TPS (Time, Price, Scale-in) Revisited

[dpaterso]

Ladies and gentlemen and boys and girls… I give you the keys to the kingdom (for this system anyway).

As per the spreadsheet below I’ve calculated the correct position sizes to be taking with this trading system based on Risk-Based Position Sizing as detailed in earlier posts.

A 5% risk per trade is assumed.
A $100K trading account is assumed.

VERY IMPORTANT NOTE TO ANYBODY THAT SEES THIS AND DECIDES TO IMPLEMENT IT FOR WHATEVER REASON:

If using these calculations be aware that if an instrument is NOT denominated in the base currency of your account or if you’re not trading with a spread betting broker: you MUST convert the currency of the instrument being traded into the base currency of your account. This is VERY important. This is not something I have to concern myself with at my broker as all prices are quoted to me in the base currency of my account. This is really simple to deal with. But at other brokers the DAX, for example, will be quoted in EUR. You MUST convert EUR to USD (or whatever the base currency of your account) otherwise you’re going to land in very hot water. In addition to this: you MUST know what the tick size and tick value is at your broker. This can differ sometimes. And in order to calculate positions sizes and rate each instrument you will need to normalize the values depending on the tick size and tick value. In other words: you need to normalize the basic increment of ATR in $ across all instruments.

Regarding the spreadsheet:

First of all the position sizes are shown. And these are on a per trade basis. As it pertains to the TPS scaling-in: the figures are for FULL positions NOT per SIGNAL. Big difference between the two. In other words and based on the current figures: you’d be wanting to end up with or eventually scale-in to 5 FULL positions on the Dow. NO MORE.

In addition: you want to be trading the top four to six instruments that are the most volatile. In other words: you want to be trading those with the highest ATR values.

Taking the above even one step further: you’d also want to be trading the top four to six instruments that not only are volatile but that also have directional movement. Think about it: the more directional movement the sooner these trades will be over after their pullbacks. So if this is something that you wish to factor in then I’m just multiplying ATR by ADXR. This is a stripped down version of Wilder’s CSI as noted i.e. I’ve not included margin requirements and trading costs as I think it’s a bit of an overkill for our purposes here.

I can attest to the merits of the above. For the last few years I’ve been trading anything and everything that generates a signal. But I’ve noticed over the years that some instruments during certain periods are just not worth trading. They hog margin and seem to go nowhere so profits are less. Since implementing this I’ve seen a noticeable change in this regard.

In addition and since implementing the risk and position size calculations the wild intraday swings in floating P&L has all but disappeared. In addition: these calculations seem to normalize the instruments against each other (which is obvious given the different positions sizes indicated). What’s more: one should never even come close to a margin call on this basis.

In addition: just based on last week I’m confident that using a fixed stop is the way to go and on this basis will not interfere with the trading system itself. This fixed stop is for those times where these markets begin to trend against you without even so much as pausing to look back (hence not even giving you a signal to exit at a loss). Take a look at some charts and you’ll clearly see what I mean i.e. it’s happened before and it will happen again (and would not surprise me if these coming weeks do not serve as a prime example in real time). This fixed stop is for those times when things just get totally out of hand.

Lastly and as I stated earlier in another post: this entire method of position size and risk management seems to hold together almost in a perfect balance with this trading system.

So there you have it. Not the tidiest of spreadsheets. Sorry about that. Serves my purposes though.

Regards,

Dale.

P.S.

These calculations should be done weekly over a weekend and the figures would be valid for the coming week’s trades. Given that I’m using the default 14-day period for ATR this should be accurate enough. One could, I suppose, use a 7-day period for ATR and ADXR. Maybe even a 5-day period (possibly makes sense as these trades theoretically should only last about that long under normal market conditions). This would of course speed up the reaction time for the calculations. As to how much of a difference it may make: I know not. Just thought I’d mention it is all.

P.P.S.

Just another note that I believe is of interest. In just doing these calculations of late AND, oddly enough, doing something similar some years ago but for a different reason: the S&P 500 almost always is top of the pops. I believe this is proof of concept enough and why it’s the go to instrument for those that trade the indices. It is currenlty only surpassed by Italy and Honk Kong (depending which of the two rating systems you implement i.e. ATR only or ATR and ADXR). But most would not trade those indices I don’t think so it would be of no concern to them I suppose. As far as the three US indices are concerned: very rarely does the Dow top theS&P. The NASDAQ is always the slower of the three (this in spite of the fact that I do firmly believe that the NASDAQ actually leads the market due to its component stocks and sectors) (although this is a moot point really i.e. not something I’d base a trading decision on).

