Pristine s Day Trading Journal...with Strategy Tester and Curve Generator

Transcription

1 Pristine s Day Trading Journal...with Strategy Tester and Curve Generator User Guide

2 Important Note: Pristine s Day Trading Journal uses macros in an excel file. Macros are an embedded computer code within the file. Since in theory macros could be malicious, excel may ask you if you want to enable macros; you must say yes. Also, you must open the Trade Journal with macros enabled for the Trade Journal to work. System Requirements: Please see below for the minimum and recommended system requirements. If you have an older slower computer and/or Excel 2007, opening and closing the Trade Journal may be slow due to the file size. Minimum System Requirements: Software: Excel 2007 Processor: No minimum speed Memory: No minimum RAM Recommended System Requirements: Software: Excel 2013 or greater Processor: Quad Core, 3.00 GHz or greater Memory: 8.0 GB RAM Introduction Pristine s Day Trading Journal is much more than your average trade journal. When used properly it has the potential to increase your profits and give you a deeper understanding of your trading. However, there is no trade journal in the world that will help you achieve consistent success if you have yet to receive a proper trading education. Please note that some terms used in this manual assume the trader has a basic level of knowledge, such as the knowledge attained in the award winning Trading the Pristine Method (TPM) seminar. If you have yet to receive a proper trading education there is no better place to start than Pristine Trading. Please note that in this user s guide the terms Trade Journal and Pristine s Day Trading Journal are used interchangeably. The seven numbered sections in this User s Guide correspond with the 7 individual worksheets in Pristine s Day Trading Journal. Once Pristine s Day Trading Journal is opened, the tabs for each worksheet can be found at the bottom of the screen, as shown below in the red circle. Figure 1: Tabs Shown at the Bottom of the Screen 2

3 1. READ ME In this tab there are three things you have to do before entering trades in the JOURNAL tab. These three things are: 1) Enter your strategies (from your trading plan), 2) Enter your time frames (or leave the defaults), and 3) Enter your sources (or leave the defaults). Enter Your Strategies: In the READ ME tab there are 18 cells where you can enter up to 9 different trading strategies, each with a long and short option. Enter your strategies from your trading plan into cells C23 C40. Leave unused strategy cells blank. As soon as you enter a strategy it will appear in the REPORT-ALL tab. Enter Your Time Frames: In the READ ME tab there are 5 cells where you can enter up to 5 time frames. There are default time frames already entered for you (i.e. 1, 2, 5, 15, 60) in cells C45 C49 but you may change them if you like. Time frame reporting appears in the REPORT-ALL tab. Enter Your Sources: The source of each trade is who found it. Cells C53 and C54 contain two default sources, Me and Pristine. Choose Me if you found your own trade and Pristine if a Pristine moderator found it. You may change the default sources, but it is recommended that you decide which ones to use before you begin. Source reporting appears in the REPORT-ALL tab. Tip ($): All trades must be your own if you are to achieve your goal of being a self-directed trader. The primary purpose of source reporting is to determine how dependent you are on others finding your trades. Even after achieving consistent success many traders stay a member of the Pristine Method Black Room because the more eyes scanning for trades the better. 2. JOURNAL Pristine s Day Trading Journal can hold up to 2000 trades. The JOURNAL tab is pretty self-explanatory on how to document your trades; however, there are a few things that warrant a brief explanation. Including Fees or Excluding Fees: In cell AL1 you have the option to include or exclude fees from your profit/loss calculations. You may change this at any time you like so it s not important to choose one way or the other before you begin. Underneath this cell is the Total Fees column which allows you to track all the fees (e.g. commissions, ECN fees/rebates, etc ) associated with each trade, if you choose. High/Low of the Move before -1.0R: In this cell you put the high of the trade (low of the trade for a short) after your entry AND before the trade hit your -1.0R stop loss. If the trade never traded to -1.0R, then just put the high of the day after entry. The intent of this column is to document the maximum move the stock made prior to trading to -1.0R, if it ever did. This data allows the Strategy Tester to compare your results to All-or-None management. Look under the READ ME tab for a short quiz to make sure you understand how to use this column. 3

