Here are a few areas I've researched in the past few weeks:
- Probability of breaking overnight levels
- FT71 has frequently stated that either the overnight/Globex high or
low levels in the ES will be broken over 90% of the time. Although I've
heard the 96% figure, I wrote a test that indicated the probability to
be around 92%, based on 6 months of tick data. Close enough to give me
confidence that this particular event of touching one or the other
overnight level is nearly a sure thing.
- Electronic Local's trading methodology - I've attempted
to recreate some of his trading systems he discusses on his blog, and
along the way, my work took me on a tangent that resulted in some
automated systems with good potential with both the ES as well as the
AUDUSD and EURUSD forex pairs. Another setup he discusses is very
similar to a Diamond Setup pattern I really like, as well as how to
trade the gap open fill.
- Gap opens - In addition to EL's blog, Trader-X's blog is
where I really learned to appreciate gap open setups. I've created a
system to determine the probability of a gap fill based on the
number of points the RTH ES opens from the prior day. Certain gap open
setups, after backtesting over 10 years if data, have resulted in a
surprisingly consistent and profitable outcomes. I've also discovered a
great website http://www.thegapguy.com
that covers gap fill strategies and statistics. One interesting
takeaway from that website I'll investigate further is incorporating the
location of the gap open in relation to the prior day to determine even
more refined probabilities.
I'm very likely headed down the path of becoming more automated with my trading. I've always believed that a great discretionary trader can make much more than an automated trading system, and Electronic Local has also written about that topic. Note the emphasis on great trader, which is far from common or ordinary. I'm pretty certain a great discretionary trader can make more in a few days (or even a day) than a solid algo can do on average over a month.
As a discretionary trader, it's quite obvious I'm not there yet
I'm the first to admit that my execution skills and inability to get beyond revenge and rogue trades has cost me plenty, so I'm still working on those challenges. Therefore, having some algos auto trading in the background, chipping away at generating some consistent profits might be a new direction as I continue to develop as a trader. The level of progress I make executing with patience and discipline as a discretionary trader, will determine how much focus systems trading will become.
Systems results -- theory vs. reality
In the meantime, I'm currently tracking a few different automated algos and trying to determine the real life potential. What I have found is that what looks good in backtesting, will not do quite as well in SIM -- which means that when traded live, performance will suffer a bit more. I'm utilizing limit orders for profit and entry orders. But the stop market orders are always a bit of a wildcard, especially if the trading system is turned on overnight during certain hours when the markets are thinly traded.
Crawling but making progress
So although I feel like I'm back to crawling these days, I'm still learning a lot through the process of researching, developing, and testing automated trading systems. There is good spillover effects for my discretionary trading. The work has helped me to gain even more confidence with certain trading setups, as well as putting to rest certain setups that just don't do as well as I had thought. Now if they could simply make a pill that makes me avoid revenge and rogue trades...
It's also good to see how everything is building up on all the great knowledge I have gained from Trader-X, SMB Training, Diamond Setups, and others who have heavily influenced my trading. I'm slowly moving ahead, becoming more comfortable with the slower pace, and will continue to work on creating and refining a trading system and process that fits my personality and style. But I do admit, there's still an element of chasing success...
Hopefully, I'll be back to walking and perhaps running again in the next month or two, at least once summer is over. Until then, I'll keep chipping away.