Interested in Day Trading Futures and Controlling Risk?
This post is about day trading futures and managing risk per trade with tight stop losses.
I recently made some changes to my
automated trading strategies that reduces the maximum risk per trade and in my opinion improves overall performance.
If you look at the distribution of losing trades, you'll see that a few trades from the trading history were allowed to risk as much as $2000 per contract or more on a single trade. For a starting account of $20,000 this would represent risking 10% of the account on a single trade. This may be psychologically very difficult for some traders, even if the average losing trade is much smaller and the system is overall quite profitable.
Day trading futures entails risk. This is unavoidable. To help reduce the per trade risk I introduced a maximum stop loss of $500 per contract for the full sized Crude Oil Futures contract (@CL) and $250 for the E-Mini Crude Oil Futures contract. This reduces the maximum allowable risk per trade by 4 times. For a starting account of $20,000 this means only 2.5% at most is ever risked on a single trade.
A trailing stop was also added and entries and exits were moved down to the one minute time frame for more accurate results. Another walk forward optimization was also performed (more on this in a later post). These changes only reduced net profitability by a small amount and improved several other important performance statistics.
Trading System Performance Summary - Before
Results include $22.50 round trip for slippage and commission. 
Trading System Performance Summary - After
In Summary, the average losing trade was reduced from $785.69 down to $437.50 and the largest losing trade was $2272.50 and is now $437.50. The annual rate of return increased to 59.14% and the maximum intraday drawdown was reduced from $9350.00 to $5470.00.
These improvements however cost a small reduction in net profit, percentage of winning trades, and average trade net profit. Do you think this is a good tradeoff?
Contact me and let me know what you think. I'm interested in hearing your feedback.
If you haven't already, please signup for our free trading system newsletter.
To trade this system in your account, you can purchase a trading system licence.
Thanks for reading,
Chris Degiere
Crude Oil Trading System Performance Results
Performance in May for my crude oil futures trading system called Evolution Oil has been great. The system gained $3097.50 for each full sized Light Sweet Crude Oil (CL) futures contract traded and $1450.00 for each E-mini Crude Oil (QM) contract traded. This includes $25 per trade for slippage and commission.
This system is available to a limited number of users to purchase a trading system licence.
Trading System Psychology
I also wanted to write a little about trading system psychology in this post. Consider three months of performance like this shown below:
If you started trading at the beginning of March, by the end of the month, you'd probably be cursing my name. But if you knew the following two months would be strong, could you weather it? How about starting in April? After two positive months, would it hurt less to have a month like March? These are important questions to ask to set expectations starting any trading system. Any one of these could be your first trading month.
I believe one of the best ways to handle trading psychology is to use a fully automated trading system. The trading system doesn’t get emotional and will treat every trade the same, executing entries and exits faithfully and trading through a losing streak without giving up.
If you haven't already, please signup for our free trading system newsletter.
To trade this system in your account, you can purchase a trading system licence.
Thanks for reading,
Chris Degiere
Trading Technicians
Using an Oil Trading System To Profit From Rising Crude Oil Prices
After a quiet few days, we had a nice long trade from my crude oil trading system today. We got filled at 99.21 and sold before the close at 100.13 for a net profit of $920 per contract.
It seems like there was some resistance at around 101.00 and we gave back some open profit with a retracement from this point. I’m actively testing trailing stops and profit targets to see if these add any significant performance improvement and help preserve more open profit for trades like these.
We also lost about $30 to slippage on this trade which is $10 more than is accounted for in the hypothetical results. Some days we’ll get positive slippage also which offsets trades like these and brings the average in line with recommended settings for this market. I’m always investigating ways to improve fills also.
We were in a little late and out a little late but in my opinion a decent trade overall catching most of the intraday trend.
Oil Trading System Updates
If you haven't already, please signup for our free trading system newsletter.
To trade this system in your account, you can purchase a trading system licence.
Best regards,
Chris Degiere
Trading Technicians