4 High/Low of the Move after 0.5R AND before -0.5R: In this cell put the high of the trade (low of the trade for a short) after the trade went beyond 0.5R AND before the stock traded to -0.5R. If the trade never got to 0.5R before stopping out, put the high of the trade after entry and before stopping out. If the trade never hit -0.5R after trading to 0.5R then just put the high of the day after entry. Under the READ ME tab there is a short quiz to make sure you understand how to use this column. There are also some examples below: Example 1: You enter a trade at with a stop at After entry the stock trades to 9.93 almost immediately and then rallies to before closing at Regardless of how you managed the trade, what do you enter in the High/Low of the move after 0.5R AND before -0.5R column? Answer 1: You enter Although it traded to below -0.5R when it traded to 9.93 almost immediately, it never traded to 0.5R first. So in this case you take the high of the day. This would be the same value you entered in the High/Low of the Move before -1.0R column. Example 2: You enter a trade at with a stop at After entry the stock trades to and then down to 9.93 before it rallies to and closes at Regardless of how you managed the trade, what do you enter in the High/Low of the move after 0.5R AND before -0.5R column? Answer 2: You enter After trading to above 0.5R (10.09) it then traded back below -0.5R (9.93). It then rallied after lunch, but this does not matter for this column. In the High/Low of the Move before -1.0R column you would enter because this was the high of the day before hitting -1.0R (which in this example was never hit). Example 3: You enter a trade at with a stop at After entry the stock trades to and then down to stop out at Regardless of how you managed the trade, what do you enter in the High/Low of the move after 0.5R AND before -0.5R column? Answer 3: You enter The stock never traded above 0.5R, so you simply enter the high of the move, the max move possible. Remember the intent of this column! The intent is to see if moving your stop after 0.5R is a better management. Since it never got to 0.5R then you never would have moved your stop loss and the Strategy Tester will consider this a -1.0R loser, not a -0.5R loser. Don t worry if this column seems a bit confusing, it is actually quite simple once you understand the risk unit ( R ). Pristine s Day Trading Journal will automatically color the number in this column red if you have made a mistake. Also, the number will appear blue if the number is different than the High/Low of the Move before -1.0R column, this is to help you spot how frequently the numbers are different and a blue number is acceptable. Red numbers should be fixed. See figure 2 below. 4

5 Figure 2: High/Low of the move after 0.5R AND before -0.5R Column Coloring Black indicates the move was the same as the High/Low of the move before -1.0R Column Blue indicates the stock traded to -0.5R after trading to 0.5R, resulting in a theoretical stop out, before moving higher Red indicates you have made an error, double check your max move entries Closing a Trade: When a month is selected in the Month Closed column, the Net Profit/Loss column will populate. Think of this column as a way to administratively close the trade out. The month you choose is the month where the trade will appear in REPORT-MONTHLY. Categorizing a Trade as No Strategy or Not in Plan (NIP): In the strategy drop down menu there is an option to select called NIP which stands for Not in Plan (or No Strategy ). It is very important if you realize that a trade you took was not entered per your trading plan that you categorize it as NIP. If you don t do this then your reporting will not be accurate, including Strategy Tester results. If you didn t manage the trade per your plan that is OK from this standpoint because the Strategy Tester will still be able to tell you how you could have managed the trade to make more money (or confirm your management was the best). You can re-categorize a trade as NIP at any time you d like after the fact and the results will update automatically in all reports. 3. REPORT-ALL Include Trades with No Strategy or Exclude Them: The reports in the REPORT-ALL section have the option to either Include No Strategy or Exclude No Strategy. You can change this anytime you want and watch the results change in real time. Below are two figures showing the long/short reporting, one including no strategy trades and the other excluding them (note the difference in gross profit). Figure 3: Includes No Strategy Trades, 2000 Total Trades, and Gross Profit of $54,563 (entire report not shown) Figure 4: Excludes No Strategy Trades, 1847 Total Trades, and Gross Profit of $59,245 (entire report not shown) 5

