How to save a trade that goes against you in Swing strategies!

As a swing trader working on opportunities to make profit when the market changes direction the market will sometimes go against you. The results in the long run are dependent on how you and/or your trading robot handles those situations.

I’ll try to explain the rules and how my strategies solves these situations.

These are your options:

  • Stop/loss
  • Adding extra positions

Classic stop/loss close to the entry level doesn’t work well for swing strategies. Maybe it is okey for just one trade, but with many trades you will get too high percentage of trades that ends up in stop/loss. That will ruin your long term results.

Adding positions is also difficult, but I’ve found that it’s better. Especially if you combine it with many robots who runs i parallel with really small position sizes for their first positions. I also use safety stop/loss, but you are not supposed to ever reach them.

Nasdaq example

This is an example from Nasdaq 100 in the last two weeks with a swing strategy for catching reversals. In this case it uses max 3 positions and a stop/loss for safety. Blue arrows indicate long positions.NAS100 3 pos jan 2016

The entries on the Jan 4th didn’t reach target and the index fell further. When stop/loss levels were reached (small red lines) the losses were taken. The strategy then almost immediately entered another swing trade according to its rules with three positions. In that second case with trades nbr 4-6 the target is reached within a couple of hours. The equity curve on the right suffers from the safety stop/loss, but at least the positions were closed. The smallest possible total loss on my broker is 60 USD and that is a way to keep losses small.

Add another position

One option to improve the results is to allow max 4 positions instead of 3 in the same strategy:

NAS100 4 pos jan 2016

Now the reversal on Jan 4-5th was enough and the combined target were reached after 2-3 days.

NAS100 3 pos more pipsteps jan 2016

Add more space between trades

A better solution is to not allow the algo strategy to add trades as quickly. By adding to the minimum number of points the market has to move before an additional trade is opened the result gets better.

Adding space between first and second trade always improves statistics, but also lowers the profits for the same strategy.

 

 

With both these adjustment this is the resulting equity curve last year:

NAS100 3 pos more pipsteps jan 2016

This area of risk and safety rules has been my focus area for the last two years. Risk and safety rules are ten times more difficult to define than entry and exit rules.

I believe you need to make a portfolio that combines many strategies to get it right. It is complex but it is much easier to do and execute with trading robots than to do it manually.

Annonser

Results on Real Account

These are the results I’ve got while developing and testing out the Swing strategy:

Actual Results 2014-2015

Current results the last 1,5 months with Swing strategy:

Dec 2015-Jan 12 2016

If I manage 3,5% a month on average the result for the year will be 51%.

Since the strategy is ready and my trading is OK I’m in the startup phase to offer some friends to copy trades their accounts. Max drawdown is 15% which I think is common for Swing strategies and I’m also comfortable with. Higher or lower leverage depends on what you are comfortable with.

The strategy is described here.

UPDATE: Results became even better when I changed to forex. 35% in two months

Swing 5-40 dagarsperspektiv

Jag har backtestat swing för OMXS30 ur ett 5-30 dagarsperspektiv och då är det möjligt att gå Long snart när man får bekräftelse på att vi vänt upp även i en Bear-market som den som vi upplever nu i januari 2016.

Nedan finns en liknande period. Jag har jag markerat med ett rött streck när vi var lika mycket under som vi är idag. Bear-market 2007-2008.

OMX nedgång 2008

Så här ser aktuellt läge ut:

OMX nedgång jan 2016

Inom 5-40 dagars tidsperiod kommer vi sannolikt att ligga högre.

Man kan se att jag redan gått Long i två positioner. I min swing-strategy ingår att man delar upp hela sin position i fyra 4 delar så att man har möjlighet att snitta ner sig. Det ger bäst historiskt resultat. Den sista fjärdedelen sådan nedgång har 100% sannolikhet historiskt till vinst sedan 6 år. Dagens köp är för två olika strategier en för 1 h och en för 4 h som alltså har 3/4 kvar.

Så här ser alla trades för 4h ut:

OMX trades jan 2016

Jag har lagt in Stochastics som ger stöd för att det är översålt idag.

Det finns inga automatiska stop-loss i strategin. Automatisk stop/loss fungerar dåligt med swingstrategier som går emot den långa trenden och försöker hitta 5-40 dagars rekyler. Välj många små positioner istället.

Vinstutveckling för strategin mars 2015 till idag OMXS30.

OMX balans jan 2016

Aktuellt resultat just nu finns på myfxbook

 

Are signals the future?

Yes, I belive so for the following reasons:

Negative total returns on a 10-12 year horizon

Hussman funds has stated this view for the coming years:

I remain convinced that the U.S. financial markets, particularly equities and low-grade debt, are in a late-stage top formation of the third speculative bubble in 15 years. On the basis of the valuation measures most strongly correlated with actual subsequent market returns (and that have fully retainedthat correlation even across recent market cycles), current extremes imply 40-55% market losses over the completion of the current market cycle, with zero nominal and negative real total returns for the S&P 500 on a 10-12 year horizon. 

Automation in the financial sector

Automation is part of most visions of the future. In the financial area this will also be the case. Today there are algorithmic traded robots you can buy and signals which you can subscribe to automate trading on your private account. These robots and signals have bad reputation today. The industry is immature and full of deals that offer high returns but do not deliver what they promise. And people in general don’t know how these products work and they can often not manage the risk. Today many people start trading themself and 95% of them loose a lot.

Where will Mr. Jones invest his pension saving in the future? There are many indications that automated services and signals within the financial area will replace the existing costly financial services. The need for alternatives will grow even more when the equity markets have negative total returns.

Signals as an alternative

By combining various automated services good signals you can get good returns. The difficulty lies in choosing the right service and managing risk.

Evaluation of Signals during 2016

I’m committed to start using these signals myself this year to get passive income. I will do mistakes, but I’m probably better equipped than most to evaluate different strategies, manage risk and to allocate my investments accordingly after having developed a algorithmic traded robot myself.

S&P target reached after 4 days

This was the result of sell opportunity I published 4 days ago.

SP500 Opportunity Target reached

The target was reached today and I closed half the position in S&P500 manually. The strategy has not closed the trade yet.

I was lucky, but it is also in line with the last two years results for the strategy.

Today was actually an opportunity for a short time long trade. Save half the normal position size if S&P500 continues lower. I haven’t taken a long position yet, but I have added to a previous long position in Euro Stock 50 today. We will see how that turns out.