It Was Going So Well

As followers of the blog will know I have been using my copious free time to experiment with building a new system from the ground up and then testing it live. There is no point testing new theories and ideas within the electronic purity of a computer program unless you are going to put actual money into them and see how you and the system perform under live conditions.  This system contains a mix of long and short time frames and I have been experimenting with the mix of instruments that I bring into the portfolio and I recently added Natural Gas. Interestingly the first trade was a winner, catching the move up from early November. This was interesting because my experience of such things is that the first trade is usually pretty much a dud.  The energy part of this portfolio of which Natural Gas is a part is a true long/short system so it takes every signal that the system generates – in some ways it is a generalised stop and reverse system. So when the system generated a signal in the opposite direction I naturally took it and it looked to be doing well until it was hit by a large intra-day reversal.  This generated another signal in the opposite direction which I took – and here is the rub. The power for this part of the system comes not from its entry signals but rather from its aggressive money management, as such this reversal signal was also stopped out.

Since this is a new system I review the decision making behind each trade to make certain that the rules were followed and whether there is anything that can be learnt from the trade. I am a firm believer that this form of post trade analysis should be part of everyone’s routine but only up to a point. This is in reality a limited amount of information that can be gained from the majority of trades. If you have followed the rules then it is a process of simply accepting the result and moving on. Endless cogitation about what you should have done is largely unhelpful.

When I first started experimenting with stop and reverse systems way back in the day I used to get enormously frustrated at this sport of scenario – I liked the notion of stop and reverse in markets that had a tendency to swing in sentiment such as energy markets but lacked the emotional maturity to deal with inevitable consequences of such an approach. Nowadays I couldn’t give a flying f$5k about the trades. It is mildly annoying when you wake up and see that you have been stopped out for the second time in 24 hours and I dont think that ever goes away. You do need some emotional investment in your own success or failure – to think otherwise is pointless.