P.P.P.S.

With regard to the last paragraph above: a 5-day period is too short. It would have you rotating in and out of instruments far too often. Just too much work really. Seems to me that maybe a 10-day ATR and ADXR could be the sweet spot. And I’m willing to bet this is why Jeff used a 10-period ATR as well. And Wilder does actually state the the period for ANY indicator should be equal to one half of the period under review. Given that the markets are closed over weekends then a 10-period interval makes sense I suppose. It does of course beg the question as to why every single one of Wilder’s indicators defaults to 14-periods of course (seem to remember reading something in his Delta Phenomenon about this but don’t quite recall at this time).

[dpaterso]

Morning.

Having spent much time (again) looking back on things it has occurred to me that in spite of my dire warnings to the contrary: eliminating the 200-day SMA filter is not necessarily taboo. Why this conclusion now??? Simple really. I have never traded this system with these new hard stops. The reason that the 200-day SMA as a filter could have been a necessity was to keep one from losing big on a trade where, for example, one would get into a long trade above the 200-day SMA only for price to barrel through it and start trending in the opposite direction without so much as a pause. On such occasions one should have closed the trade the moment there was a close below the 200-day SMA (using a long trade here as an example obviously). But these new stops could very well address the same problem should it arise. Reason this has come to the fore now: as of Friday we have some instruments that closed below the 200-day SMA and some that did not. Given that these things are so highly correlated: which trades do you then ignore. Theoretically and as but one example: right now one should still be long the DAX but should have closed most of the other long trades e.g. the previous long on the S&P. Confusing. Furthermore: many times historically has price closed below the 200-day SMA, simply hung around for a few days, and then turned and shot up again resulting in a profit on a trade that was otherwise already closed at a loss.

I think I need to spend some time in the next day or so (given that I am flat at this time) and pick two or three of those very bad trades (Gold last year and the crash in December last year to name but two) and see which of the two scenarios would have played out better. Whichever way you slice it: there would have been losses. Question is: which would have resulted in the least amount of damage and taking into account that maybe the 200-day SMA would have saved a lot initially but then would also have kept you out of subsequent profitable trades.

Just remembered a note from someone who has indeed traded this system with hard stops in place and for some time too so far as I can tell. It was noted that most times these stops are never hit. But when they are you’ll be glad they were.

[dpaterso]

In being out of the markets at this time it’s given me reason to pause. And as much as I hate to admit this publicly: it seems that I have egg on my face. In just looking at least week’s trades: according to the as advertised system I should not have even been in a good portion of them. The ones in question were as a result of my taking those 1-day signals as opposed to waiting for the two consecutive RSI(2) closes below 25. Point is: while this may have served my purposes well over the past few years it’s one of those things that works until it doesn’t. And I know why this happened. The pressure is on and the stakes are very high for me. Whereas before and on a part time basis: it actually didn’t matter if there were fewer trades or not given that there was loads of capital available and I could hold the trades until signaled to exit, including the 1-day signals, without having to worry. Alright and to be fair: it worked out alright overall on a part time basis. But as things stand now: I’d be well advised to adhere strictly to the as advertised rules for entry it would seem. Just some personal observations I guess.

To wit: I refer to the DAX in my previous post. Not even a valid long trade based on the as advertised rules. Only today depending of where it closes tonight. And then it depends on whether or not you’re going to filter with the 200-day SMA or use fixed stops. Or both. And I’m now overthinking this. Time to take some ten steps back.

[Spudfan]

And I know why this happened. The pressure is on and the stakes are very high for me.

Hi Dale, I’ve been reading recent posts with interest, and thank you for taking the time to bare your soul (but please no more than that!) and to present details of your trades and your thinking. The sentence I quoted reminded me of my early days (years) of trading where I monitored account growth closely. That in itself put pressure on me to keep it up and so I started cutting corners and taking unnecessary risks. That was also my “excitement” phase so I was always in the market, pushing trades where they shouldn’t have been. Now I have reached a “boredom” phase. Which means I’m not under pressure and if there’s nothing to trade, I don’t trade it. It’s a good place to be. And I’m making slow and steady progress.

