Do you feel cheated, or angry?
Do you think ‘you are 101% right, but still’?
Do you feel ‘someone is intentionally taking revenge at you’?
[You] not able to figure-out what went wrong
I hope, below may help you…!
I know who … you … are,
Like thousands of others including me,
you entered the Stock market by seeing at incredible profits,
Inspired and influenced by ‘You Too Millionaire’ videos and articles,
Started trading with 3-In-1 Member and soon realized actually 'They Are Trading You’,
Found “A Friendly Neighborhood Discount Broker” who changed the Stock Trading,
No more ‘You Are Traded’,
Started trading with Fundamentals,
Got exposed to technical by fellow traders,
Attended lot more webinars on technical and algo trading,
Downloaded lot many AFL’s,
Back-tested and Optimized in every way possible,
The results are very incredible,
and felt 'Herbie: Fully Loaded’
It’s now time to make … Money … From … The Market (♪♪♪ ‘You Too Millionaire’ ♪♪♪ ‘You Too Millionaire’ ♪♪♪)
You didn’t sleep well that night and was just thinking about the $ you are going to make tomorrow.
The day came, You Just Pressed the ‘ON’ button and waiting to pull the cash from Market and finally it happened, yes,
“Market Pulled Your Cash Instead”
You so sad and convinced yourself that tomorrow will work.
Day’s gone, but nothing happened,
Month’s passed, still nothing happened,
You never get the back-test result in real,instead your capital slowly wiped out.
Now, the first four lines apply here;
This is the case with everyone who do trading based on technical analysis,
They get good result in back-test and but in real opposite result.
You know, virtually every strategy(from simple MA crossover to complex) will give good result in back-test.
Then why it didn’t in real?
Is any problem with strategy?
Here is the analysis on what went wrong…
- Trade Price
- Price Data
- Repainting Signals
- High Leverage
- Over Trading
1.Trade Price :
Every TA (Technical Analysis) or Charting software will have options to set the Trade Price for the signals for PnL calculation.You have choice to choose ‘Open’, ‘High’, ‘Low’ or ‘Close’ of the candle as trade price or programmatically set the trade price.People often, choose the wrong field (Mostly ‘Open’), that will lead to wrong back-test result;
You have a logic that will give Buy when Ltp >= 500.
You set ‘Open’ as trade price in settings.
You got Buy signal at 11:15 bar and the OHLC is 498-504-497-503.
As per the setting, in your back-test result you entered Buy at 498, but in actual
you might entered at 500 or above (Logic Ltp >= 500).
This fictitious trade price will leads to wrong profit calculation in back-test.
- So, its very important to set the Correct Trade Price As Per the Logic.
2.Price Data :
It’s our tendency to choose the ‘Cheap’ and ignore the ‘Best’ and we all know there is NO ‘CheapnBest’, only either. Say, you have subscribed data from the ‘X’ at Cheap and worked out a Breakout strategy.The back-test result is awesome and you decided to go live. In live, trades may not happen as per the logic because of the low quality and mismatch of price. Slow updates of real time data will lead to slippages that take you out from the Market.People argue that, they will back-test on Cheap Data and will move to good one if the results are good.If the data is not reliable, then how could be the result? You have to choose the good data before you write your first logic and do not change the data feed.
For better and accurate result, You should,
- workout the logic in the same data,
- back-test in the same data,
- go live with same data
As per the data, price didn’t crossed your stoploss and you have profitable open position,But in real, price might have hit your stoploss and closed your position.
- Always Choose Best Real Time Data With Low Latency.
3.Repainting Signals :
It simply means, your signal will come and go in the same candle during live trading. In static chart, you can not notice repainting, because the OHLC is fixed and will not change.But in live trading, other than ‘Open’, ‘High’ ‘Low’ ‘Close’ keep on changing during the candle formation till the candle closes. So, during live candle formation, your logic may be full-filled at certain point and give signal, which in turn places order in terminal and the signal vanishes at close of the candle.As per the logic, no signal in the system, but in live you have position.
Buy when C >= 500
Current candle Open : 498
Ltp slowly goes up and crosses 500
Logic fulfilled, got buy signal and order fired.
after certain time, the price came down and the candle closed at 499.
Your signal disappeared at close of candle.
You don’t have position in trading system, but in live
- Do not use ‘Close’ in your formula, if need to use, then take position on the opening of Next Candle.
People often over optimize their system.
say, you are optimizing a parameter with value from 5 - 10 and the result is
Value PnL 5 5658 6 4581 7 7895 8 6895 9 5898 10 5598
People often choose the value with highest profit (7) and forgot the draw-down.
- You should wisely optimize the system and choose the one which is having lowest draw-down and nominal profit.
“A sound mind is in a sound body”
You should have good laptop/Pc for trading and the laptop must specifically used for trading and no other work. Having a laptop with Poor CPU and RAM will lead to delay in execution of your code.If you are scanning 100 stocks with single core CPU, it may take 15 seconds to complete the scan and the last symbol will get signal after 15 sec delay (Just think slippage) .If you use multi core, the same scan may take 1 or 2 sec to complete. You should have internet with good speed and no fluctuations or temporary drop. Often your broadband or Mobile internet fluctuates or temporarily drops for short period, you can not not notice this drop, but it has very high impact on your trading. This temporary drops is not disconnection and will not affect your web browsing, but will affect
socket communication , most terminal and systems are connected through sockets only.
If your internet drops when signal, you will miss the order and if it is a exit order , then will end up in big loss.
Delayed code execution means delayed signal, result in heavy slippage.
- Have Good CPU, RAM & Internet
6.High Leverage :
Leverage is good but not high.
People often, take high leveraged product without proper risk management.
Say, You have 1000 capital and taking 30x leverage, just 3% drop will wipe-out your capital,
You left with nothing to trade.
- Do not Take High Leverage Until unless you have solid Risk and Money Management
7.Over Trading :
You should not take more than two trades per symbol (One Long & Short).People do over trade to multiply their profit in a single day, but end up with losing capital.
- Do not Over Trade
People always miss out the commission and brokerage, they just think about the gross PnL.
You took 10 trades (5 Long & 5 Short) in Nifty and the gross PnL is Rs 2750/-
But when you get the contract note, your net PnL is 500 only, as most of your gross PnL goes to Brokerage and commissions (Appx Rs2250/-)
- You should apply Brokerage and commissions while back-test
Latency applies on real time data and order execution.
How fast you get data and how fast you place order, will have great impact on your trading system.High latency result in heavy slippage and eat all your profit. Your trading setup should be as close as possible to the data source and OMS.
Earlier, only people with huge money can set up their trading system in Mumbai (Co-Location) and take advantage.But recent cloud technology made it possible for every one to setup their system very close to OMS with negligible cost and no physical setup. By sitting at your home, you can run your trading system in Mumbai.
How latency Impact :
Say you sitting at Cochin and me having trade setup in Mumbai. Both of us placing order to buy x Stock with qty 500 at market (the best ask is 455.55 with Qty 500 and next is 455.65). My order will reach OMS earlier than you (Appx 3ms) and get filled at 455.55 and your order comes late (Appx 120 ms) and filled at 455.65 (10 Paise impact cost). My distance earned a extra 10 Paise.
- Have Your Trade Setup Close To OMS