Bakwaas Trading
- Thread starter augubhai
- Start date
Win rate needed for positive expectancy
For +ve expectancy, the system should have a winner:loser that is greater than average risk:reward.
Formula:
For +ve expectancy,
(no. of winners)/(no. of losers) > (Average loss size)/(Average win size)
Example 1:
2:1 system trading NF
Cost per trade (round trip) - 2 points
Points per win = 10 points; Average Win Size = 10-2 = 8 points
Points per loss = 5 points; Average Loss Size = 5+2 = 7 points
(no. of winners)/(no. of losers) should be greater than 7/8. Or % of winners should be greater than 46.7%.
Example 2:
1:2 system trading NF
Cost per trade (round trip) - 2 points
Points per win = 5 points; Average Win Size = 5-2 = 3 points
Points per loss = 10 points; Average Loss Size = 10+2 = 12 points
(no. of winners)/(no. of losers) should be greater than 12/3. Or % of winners should be greater than 80%.
Example 3:
Style42 data until now (Style42 is changing everyday - so the values will keep on changing)
Cost per trade (round trip) - 0.5 points
Points per win = 7.68 points; Average Win Size = 7.68-0.5 = 7.18 points
Points per loss = 4.74 points; Average Loss Size = 4.74+2 = 5.24 points
(no. of winners)/(no. of losers) should be greater than 5.24/7.18. Or % of winners should be greater than 42.2%. (current %wins is 42.4 - so just at breakeven)
For +ve expectancy, the system should have a winner:loser that is greater than average risk:reward.
Formula:
For +ve expectancy,
(no. of winners)/(no. of losers) > (Average loss size)/(Average win size)
Example 1:
2:1 system trading NF
Cost per trade (round trip) - 2 points
Points per win = 10 points; Average Win Size = 10-2 = 8 points
Points per loss = 5 points; Average Loss Size = 5+2 = 7 points
(no. of winners)/(no. of losers) should be greater than 7/8. Or % of winners should be greater than 46.7%.
Example 2:
1:2 system trading NF
Cost per trade (round trip) - 2 points
Points per win = 5 points; Average Win Size = 5-2 = 3 points
Points per loss = 10 points; Average Loss Size = 10+2 = 12 points
(no. of winners)/(no. of losers) should be greater than 12/3. Or % of winners should be greater than 80%.
Example 3:
Style42 data until now (Style42 is changing everyday - so the values will keep on changing)
Cost per trade (round trip) - 0.5 points
Points per win = 7.68 points; Average Win Size = 7.68-0.5 = 7.18 points
Points per loss = 4.74 points; Average Loss Size = 4.74+2 = 5.24 points
(no. of winners)/(no. of losers) should be greater than 5.24/7.18. Or % of winners should be greater than 42.2%. (current %wins is 42.4 - so just at breakeven)
Been looking up info about discount brokers. Here's what i found so far. Not sure if all this data is accurate.
While I am happy with Zerodha - especially ZT is fast and have not faced any major issue with it, they don't have a plan that suits my 40 trades/day. I'll save a few thousands per day by moving to a cheaper broker. At the moment, RKSV looks attractive because of their lower transaction rates. With volumes, transaction charges will matter more than 1000 rupees saved brokerage and software charges. VPS has lower transaction charges for options, but I will wait until they grow some more.
While I am happy with Zerodha - especially ZT is fast and have not faced any major issue with it, they don't have a plan that suits my 40 trades/day. I'll save a few thousands per day by moving to a cheaper broker. At the moment, RKSV looks attractive because of their lower transaction rates. With volumes, transaction charges will matter more than 1000 rupees saved brokerage and software charges. VPS has lower transaction charges for options, but I will wait until they grow some more.
Brokerage (incl. taxes) Rs. 2200 per month. Assuming 220 Style42 trades per month, that comes to Rs. 10 per trades (0.20 points for single lot). If only 1 trade per day, then it comes to Rs. 22 per trade (0.44 points for single lot)
http://rksv.in/calculator.php
At Zerodha, breakeven for Futures is 2.17 points for single lot, 1.32 points for 20 lots (excluding stamp duty Rs. 50 per day). With options at Zerodha, breakeven is 1.19 points for single lot, 0.34 points for 20 lots (excluding stamp duty Rs. 50 per day).
http://www.zerodha.com/calculator/calcs.html
So, the savings at RKSV are considerable only when trading fewer lots per trade, (RKSV also better when doing a large number of trades)...