[dpaterso]

Hello.

Was kinds hoping you’d make another appearance. Truth be told I write these posts picturing you reading them!!! LOL!!!

Yeh. That place you’re at is where you should be in this business. Kinda the place that I thought I’d arrived at. Well I think I’m still there. Just the pressure is getting to me. The clock is ticking day by day here. So I need to calm down. And therein actually lies the difference between being under pressure and/or doing this part time and/or being indifferent. For the past few years I’d look at charts when the urge took me, if there was a signal I’d take it, and maybe just check in once a day or something like that. That works. This business of sitting here staring at charts day in and day out is a big problem particularly with a system such as this. And right now that’s what I’m doing. Cannot really go anywhere. Should be practicing my backside off with my music and staying away from doing this. But I’m not in the space I need to be to get excited about much anything. Everything pretty much in limbo. Oh well. If nothing else maybe my posts leave a legacy and a road map for somebody as to the potential pitfalls etc. as lived through this as opposed to just regurgitating stuff over and over as I see on many threads every other day.

Anyway. I do believe we have a winner here. In spite of my urgency. As noted: one of my reasons for actually starting this thread was to get some others who may have a clearer thought process or fresh ideas as to how to limit risk with this trading system. As I noted: it was just pure luck that I wasn’t trading in December last year when this lot crashed. And it’s for times like those where some type of “it’s enough” is required. Dunno if you’ve had a look at any of those links or my calculations for position size and fixed stops based thereon but I reckon I may very well have solved the problem. Feels right and sits right with me anyway. But we shall see. For the sake of not being left out I suppose: I’ve gone long the Dow and the S&P with the correct size positions based on my calculations. Mental stop on each is 5%. They’re valid as advertised trades (trades I’d still be in had I not closed out on Friday) but ignoring the 200-day SMA and incorporating the fixed stop instead. Am curious to see which comes first i.e. stopped out or signal to exit. My money is on signal to exit as with these position sizes correctly calculated (hopefully) my stops are REAL far away. We shall see. Should be interesting.

Sadly though: after all the time I spent on that Hang Seng the other day I wanted to get in long today based on the above. Given that I’m now also limiting myself to four to six different instruments based on that table then I can afford to trade the thing. But as luck would have it: had to place a limit order and when it opened again after their many daily breaks the thing has shot up and missed my order. But the day is still young I guess. Will leave the pending order under it’s indicated that the trade is over.

Depending how the above works out: might be time to sit down and document everything in a nice clear and concise fashion (if for no other reason than to stick on my wall to act as a reminder to not get too smart or pick trades out of desperation as opposed to doing the right thing and doing what works and has always worked type of thing).

I also do see a Gold SHORT in my future.

[Spudfan]

@dpaterso

Depending how the above works out: might be time to sit down and document everything in a nice clear and concise fashion (if for no other reason than to stick on my wall to act as a reminder to not get too smart or pick trades out of desperation as opposed to doing the right thing and doing what works and has always worked type of thing).

Strict adherence to a checklist is an excellent idea. Although I don’t think you do bullet points? Paragraphs will do, I guess LOL!!

@dpaterso

Dunno if you’ve had a look at any of those links or my calculations for position size and fixed stops based thereon but I reckon I may very well have solved the problem. Feels right and sits right with me anyway. But we shall see.

I have never bothered much with lot size calculations. I started my career in forex trading on 0.01 and worked gradually up from there, flew too high and came back down to a level that seems to work - it’s large enough to make decent profits but not so large that I wake up in a sweat. And I know each currency pair should have slightly different lot sizes. Too much effort - they all get the same treatment! Yes, I know. But it works fine. But for that reason I don’t trade USDZAR as the numbers there are about x 10 on most others. Same applies to other exotics and also to commodities. So asking me to check your numbers is like asking a monkey about the meaning of life.

I’m still waiting for my TPS expert adviser to be coded. It was promised last week but a client’s server crash prevented my coding friend from doing it, or anything much else, last week. So hopefully I’ll get version 1 this week. My intention is to run it on a VPS for 2 or 3 months as per the book, 5 forex majors and 5 indices. Depending on how many charts the VPS will allow me to open I might also run the same 5 forex pairs using customised settings,which will allow me to get a sense of what works best. Any suggestions about this would be very helpful.

