm

leonardo wrote:
This style of trading is probably not unique to me, as many floor traders do the same thing, albeit on a much shorter time frame. But you do have to have a durable shorter term trading methodology which really works in the real world.

Leonardo--
Feel free to ignore if this question is too intrusive, but just out of curiosity, would you mind giving a rough estimate of how many trades you make per year and a ballpark profile of your long term win / loss / scratch ratio?

Also, would you say that you see a small number of trades making up for the bulk of your gains (5% of trades accounting for +40% of profits etc), or are you more evenly distributed? Speaking in terms of additions as pyramids on a single trade rather than separate ones.

thanks in advance if you choose to share, I'm always curious to hear how other trader's profiles compare to my own creations.

p.s. this question is free for anyone to answer if they choose...

p.p.s. for anyone who enjoys analyzing track records you will love Salem Abraham, he has sixteen years of monthly trading performance available in excel format on abrahamtrading.com

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Post by leonardo » Mon May 10, 2004 12:59 am

---phoenix---
....would you mind giving a rough estimate of how many trades you make per year and a ballpark profile of your long term win / loss / scratch ratio?

Also, would you say that you see a small number of trades making up for the bulk of your gains (5% of trades accounting for +40% of profits etc), or are you more evenly distributed? Speaking in terms of additions as pyramids on a single trade rather than separate ones.
Good questions.

These are questions I wish I had the answer to when I started, just to give me an idea of what a person could expect to accomplish if they were to succeed as a trader. I have some of the answers below. Unfortunately, they will be of limited value to anyone who does not or will not wish to trade like me.

My actual trades (not contracts) taken per year are around 2,000. These are a combination of my (about 200) long term (absolutely-have-to-be-in-this-market for the possible big move it could make) mechanical trades and my 1,500 - 1,800 mostly mechanical short-term trades (with judgement overtones) placed in the markets which I'm already in and are continuing trends. Some (about 20%) of the shorter term trades become longer term trades by the process mentioned in an earlier post. About a 10% of the "adds" turn into outliers ("ten-baggers") which really help the bottom line in a year like last year. Some years the additional trades don't add a tremendous amount of value--then again, they don't cost the bottom line at all--just take some additional time and effort. On exceptional trending years, the additional trades can make the year a virtual bonanza, a great time to retire if that is your wish.

Over my trading sample of the last ten years, the bulk of my profits (at least 85%) are made from positions created by 3% or less of the trades I've taken in the year. Because my variance is so great from size of winner to average loser, last year I averaged $78.50/contract traded after commissions/slip. For me this was fine. This is also why trading tens of thousands of contracts/year is necessary for my style of trading.

This is not the case of all successful traders. Some have to trade even more (or less) because of the nature of their edge.

One of the most successful short term traders I've ever had the pleasure to know averages $5 - $8 a contract traded after commissions/fees. He wins on 45% of his trades (profiting about $100) and loses (about $50-$60) 55% of the time. His outlier trades are only 2 - 3 times as large as either his wins or losses. He trades many thousands of contracts a week.

If there is anything I have learned by trading and being surrounded by traders is that every successful trader has a different optimum frequency of trade and personal yield tolerance.

With effort a trader can change his tolerance for risk to be greater or smaller. Usually he adjusts this tolerance to be a more conservative one after he has proven that he can be relatively sure of continued success.

The sooner a trader becomes secure in his method of trading the sooner he can get on with the important business of using the results to build his business.

---Leonardo---

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Post by phoenix » Tue May 11, 2004 9:06 pm


The sooner a trader becomes secure in his method of trading the sooner he can get on with the important business of using the results to build his business.

Absolutely. After running the gamut of strategies, I have found only *one* way to trade for me personally - the way that fits my strengths and interests best. Always curious to hear about different styles and methods though, to see what I can learn and to also get a better sense of who makes up the market.

So if you're running an avg 16 long term trades per month and 6 short term trades per day, does that mean you're in equities as well as futures? Or are you generating that volume of signals from just 80 markets?

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Post by leonardo » Tue May 11, 2004 11:16 pm

So if you're running an avg 16 long term trades per month and 6 short term trades per day, does that mean you're in equities as well as futures? Or are you generating that volume of signals from just 80 markets?
Yes, but I trade less than 80 markets. I follow the 35 - 40 which are most active, mostly US futures, but do follow Europe more than 5 years ago. Still haven't traded in Japan, but did buy some 'greasy wool' in Australia some years back.

One of my best trades ever (reward vs. risk) was over 10 years ago in Winnepeg Flaxseed. I didn't realize how thin the market was..., ended up with too big (they have two sizes of contracts, and I thought I was smaller when I was larger) a percentage of the open interest-- realized the fact the high day, and got out. That was the top for a long time. That'll never happen again. They're closing down.

I've traded a lot of lumber this year, but you have to be careful that you aren't too big for the market. Having traded in quieter pits taught me that they (floor traders) appreciate outside trade and I tend to work with them when I enter and exit. Having a longer term concept works well in smaller markets.

---Leonardo---

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