Last edited:
Style42 ramblings: Options or Futures
Style42 is my trading system that I currently use for day trading Nifty Options. I have been averaging around 13 trades per day with this system. Details of the system (to the extent that i willing to share) are here:
http://www.traderji.com/trading-diary/86833-augubhai-systematic-trader-130.html#post826465
Looking at the RKSV vs. Zerodha costs discussed in the previous post... the RKSV plan removes the tyranny of having to trade more lots to reduce breakeven points. Since the breakeven points are less whether I trade 1 lot or multiple - it opens up some choices. Should I go for options or futures?
Reward-Risk ratio: There is no doubt that trading Style42 will capture more points per winning trade with Futures, unless I go for deeeeep ITM options that are not liquid. With the not-so-deep ITM options that I trade, delta always reduces the number of winning points, even in a large move.
Diversification: With Futures, I could diversify across underlyings, maybe with NF, I could trade BNF, or maybe SBI or JSW. So if one doesn't move, I could hopefully profit from something else. Also, I could go into commodities, and currencies. Actually, I would have gone for currencies even now, if I had a good data feed to Amibroker.
Leverage: Options win here. Capital needed per lot is 10 to 100 times lower than that needed for Futures. The roadmap for Style42 hopes to incorporate 'Adds' at some point. If i get the adds right, then with Options, there may be a good chance of even doubling my account in a single trade
Liquidity: With options, i am restricted to just Nifty options. Other options are just not liquid enough for frequent trading (well, maybe USDINR). But with OTM or just ITM options, liquidity is perhaps better than even Nifty Futures.
Brokerage Costs: Since Futures give more points per move, and with the RKSV plan even for single lots, costs will not matter much.
Slippage: For ITM options, slippage is an issue. But in the not-so-deep ITM options, slippage is not that big a concern. Also, even Nifty Futures slip big time sometimes, not to talk about the other Futures. one thing that i have noticed is that in options slippages occur more to the upside than to the downside. Maybe the Asks are more sparsely populated than the Bids (just an observation). That is why I currently Buy with SL orders, but exit with SL-M orders.
As always, I have the choice of trading both options and futures simultaneously, but the strain would be too much if I did it manually. And I have not even made an attempt to automate Style42 yet...
Style42 is my trading system that I currently use for day trading Nifty Options. I have been averaging around 13 trades per day with this system. Details of the system (to the extent that i willing to share) are here:
http://www.traderji.com/trading-diary/86833-augubhai-systematic-trader-130.html#post826465
Looking at the RKSV vs. Zerodha costs discussed in the previous post... the RKSV plan removes the tyranny of having to trade more lots to reduce breakeven points. Since the breakeven points are less whether I trade 1 lot or multiple - it opens up some choices. Should I go for options or futures?
Reward-Risk ratio: There is no doubt that trading Style42 will capture more points per winning trade with Futures, unless I go for deeeeep ITM options that are not liquid. With the not-so-deep ITM options that I trade, delta always reduces the number of winning points, even in a large move.
Diversification: With Futures, I could diversify across underlyings, maybe with NF, I could trade BNF, or maybe SBI or JSW. So if one doesn't move, I could hopefully profit from something else. Also, I could go into commodities, and currencies. Actually, I would have gone for currencies even now, if I had a good data feed to Amibroker.
Leverage: Options win here. Capital needed per lot is 10 to 100 times lower than that needed for Futures. The roadmap for Style42 hopes to incorporate 'Adds' at some point. If i get the adds right, then with Options, there may be a good chance of even doubling my account in a single trade
Liquidity: With options, i am restricted to just Nifty options. Other options are just not liquid enough for frequent trading (well, maybe USDINR). But with OTM or just ITM options, liquidity is perhaps better than even Nifty Futures.
