Short Term Trading Week Starting: 18 Jan

Originally posted by sharks37: ↑

Thanks. I forgot a couple of other trade management points:
If price gaps open below my stoploss, I will exit on or as close to the open of that day as I can. This means sometimes my losses do exceed my risk per trade, but I have measured the frequency of that occurring, so I know roughly the associated expectancy
If prce gaps open above my entry level, I will enter on or as close to the open price of that day as I can, after adjusting the position sizing to maintain my total risk $

The basis for my strategy as I mentioned yesterday is backtesting over the 20 year period of 2001-2020 (for currently listed ASX300 stocks only, not all past stocks in the ASX300, so I am ignoring survivorship bias, which because the trades are short term, and there is not a strong change in performance between rising and falling markets, I am comfortable with that assumption).

The statistics and results from that backtesting are shown below. As you can see, the results are pretty consistent, with no negative return years (I consider that pretty unusual) even during 2008/9, which I attribute to (a) the way gaps down complement gaps up in terms of what type of market conditions they each perform well, and (b) the different durations (2, 3 & 13 weeks) and hence the max drawdown is also pretty good. In terms of performance by stock, 70% of all stocks in the sample returned a profit over the sample period (but that could be lower if I tested survivorship bias). And finally performance by Gap Open type, you can see why I weight the v2 type higher, due to its performance over a very short trade duration (2 weeks, which means probability of gap down losses is much lower).

Cheers, Sharks

Expand

Added FPH at the open price this morning. It gapped up above the strategy entry price so as per trade management rules I bought at the open price, despite being quite a bit higher, but position size adjusted accordingly to maintain the required trade risk budget:

Cheers, Sharks

PS: FPH has already dropped a bit since the open. I could have waited to see if I could get a better entry than the open price, but I have found I am a pretty hopeless discretionary trader, so I stick with execution of my strategy. It doesn't particularly concern me whether this trade ends in profit or not, my focus is that over time the strategy's actual performance remains consistent with the historical backtest results. To that end, I also have a cut-off rule that if the actual performance breaks a key metric, namely the drawdown breaks 2x the max historical drawdown, then I stop trading the strategy. That means in total I risk in the case of this strategy 10% of $50K or $5K if it doesn't end up working. But I have other strategies in the porftolio so the overall risk impact on the total portfolio is much smaller than 10%.