6 Tip ($): Choose Exclude No Strategy to get a pure look at how your trading plan produces. This will show you what your results would be if you had the discipline to always take trades from your trading plan and never deviate. Understanding what taking trades with no strategy is costing you could help you realize that following a trading plan is the best way to consistent success. If you have reached a level where you are profitable even when you take a trade with no strategy, then you can still look at the statistics and see if taking these trades is worth the time and effort. For example, if when you follow your plan you have an expectancy of 0.40R and when you don t you have an expectancy of 0.05R, it might just be easier to increase your risk a little when following your plan and not bother ever taking a trade with no strategy. Hold Time and Entry Time Reporting: The times in these reports are customizable, but make sure not to overlap any time ranges. For example if one hold time ends at 0:30 minutes, the next one needs to start at 0:31 minutes. Default hold time and entry time values are entered for you but you may change them anytime and the results will update immediately. 4. REPORT-MONTHLY Custom Date Range Report and the Earnings Season Tester: The custom date range report has four rows where you can enter custom dates manually and see what your results were in that date range. The start and end date are included in the range. If you click Show Earnings Season vs. Not Earnings Season the heart of each earnings season will populate in the four rows of the custom date range report. Also, two rows will appear beneath the report showing all trades that were taken during one of the four earnings seasons and all trades that were not. This will give you valuable insight into how your trading varies during these periods. Depending on your own trading style the difference could be significant or may not be noticeable. Either way, as a professional trader this information is valuable. Below shows a figure of the Earnings Season Tester. This particular trader performs a little better during earnings season and is quite a bit more active as well. For this trader the earnings season difference isn t extreme; however, it gives insight into when the trader may want to take their yearly vacations or time away from trading. Figure 5: Earnings Season Tester (entire report not shown) 6

7 5. REPORT-MISC The REPORT-MISC tab contains four things: Your Overall Equity Curve Your Overall R Curve Your R per Trade Bar Graph (Note: In the version compatible with Excel 2007 this will look different) Figure 6: R Per Trade Bar Graph Tip ($): You can learn a lot from the R per Trade Bar Graph. For example, you can see that the trader above doesn t have a lot of big winners of 2+ R. The graph above has 8 trades that were over 2.0R in 221 trades, yet over that period the trader produced +46R. The key to this trader s success is being consistent and keeping losing trades small. The R Curve for this same period is shown below to give an example of looking at the same batch of trades another way. You can see the losing streak of 7+ trades above (red circle) show up as the draw down in the R Curve (red circle below). The Curve Generator is talked about later in the User s Guide. Figure 7: R Curve that Corresponds with the R per Trade Bar Graph in Figure 6 7

8 Your Percent Captured by Trade Bar Graph Figure 8: Percent Captured by Trade Bar Graph that Corresponds with Figure 6 and Figure 7 Tip ($): If your percent captured is frequently less than 30 50% you likely need to be more patient with your winners in order to capture more profit. Use the Strategy Tester to refine your trade management and give you the confidence to use the management which makes the most money. When used properly the Strategy Tester has the potential to pay for itself almost immediately; it will be discussed next. 6. StrategyTester The Strategy Tester is a tool to help you easily determine if you can make more money with a different management style. It can create custom one page reports on up to 1800 trades in seconds. It will compare your trade management to All-Or-None (AON) management and also a modified AON management where you move your stop up to -0.5R after the trade goes +0.5R in your direction. Selecting a Strategy or a Batch of Trades to Test: You can select any strategy you trade from the Select Strategy drop down box; you then simply press the Generate Report button. You can also create custom batches of trades and test them by selecting the batch number in the Select Batch drop down. These drop down menus are in the StrategyTester tab in the upper left corner. Creating Custom Batches: The JOURNAL tab has a drop down column to insert a batch number between 1 and 10. It has a column for the Strategy Tester and for the Curve Generator, both are highlighted below. Creating custom batches is the same for the Strategy Tester or Curve Generator; you simply select a number in the corresponding column from the JOURNAL tab. See figure 9 below. Figure 9: Batch Columns in the JOURNAL Tab for Creating Custom Reports and Curves 8