Brokerage Costs: Since Futures give more points per move, and with the RKSV plan even for single lots, costs will not matter much.
Slippage: For ITM options, slippage is an issue. But in the not-so-deep ITM options, slippage is not that big a concern. Also, even Nifty Futures slip big time sometimes, not to talk about the other Futures. one thing that i have noticed is that in options slippages occur more to the upside than to the downside. Maybe the Asks are more sparsely populated than the Bids (just an observation). That is why I currently Buy with SL orders, but exit with SL-M orders.
As always, I have the choice of trading both options and futures simultaneously, but the strain would be too much if I did it manually. And I have not even made an attempt to automate Style42 yet...
Discretionary v. Mechanical Trading
I putting up a post here, that i had made this week in the Nifty Nirvana blog. I am not giving the link, because that may be against forum rules, but u could google up the blog.
The article was about how, with practice and learning, emotions could help us take the right trading decisions instead of wrong. It talks about how difficult it is to ignore emotions like most trading psychologist recommend, and how with the right somantic markers we could have emotions work to our advantage.
It is about getting into "the zone", I don't have a road map to get there yet. I also read up this....http://en.wikipedia.org/wiki/Iowa_gambling_task.
(I always suspected that i have brain damage, only need to confirm the type of damage)
So I made the following comment:
and this is the response from the blog owner. I am putting it up because it is relevant.
I putting up a post here, that i had made this week in the Nifty Nirvana blog. I am not giving the link, because that may be against forum rules, but u could google up the blog.
The article was about how, with practice and learning, emotions could help us take the right trading decisions instead of wrong. It talks about how difficult it is to ignore emotions like most trading psychologist recommend, and how with the right somantic markers we could have emotions work to our advantage.
It is about getting into "the zone", I don't have a road map to get there yet. I also read up this....http://en.wikipedia.org/wiki/Iowa_gambling_task.
(I always suspected that i have brain damage, only need to confirm the type of damage)
So I made the following comment:
and this is the response from the blog owner. I am putting it up because it is relevant.
Of Adds and Filters
Never get adds right... Mainly because of the way I implement it, always the wrong way.
Anyway, I tried adds again, starting on 11th. For 4 days, I traded long only Nifty options with a Keltner Channel as filter. Could not trade on 17th, though there were 2 good opportunities to make money on that day. On 18th and 19th removed the Keltner Channel and traded pure price.
Filter shows up in the number of trades made. When I used the filter, number of trades were half of what it would be without filters, though it does not impact profiability - filters miss some good trades, but also help avoid some bad ones. Avg. 20 trades/day with filter, and 40 trades/day without filters.
Profitability only depends on how the market moves. If there are extended fluid moves, money is there for the taking. Else, with adds, the system leaks money double time.
Too hectic... Will come back to adds later on, because I see a huge opportunity if I get pile-ons right. Maybe even next week.
Never get adds right... Mainly because of the way I implement it, always the wrong way.
Anyway, I tried adds again, starting on 11th. For 4 days, I traded long only Nifty options with a Keltner Channel as filter. Could not trade on 17th, though there were 2 good opportunities to make money on that day. On 18th and 19th removed the Keltner Channel and traded pure price.
Filter shows up in the number of trades made. When I used the filter, number of trades were half of what it would be without filters, though it does not impact profiability - filters miss some good trades, but also help avoid some bad ones. Avg. 20 trades/day with filter, and 40 trades/day without filters.
Profitability only depends on how the market moves. If there are extended fluid moves, money is there for the taking. Else, with adds, the system leaks money double time.
Too hectic... Will come back to adds later on, because I see a huge opportunity if I get pile-ons right. Maybe even next week.
A zoomed-in perspective
Last 2 days, was trading at a rate of about 40 round trips a day. The impact of some stuff are magnified when trading at that rate, compared to higher and slower timeframes. Just jotting down what I learnt...
Focus, focus, focus: Need to be focussed on the charts, because opportunity may come any second. Need to have an eye on the charts, even while goofing off and doing other stuff.
