Well it was a modest week of making money, until today.  In two quick swooshes the market took back my gains and more resulting in a losing week.  In my defense and in the defense of my cycles, this was a rough week to get started for the following reasons:

1. Holiday shortened week

2. Wednesday never once pulled back

3. Thursday (yesterday) was a freakishly quiet, like five in one hundred occurance

4. Today was a news driven monster truck rally

What’s interesting to note is this week’s losses did not damage my ego whatsoever, where I normally feel a bit aloof and edgy.  I think it’s because I’m sticking to my well laid plans.  The laws of large numbers will kick in next week, and I should recapture most, if not all of these losses.

All that being said, I lost money my first week live trading Bossram Alpha.  It only had one losing week backtesting from March 1 – present…go figure.

Before commissions, Bossram lost $675.00 and Elroi, the jackass helper robot lost $25.00 aka outperformed me this week by losing less money.

As a result, 10k has nearly become nine.

With more screen time, days like these will be some of the best of the year.  For now, they’re modestly priced classes in humility and market skill.

 

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Well how about that morning /ES session?  Quite the contrast to yesterday and the paint drying we were subjected to.

I had a great little scalp long at the open.  Then I engaged Bossram even though I wanted to see a test of yesterday’s VAH first.  I adhered to Bossram.  It took a loss on the long side, then it engaged short, and took a loss on the short side.

The bad news is I took 2 losses in a row trading Bossram, the good news is they trades were fully plan compliant, and could have been much worse had I not adhered to the plan.

Typically, it goes on a huge win streak at this point, so the key is to continue to engage.  But probabilities are probabilities, every trade is a coin toss.

Elroi scored one short for 1.75 handles and is currently taking heat in another short.

Onto my portfolio:

I sold some scraps out of my book, remaining runners in YELP, BBRY, and YGE.  I also bought more SKF.  Whether or not that trade works out is very much still debatable.

No reason to be down on these losses or saying adios to my winners, it’s time to dig my heels in.

 

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I really like the feel I had trading the /ES_F today.  I’ve currently pigeonholed my discretionary trading to conform to the BOSSRAM ALPHA cycle.  This prevents me rushing.  It allows me to measure where we are in the cycle after some broad redundantly calls my phone so she can hear herself talk and position (or hand sit) accordingly.

You see, plates, I juggle so many.

One of my favorite trades in the market requires full attention because it can fly in your face quickly.  I didn’t want to stop trading the chart picture simply because my day job doesn’t afford me focus so I automated it.  This was the birth of ELROI.

Elroi doesn’t trade the picture as profitably as me.  But what he lacks in profitability Elroi makes up in consistency.  Elroi bagged 3.75 handles in profit today on trades that were too racy for me.  I on the other hand, wielding Bossram, made $25 or 0.50 handles.

But it was fun to watch Elroi go to work while I waited for the market to come into the Bossram wheelhouse.  This week I reset my account to $10k: five for me, five for Elroi, and I pulled the rest out to buy cat food.

You see, trading the /ES since April has been by and large a circle jerk and a dangerous one at that.  It came down to losing focus.  I’ve…courourrrected the problem and put several policies and procedures in place to ensure the new habits stick.  My future’s trading operation is looking more like a Fortune 500 company every week.  Goodness, companies like AMZN, GOOG, and SBUX aren’t on these lists by luck.

Learn from their cultures.

Now it’s exciting and I’m happy to fire up my futures every morning.  It’s me verses Elroi.  So far he’s winning.

ON TO STOCKS:

I sold AMBA entirely today.  I told you very clearly I was taking this cheap trick for 10 percent and then taking my business elsewhere.  AMBA fucked me once, I fucked AMBA once.  Perhaps after earnings we can make love, or something.  I earned about 8 percent on the trade.  It was a 12 percent position.

I took profits in Ford(s) because I was watching the /ES_F weaken.  It’s nothing personal.  I still have a 5% position.

My top performers were END and YGE.

RVLT continues to ‘suck goat’ instead of retrofitting Manhattan with LEDs.  Get to work you zoophiles.

I bumped my cash up above 25 percent and was up 1.75 percent on the day.  I needed it.  One thing is certain.  When RVLT stops going down…I’m forecasting champagne showers.

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There is something divine about the three day weekend.  The majority of the past 48 hours were spent restoring order to la casa.

I like simplicity.

Bossram alpha is so fantastically simple, yet built upon preconceived and developed complexities, that its robust nature gets me plum excited.  I trade my worst when I feel rushed.  I feel rushed when the market accelerates or an interruption causes confusion.  Bossram is a cycle ready to trade trend pullbacks, backed by hard data, with predefined entries and exits.  A quick stroll through the decision tree tells you exactly how to behave, with 100% mechanical entries, 100% mechanical profit targets, and 90% mechanical stop losses.

In back testing however, the stop losses are entirely mechanical too.

Once the system grows to three contracts, the profit taking process will become 66% mechanical as the third unit will be traded with discretion.  Achieving three contracts is the goal of Bossram.  At that point, I’ll have an opportunity to flex my discretionary muscles and begin my quest to compete with the best traders in the world, fully financed by the Bossram bread-and-butter operation.

Do you see how exciting this all is?

I’ve walked forward over the past two weeks with Bossram, but the cycling nature of Bossram is beyond my coding abilities so the data was compiled old school.  Well not quite old school; old school traders used to print out charts on reams paper and compile the data into stupid paper journals.  Then I suppose they used their abacus to calculate win rates and such.  Silly traders.  I surfed across the charts on my 24-inch Samsung and inputted the trades to excel on my other 24 inch Sammy.

