Account performance

I decided to consider the $10,000 that I moved over to test the day trading as the capital base that I am working from for performance measurements. I have other trades in process in my swing trading portion. This allows up to $30,000 in tradeable cash with margin and I don't think I have ever gone larger than that as my trade size has been fairly small.

I am keeping the concurrent trade quantity at 6 trades for the purposes of cash allocation. This allows for option trades up to $1,600 in value and stock trades up to $5,000... options are not allowed to use margin as the entire trade is at risk unlike a stock. I may not use up all 6 trades at any given time but this also serves as a money and risk management plan as all trades are balanced in their sizing based on the value of the shares. A larger priced stock will have fewer shares which means the higher per share movements are mitigated by smaller position sizing. Double sizing one trade to use up one "trade allotment" can, and has, result in a double loss skewing the end results. If I sit in 3 trades worth of cash, so be it. At least they are not producing losses even if they are not producing gains.

Yesterday was a price example...a $300 + day with two trades. I had two still outstanding, one which resolved itself today. One outstanding trade was a half size of 100 shares and the entry point was hit again yesterday so I added 100 shares to bring it up to full size. I still had $10,000 in margin not being used.

Having said that, after closing one of the trades left from earlier in the week today (profit target hit) I am over 6% net profit on the day trading account. That translates into an 18% increase in trading buying power. I update my trade size spreadsheet to include these increases which will bump my share count per trade up.

Seeing as I can trade odd lots easily enough for all trade types I get to enjoy an immediate compounding of my potential returns as the trades will grow each profitable day.

The corollary to this is that if I take losses my trade size will automatically be reduced thereby lowering my potential losses by the same ratios.

Automatic risk management.

I am working out the expectancy formula and seeing how to apply it to my trading but I see that I need some volume before the formula has any real validity in my case...so I will write about that once I have a better handle on the real implications. I expect that it will allow me to apply a risk factor to adjust my trade sizing according to the expectancy return (a per trade dollar figure) and the expectancy ratio (a trade risk measure... sort of). So far I have applied this factor based on my subjective assessment of the performance of my trading within the trading room. Last week sort of sucked so I reduced my sizing early this week and gradually increased it to full size yesterday as I saw better trade setups take shape and profits resulted.

Today was a non-trading day... I resisted the urge to try to swing my own few trades this morning. I played with my esignal chart setups instead... watched as one open trade hit the profit target, I almost raised it. 16 cents on 10 contracts and it hit 30 cents at one point... but I did not know that ahead of time and could just have easily ended up not getting filled and chasing the price back down to a much lower than target profit.

Jeff.