Rules, rules, pre-defined rules: At that rate of trading, it is difficult to make subjective decisions checking perspective on higher timeframes. For right entries and exits, may need to zoom-in too close into the 1-min charts - sometimes just 10 bars. Need to have per-defined rules that tell you exactly what to execute in every scenario. More doing, and less thinking during trading hours. Thinking outside of trading hours.
Hard wiring the brain: When I switched from long only option trades, to both way trading in Futures, I had hell of a time adjusting to the change. For a long time, in my head, Buy meant entries and adds, and sell meant exits. Took time to get used to it. So, practice, practice and reach the comfort level.
Software: Software that I use could be better... The laundry list:
- RKSV does not provide Market and SL-M orders. Those would have made my life so much easier. With SL orders, need to fill 2 prices - wastes precious time, and causes mistakes.
- in NOW, need to refresh everytime to check current positions and margins. Why is there no option to auto-refresh? I guess they did not have speed traders in mind while designing the software.
- No auto trading for retail - regulatory baby sitting
I wish softwares like this http://www.traderji.com/risk-money-management/6529-any-paper-trading-sites-2.html#post770243.
Or http://www.youtube.com/watch?v=5aiWIwaUPWk
Or MD Trader http://www.youtube.com/watch?v=NGK99jlKNnE (skip the first 15-20 minutes of this video and then watch 30 minutes. MD Trader is focused on the scalper/executor. Doesn't even care much about charts - but they are improving that)
Interactive Brokers? Sure, let me become hugely profitable first...
Data feed: Speed of Global Datafeeds, about 1 sec delay - not an issue for me. But missing ticks are an issue frequently. Order gets executed, and the tick never shows up in the charts. How do I ever integrate it with the trading software and automate? Chart will not be aware of the order execution without querying the software.
Ambience: Affects big time. Sometimes move about with my laptop around the house. But with this frequency, minor change in ambience tense me up. So, i try not to move when trading with this frequency. i tell my family in advance that I should not be disturbed. Posture - This trading is not good for posture. I shift chairs, and get up and move about. But still need to keep an eye on charts, and tenses up the body. Staring at the same screen for long is another pain. I try to mitigate that by putting up the same chart on a second monitor, so I can look far or near to check the price. relaxes the eye.
Execution: Since rules are pre-decided, this is the main thing. i am surprised about the number of things that affect execution in this frequency. It is just not the 40+ trades that were executed. It is also the trailing stop orders updated, sometimes multiple times a minute. Early on, I realized that the best way to execute this was using SL orders, so I can relax more than at Market on touch of tick. Order preference like order type, quantity, MIS/NRML... all need to be set ahead. No clutter or confusion at point of execution. Changeover from MIS to NRML at cut-off time is a big headache.
When I changed from options to futures, i thought it would be much easier, because I needed to watch just one chart. But things happened differently. First of all, my brain was wired the wrong way. Then for each order - courtesy, RKSV not providing Market and SL-M types - I had to enter 6 digits 2 times to complete an SL order. At this frequency, it matters that the Futures price has an extra digit compared to the options price!! Try modifying the order multiple times in a minute. Also, check current positions and margins when market action is at its peak - F11 or Shift+CTRL+V, and click refresh - no auto refresh... Bad.
Slippage and Liquidity: Liquidity was one of the reason I shifted from Options to Futures - the main reason being the option delta. Slippage can be controlled to a certain extent my updating the 2 prices in the SL order, and that's a lot of typing. Even then, price moved a couple of times without filling my SL orders.
Margins: Trading Futures is a pain, checking margins after each order. The MIS to NRML position conversion is big circus in NOW. Need to convert individual orders by going to the Trade Book (In NEST, it can be done directly in the Admin positions). If needed, back-up funds need to be ready in the Bank. Lucky, that the transfer from the bank is instantaneous.
Trading Options is much better on this parameter.
Costs: The RKSV Freedom plan suits this style, because there is no need to worry about the extra cost of doing multiple trades with small number of lots.
Last 2 days, was trading at a rate of about 40 round trips a day. The impact of some stuff are magnified when trading at that rate, compared to higher and slower timeframes. Just jotting down what I learnt...
