Progress on the algorithm but ...

I found a technical indicator that works better than MACD on the tests I've done so far. It's call RSI (Relative Strength Index):

It doesn't generate as many trade signals as I had with the MACD test, and it does show a profit. BUT the profit only comes after a too-large drawdown of the account (over 60%) in the middle of the backtest sequence.

More research is needed! I'll update when I learn a bit more about the next step.

A book that looks helpful

I was googling around for help doing something in TradeStation's EasyLanguage and came across:

It comes with code in EasyLanguage and Python and I'm very much looking forward to taking advantage of it ... starting tomorrow!

Eyes back on the prize after a tough day ...

I goofed and increased my contract size to 2 on /NQ today and got clobbered. Fortunately I won 3 /NQ 2-tick trades (1 contract each) so cut my loss to $176.

And I found it stressful and annoying, staring at the /ZB DOM chart, even though I won all three.

I am going to stop setting my alarm to get up with the opening of the market but may still try and pick up a couple of ticks of /ZB now and then. But I need to focus back on algorithm development. I have a couple of ideas to try out over the next few days ...

A small loss today

Still testing with 1 contract: I quit with a profit of $18 but apparently had left one contract on ... the UI says I lost $57.50 for the day. Oh well. I should have looked at my list of positions to make sure I was flat on everything, but:

I went back to bed and I needed it ... setting alarm for 6:15 (PST) to make sure I'm ready for market opening. Probably jumped the gun on a couple of signals this a.m.

One thing I learned today: two ticks isn't enough for /NQ; I thought it was $10/tick but it's only $5/tick. Sheesh. I won, but only 12 cents or something on a couple of these.

More tomorrow ....

Another winning day with one glitch

I'm continuing to test with 1 contract before scaling up. I switched today to using wider stops and closer limits, the latter as little as 2 ticks. This worked well! A 2-tick win on /ZB (bonds) trade was especially pleasant as they're $31.25 per tick.

The only glitch: a trackpad extra bounce! I sold two 'OCO' brackets of /NQ when I meant to sell just one, and the extra one got stopped out immediately for a loss. My solution:

I'll have this within a couple of days.

Overall I made $76.48 today (over $600 if I had been trading 8 contracts ...)

Today's results won't quite make the speculative return benchmark I posted over the weekend:

I used the 'depth of market' interface that I found over the weekend, which worked as specified. But I got stopped out twice in a row before winning two in a row, all within the first 45 minutes of trading after the 6:30 PST opening.

Since I was using a tighter stop than profit target ($75/$125) I actually made a $72.98 profit for the day (on 1 contract of /ES.)

But! It's clear that I would have made two in a row with a wider stop and a narrower profit target; If I'd flipped the two this a.m. I would have made a quick $141 or so.

Maybe I'll try this tomorrow ...

Speculative return projections for 1 year of the trade I'm doing

I ran a Monte Carlo Simulation on a computer program that simulates one year of the trade I'm planning (after the 1-contract test period).

The assumptions I'm making are as follows:

• I assume the trade works 80% of the time (and fails 20% of the time).
• For each winning trade, we earn $125 per contract
• For each losing trade, we lose $75 per contract
• We also lose $9.88 per trade (round trip) in commissions and fees, win or lose
• We are using a brokerage with only $500/contract margin required for day trading, and we press this to 90% of the possible maximum
• I also assume that getting a 1000-contract trade filled is possible

Given all that, with 100000 runs starting each with $5000:

• At minimum, we end with $10,857,638
• At maximum, we have $21,823,532
• On average, we have $16,513,832
• The standard deviation is about $1.3 million, meaning there's a 68% chance of being between $14.2 million and $17.8 million

Do I really think this is possible?

Theoretically, yes; this is a highly leveraged trade.  Increasing the number of contracts (up to this high ceiling of 1000) is the key point.

But practically no:

1. I don't have the data to show 80% wins; I do have comments from two traders doing similar trades that (a) usually works and (b) wins 90%+. So 80% seems reasonable, but I don't know.
2. I'm going to start taking money out of the trade as soon as it starts showing results anything like this; I want to quit my job, for starts, and just use this as income to live on.
3. You have to do this every day to get these results; skipping a day for whatever reason will reduce your expected return.
4. I'm not at all certain that I can get 1000 contracts filled. It may be more like 200 or 250, which would reduce the returns significantly.

Hang on to your hat! I'm hoping to quit my job by April 30 ...