I noted in the book that Connors says there are endless possibilities, so we shouldn’t worry too much about tweaking things. It’s just while I am doing this scientific thing that I’d like to start from a known baseline:

[dpaterso]

Although I don’t think you do bullet points?

I may surprise you!!! LOL!!!

My reason for wanting to adjust position sizes really was based on the fact that I’ve been trading this thing over the years and just winging it. So with a R50K or R100K account (it was usually been between those ranges anyway) I’ve been just going with 1+2+3+4=10. But that’s resulted in some frightening swings if I’m honest. Not too bad if you’re just trading the S&P for example. But 10 units on Italy, Spain, Japan, or Hong Kong can make you move in funny ways when the trades are going against you. And especially where you may have positions open on eleven or twelve different things and you’ve scaled-in to full size positions on all. There were one or two occasions when I had to deposit more just so that I could sleep. And alright: things turned out alright in the end. But they could have gone the other way let’s face it. But it’s no way to trade nor live. So yeh: doing it this way (at least for me) seems to have calmed things down somewhat. Which unfortunately doesn’t help or equate to too much at the moment. But at least it’s proof of concept to me anyway. Of course it has the unfortunate downside in that maybe these 5% - 10% gains per month that I so liberally quote may no longer be achievable. Not sure. When I WAS up that 15% last month I had implemented these new ideas though so MAYBE. I guess we shall see all other things being equal.

[dpaterso]

Well I’m in some odd positions (odd for me that is):

Long:

Dow
NASDAQ
S&P
Brent
WTI

Pending limit order long:

Hang Seng

If the above two are executed (really miffed about missing Hong Kong today) then those are my six instruments being traded. I will admit that they were not chosen on my CSI scale i.e. quite frankly they were the only trades I could get.

Oh and will start to scale-in on Gold tonight (sorry: make that seven instruments shall we). Signals aside: maybe it tanks like it did last June!!! LOL!!!

And just an observation:

For some obscure reason the NASDAQ seems to have broken ranks with the other two. Don’t see that often. Don’t really like it though. But what will be will be.

Ahhh… The usual suspects. The FANG stocks (Facebook, Amazon, Netflix, Google). Selloff.

And the Hang Seng still going up. Murphy and his law!!!

Jeepers. That NASDAQ took off there for a while. My wide stop wasn’t looking that wide there for a minute!!! LOL!!! Only joking. Sort of. For the record and just using this trade as an example: I was filled 7099.8. Stop is at 6729.4. Let’s see what happens.

[dpaterso]

For the sake of interest and for anybody wondering why I’m proposing these emergency stops…

Below is a daily chart of Nymex. It’s the long trade in the white box that you’re trying to nip in the bud. One could make the argument to just close out the position once price closed below the 200-day SMA. Fair enough. And true. But look at the long trades you missed out on when price rebounded i.e. price was still trading below the 200-day SMA but there were short and long trades during that rebound all of which were profitable.

Nymex Daily:

Anybody feel free to chime in here if you think I’m talking nonsense.

[dpaterso]

Gonna be a late night tonight.

Facebook down 8.75% as I type this. And it’s a valid as advertised signal to go long.
Google down 7% (both classes of Alphabet shares).
Amazon down 5% (don’t think I can afford the margin requirement).
Netflix doing alright i.e. only 1.5% or so.

[Spudfan]

Just a thought about increasing the odds on TPS trades. I have been using price action to trade forex. A key feature is horizontal levels.How about looking at using confluence between an overbought / sold condition as in RSI(2) AND price reaching a horizontal level?

[dpaterso]

Funny you should mention that. I’d be lying to you if I told you that I don’t look for those types of levels. Actually “look for” is incorrect i.e. more like “notice them”. But I’m notoriously bad for making decisions based on them and seem far better at seeing them after the fact if that makes sense. The NASDAQ is a pretty good example at the moment actually. It’s trading ALMOST down to the point where there was a bounce in March. How much that means I’ve no idea. Then between October and December last year there were some things that looked as though they could have been levels but it’s trading between them right now. Good suggestion and I agree with you. I’m just not too hot at seeing them.

[Spudfan]

Well there’s a project for someone!

[dpaterso]

Oil is a good example too. If you look back on the charts: there are what I would have assumed to have been support on at least three, maybe four, occasions. But it didn’t even pause there so far as I can tell.