All testing was done on RTH data only of course, as I will only trade discretionary during regular trading hours.  Here are the best data bits:

Total Trades: 34 (3.4 trades per day)

Gross Profit: $2,687.50

Gross Loss: ($1900.00)

Net Profit:  $787.50 (not including commission)

Win rate: 82%

Largest Winning Trade: $150.00

Largest Losing Trade: ($450.00)

Max Drawdown: ($825.00)

Some notes on the performance:

As you can see Bossram went through a bit of a rough patch.  It occurred over the course of Wednesday and Thursday, two days featuring violent, news driven chop.  Believe me, I’ve psycho analyzed the price action from this period to gain insight into Bossram’s weakness.  The kryptonite to this system is visible, at least in hindsight.  But the cycle was still profitable, and I would hate to muck up the concept with discretion, so I’m resisting the temptation to begin filtering out entries.  And the walk forward data looks like an accurate cut out from the multi month back test.

Now begins the very ceremonial process of rolling the concept into a live trading environment.  Before any live trading takes place on a new idea I first take the opportunity to remove any clutter from my life.  I bring the budgets up to date, set logical goals, clean my office like an OCD, and archive paperwork.  Finally a large thicket of sage used to smudge my home and self carrying away any negative energies lingering on the premises.

Now everything is in place to take the idea live.  The live environment is the exact same as the walk forward and strikingly similar to the back test only now I have to overcome any psychological effects associated with making and losing money.

That’s how you take an idea live.  The process is as fun as the outcome.

Finally, the system increases contract size based upon the max drawdown.  I keep this step simple too.  I use a 3x multiple of the max drawdown plus the intraday margin requirement of the instrument (in this case the e-mini S&P future contract) to determine the amount of capital needed per contract to finance the idea.  The following equation renders the amount of capital needed to increase contract size:

($825.00 x 3) + $500 = $2425

For simplicity sake, for every $2500.00 increase in capital earned by the system, contract size will be increased.  Once three contracts is achieved the plan will be reassessed.  According to the data from the back test, Bossram alpha should increase its size to two contracts in 7.25 weeks.

Hello October 21^st.

Fortunately it takes half as long to earn the second $2500.00 lot.  Let’s call it 4 more weeks.  Therefore, Bossram Alpha will achieve the three contract goal near November 21^st.

There you have it.  I’ve conservatively built a way to earn $40,000/year.

Bread and butter.

So it is written, so it shall be.

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I began talking about the drone strike algorithm ElRoi during my vacation not because I ever intend to share my coding with the good people of the internet, but instead to get your collective gears spinning about an exciting way of approaching the market.

Imagine earning an average return on your money without the uncertainty of overnight positions.  Take that thought and also consider what could be done with your newly minted free time.  You could learn an instrument, or travel, or stop being an absentee parent.  I, on the other hand, will use said time to trade more markets simultaneously.  Eventually my goal is to trade three unique markets with complete automation, and trade the /ES on a discretionary basis.  All the while collecting my favorite stocks, like baseball cards, to pass down to my kin.

I’ve been trading the ELROI signals since April to enter into the market, but I’ve been managing the exits manually based upon inputs like market profile that aren’t coded into the algo.  Prior to vacation, the system went through a drawdown, then a long (in Elroi terms) quiet period.  That’s when I made the decision to turn Elroi to full automation and hit the road.

It’s almost as if I had to unplug myself to keep from fiddling with the knobs.

The rest as they say is history as Elroi went on a four trade winning streak before taking its first losing trade late into today’s session.  Elroi only traded one contract per trade while I was away, but if someone possessed the capital to meet larger margin requirements, this system could trade much larger size in the /ES as it’s the most liquid financial instrument in the world.

This statistical arbitrage stuff gets me very excited, and promises to be a fun income stream that fits my fringe lifestyle.

I figured the Woodshedder crowd may enjoy a presentation of the following equity curve and data.  Here you go, Woodshedder crowd:

 

Stay tuned for the two week performance results of my new cycle hypothesis, #BOSSRAM ALPHA.

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I went over my performance for the month of January this morning and I was rather impressed.  I’m sure people outperformed me, but I turned in a healthy 4.8% for the month.  It was a simple month to make money long, but that by no means makes it easy.

I started digging into the data for my future trading strategy too.  This project has been on the back burner for months as I completed a major overhaul of a business process but with the pesky business tasks and IRS requirements wrapping up it’s time to push my algo over the finish line and get her live.

Whether superstition or numerology or pure voodoo, I find much success in life when I use the number three.  Teams of three, three dips from the well, three sacrificial chickens, and well you get the point.  The environment I trade stocks in isn’t quite as structured as I plan to trade futures because I like to give stocks time to work and this can take days to months.  But with how I intend to trade futures, there will be multiple trades per day with the book going 100% cash at the end of each day.

Given the higher frequency of trades, a mistake is amplified and much quicker to damage my wealth.  Therefore I’m developing a very structured environment that will give me quicker feedback.  Part of that feedback is the rule of three.  These rules are put in place to prevent me from blowing up yet another futures account:

Three losing trades: paper trade the rest of the session and review plan and market context

Three losing days: paper trade the rest of the week and review plan and market context

Three losing weeks: rebuild the plan and algorithm

This will be my first attempt at automated trading.  My prior attempts at trading futures have been purely discretionary.  The key to being a successful (read consistently profitable) future trader is to TRADE ONLY.  That means no running a business and no having a day job.  I like to diversify my income sources and I have big plans outside of this market.  An algorithm solves this dilemma by only allowing me participation in the market when my edge is present.  I will get an alert when a trade is initiated and I can then turn my attention to managing the trade if I want.  Otherwise I can let the algorithm handle the exit too.  I like handling the exit so far in testing because I can’t program market profile context into my robot.

http://youtu.be/1mdgLn5BFRQ

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