Focus, focus, focus: Need to be focussed on the charts, because opportunity may come any second. Need to have an eye on the charts, even while goofing off and doing other stuff.
Rules, rules, pre-defined rules: At that rate of trading, it is difficult to make subjective decisions checking perspective on higher timeframes. For right entries and exits, may need to zoom-in too close into the 1-min charts - sometimes just 10 bars. Need to have per-defined rules that tell you exactly what to execute in every scenario. More doing, and less thinking during trading hours. Thinking outside of trading hours.
Hard wiring the brain: When I switched from long only option trades, to both way trading in Futures, I had hell of a time adjusting to the change. For a long time, in my head, Buy meant entries and adds, and sell meant exits. Took time to get used to it. So, practice, practice and reach the comfort level.
Software: Software that I use could be better... The laundry list:
- RKSV does not provide Market and SL-M orders. Those would have made my life so much easier. With SL orders, need to fill 2 prices - wastes precious time, and causes mistakes.
- in NOW, need to refresh everytime to check current positions and margins. Why is there no option to auto-refresh? I guess they did not have speed traders in mind while designing the software.
- No auto trading for retail - regulatory baby sitting
I wish softwares like this http://www.traderji.com/risk-money-management/6529-any-paper-trading-sites-2.html#post770243.
Or http://www.youtube.com/watch?v=5aiWIwaUPWk
Or MD Trader http://www.youtube.com/watch?v=NGK99jlKNnE (skip the first 15-20 minutes of this video and then watch 30 minutes. MD Trader is focused on the scalper/executor. Doesn't even care much about charts - but they are improving that)
Interactive Brokers? Sure, let me become hugely profitable first...
Data feed: Speed of Global Datafeeds, about 1 sec delay - not an issue for me. But missing ticks are an issue frequently. Order gets executed, and the tick never shows up in the charts. How do I ever integrate it with the trading software and automate? Chart will not be aware of the order execution without querying the software.
Ambience: Affects big time. Sometimes move about with my laptop around the house. But with this frequency, minor change in ambience tense me up. So, i try not to move when trading with this frequency. i tell my family in advance that I should not be disturbed. Posture - This trading is not good for posture. I shift chairs, and get up and move about. But still need to keep an eye on charts, and tenses up the body. Staring at the same screen for long is another pain. I try to mitigate that by putting up the same chart on a second monitor, so I can look far or near to check the price. relaxes the eye.
Execution: Since rules are pre-decided, this is the main thing. i am surprised about the number of things that affect execution in this frequency. It is just not the 40+ trades that were executed. It is also the trailing stop orders updated, sometimes multiple times a minute. Early on, I realized that the best way to execute this was using SL orders, so I can relax more than at Market on touch of tick. Order preference like order type, quantity, MIS/NRML... all need to be set ahead. No clutter or confusion at point of execution. Changeover from MIS to NRML at cut-off time is a big headache.
When I changed from options to futures, i thought it would be much easier, because I needed to watch just one chart. But things happened differently. First of all, my brain was wired the wrong way. Then for each order - courtesy, RKSV not providing Market and SL-M types - I had to enter 6 digits 2 times to complete an SL order. At this frequency, it matters that the Futures price has an extra digit compared to the options price!! Try modifying the order multiple times in a minute. Also, check current positions and margins when market action is at its peak - F11 or Shift+CTRL+V, and click refresh - no auto refresh... Bad.
Slippage and Liquidity: Liquidity was one of the reason I shifted from Options to Futures - the main reason being the option delta. Slippage can be controlled to a certain extent my updating the 2 prices in the SL order, and that's a lot of typing. Even then, price moved a couple of times without filling my SL orders.
Margins: Trading Futures is a pain, checking margins after each order. The MIS to NRML position conversion is big circus in NOW. Need to convert individual orders by going to the Trade Book (In NEST, it can be done directly in the Admin positions). If needed, back-up funds need to be ready in the Bank. Lucky, that the transfer from the bank is instantaneous.
Trading Options is much better on this parameter.
Costs: The RKSV Freedom plan suits this style, because there is no need to worry about the extra cost of doing multiple trades with small number of lots.
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