Let me put it another way: I dabbled in what you’re doing back in the day. Just couldn’t get it right. Best case scenario I always got stopped out. Worst case scenario I’m sure you can imagine.

[GilasTrading]

For some obscure reason the NASDAQ seems to have broken ranks with the other two.

I know you dislike news/funda but…

News reports that DOJ is going to conduct an investigation for a possible antitrust case against Apple. Saw it on fintwit yesterday and seconds later NQ started tanking. Too bad i was (and am still) stuck in my oversized India 50 short or I would have taken the trade.

[dpaterso]

Yip. Saw that. Actually the FAANG stocks. Best part is that they are only THINKING about a probe.

Not my style though. I watched that move for the fun of it on a 5-minute chart. It fell like a stone and shot right back up again. Only after that did it start selling off in orderly fashion. Even if you were quick enough to respond it would have taken a sizable position for it to have amounted to anything worthwhile. And that’s assuming you got in right at the top and knew to get out right at the bottom. The pivots held nice though I must say. But yeh. I’m too old and jaded for that kind of risk and action. But if it works for others then sincerely good luck to them.

Got my Hang Seng long overnight. So position stands as follows and no more new trades other than scaling in on those that are not as yet full positions:

Long:

Facebook.
NASDAQ (full as late entry).
Dow.
S&P (full as late entry).
Hang Seng (full as late entry).
Brent (full as late entry plus last scale in last night).
Nymex (full as late entry plus last scale in lat night).

Short:

Gold.

Hard stops on all at 5%.

[dpaterso]

For the sake of interest: NASDAQ down 10% give or take since its last (all time) high. Technical correction territory (under normal market conditions that is i.e. will see if it holds under pressure of the Trump wrecking ball of course).

[dpaterso]

Well there’s a turnaround of a magnitude that I didn’t expect I’ll tell you.

For the record: I’ve set TP orders at (just inside of) R3 on both the Dow and the S&P. RSI(2) is already over 70 so it’ll be well pushed to the limit at R3 on both. May be wishful thinking on my part but the way these things have taken off and given how early it is in the trading day you never know. If they get to these levels they will for sure retrace and if such retracement is enough to cause RSI(2) to close below 70 tonight then I’ll just reenter the trades.

Not sure how this would be coded into an EA Mr. @Spudfan (and I assume you received my PM). But this is something I have found myself doing since being back if you’ve noticed i.e. taken profit at extreme intraday moves (although not necessarily reopening the trades i.e. have not done that as yet and will decide at the time as I may just decide to be happy with the profits).

If I was a man’s man and had guts I should actually short at R3 of course. Don’t have the stomach for it.

[dpaterso]

Quite interesting to note that Facebook not getting too much of a bid. The rest of the usual suspects are anywhere between 1.5% - over 4.5% right now.

OK. NOW it’s got a bit of fire underneath it. Not much But trying hard.

[dpaterso]

By the way:

Something I’ve not mentioned on this thread up until now but it’s important. Just occurred to me while looking at a totally unrelated chart.

Connors’ entry points here are two consecutive RSI(2) closes below 25 or above 75. Sometimes, albeit not often, I’ve noticed that it’s possible to have these two consecutive RSI(2) closes as described BUT the close of the second bar is higher or lower than the close of the first bar. I do not act on these signals (at least not if I’m following the as advertised system). He’s not specific about this. But it has always seemed counter intuitive to me to scale-in at any time you’re in a trade where the close is lower or higher than the previous signal but upon entry this is ignored.

In addition (and something else that I’ve not mentioned up until now):

Do check the RSI calculations at your broker. I have seen incorrect calculations once or twice at brokers (and not only RSI i.e. ADX is one that’s usually not up to scratch). Also worth mentioning that Connors himself doesn’t QUITE state the calculation of RSI correctly. For those that are not aware: RSI was developed by J. Welles Wilder in 1978 (and if there’s anything I know WELL in this business it’s Welles Wilders’ work). Wilder incorporated smoothing into all of his indicators and which is pretty hard to find at some brokers. And it does make a difference especially at the default of 14-days. MetaTrader’s RSI does NOT incorporate Wilder’s smoothing just by the way. I have checked with RSI(2) though and it’s not an issue given the short period. Just some superfluous information that may be of interest to some.