9 Tips ($): Here are some tips on how to use the Strategy Tester. Use medium sized batches. Typically you should use batch sizes of about trades for each strategy, then compare these medium sized batches to see if the best trade management is consistent. Testing large batches may smooth out the data too much. For example: Let s assume you have 100 trades for Strategy A. Instead of running a test on all 100 trades, run five smaller tests on 20 trades each, then compare that data to see if the best trade management was the same or very similar on all five batches. Be as consistent as possible trading each of your strategies. The data in the Strategy Tester reports will not be reliable if you are doing three completely different things but calling it a single strategy. The Strategy Tester is conservative! For every trade that did not reach the given AON target the Strategy Tester considers it a loser of either -1.0R or -0.5R for modified AON. This means that in the example below 2.1R AON management likely resulted in quite a bit more than 90.1R. This is because some of the trades that didn t make it to 2.1R, didn t necessarily stop out either. It is possible you would have ended up exiting near the end of the day for some profit on those trades. Don t over analyze. Adjust your management slowly don t change things after one test on only 10 trades. Make sure to use the Strategy Tester wisely and make sure you have enough data to justify a management change. When you have three tests of ~15 trades each that are sending a similar message that is the time to adjust your management. Use and Customize Your Max Move Stats. Use your max move statistics to see what percentage of your trades are getting to what targets. Use this info as a guide to when you should be taking at least some profit off the table and to make sure you aren t taking profits too soon. Get Creative! You can get creative regarding how you use the Strategy Tester, the options are endless. Here are some examples of tests you can run to see what the results are: Run a test on all trades after your fourth (or any number) trade of the day are you better, worse, or the same as the day goes on? Run a test of all trades after starting the day with two losers see if you should quit trading for the day. Run a test on all trades after starting out with two winners do you get complacent? See below for an example of a Strategy Tester report. 9

10 Figure 10: Strategy Tester Report Example 10

11 Example Strategy Tester Report with Explanation of each Numbered Area: 1. In these two drop down boxes you will have the choice to select any strategy you trade (there is a separate cell range to enter up to 9 strategies, each with a long and short option) or to select a batch of trades (which is any custom combination of trades you want to assess). Once you select an option you press the Generate Report button and the Strategy Tester will generate a report on up to 1800 trades. The clear button will clear the report but does not need to be pressed before the next report is generated. 2. This box will tell you which strategy or batch number the current report represents. In this example the report is showing statistics for Tier 2 Gaps Long, abbreviated as Tier 2 (L). Note: You can name your strategies however you like. 3. The Basics: These are your basic trading stats. Batting average is your percentage of trades that are winners. For this report your batting average excludes breakeven trades and losers. Breakeven trades are defined as any trade that has a net result between -0.15R and 0.15R. 4. The Basics: Your Sharpe Ratio is your average win over your average loss. Your expectancy is your expected R return for each trade taken. To determine your expected results for a given number of trades you multiply your expectancy by the # of trades. Example: (expectancy x # trades), 0.4 x 10 trades = 4.0R 5. Max Moves Statistics (customizable): These are your max move statistics. You can manually enter any R value into the boxes and the number of trades that traded to or beyond that R value will automatically populate. In the example above you can see that 51 of 68 trades moved to or beyond 2.00R. This was 75% of all Tier 2 (L) trades. This tells you that at a minimum you should be letting some portion of your trades reach 2.00R, since such a high percentage reach these targets. 6. Max Move Statistics: This section contains more max moves statistics. In the example above the average loser max move was 1.41R. This information tells you that you should likely modify your management so you are not giving back so much potential profit. 7. Percent Captured Statistics: These are your percent captured statistics and tell you the percent of the maximum move that you captured. 100% is the highest value but it is unreasonable to try to capture 100% of any move; this would mean that you exited at the exact high/low of the move to the penny. 8. Hold Time Statistics: These are your average time held statistics. 9. AON Statistics: This section compares your management to 15 different All or None (AON) management levels. AON management is where you place your -1.0R stop loss and target and don t do anything else. You are able to enter any value between 0.10R and 9.00R in any of the 15 boxes. In this example the best management option was AON management at 2.10R. The best option is highlighted green (90.1R), as shown, and would have resulted in almost 26 more R (at the least, remember the Strategy Tester is conservative)! 10. Modified AON Statistics: This section is the same as section 9 above but provides a variation of AON management, one where you move your stop loss to -0.50R after the stock trades to +0.50R. You are able to enter any value between 0.55R and 9.00R in any of the 15 boxes. In the example report above, modified AON was not the best management choice. What this example tells you is that there must have been quite a few trades that traded up to 0.50R, then back down to -0.50R (resulting in a loss), and then traded all the way back up to multiple R. Depending on your own trading style and psychology this may or may not be common and you may or may not have the discipline to watch this happen; however, this area of the report will tell you if modified AON would be more profitable. 11

12 7. CurveGenerator The Curve Generator is a useful tool that can create R curves and equity curves for any strategy you trade. You can also plot all long trades, all short trades, all trades that were NIP, or any custom batch of trades you d like. You can plot up to 400 trades. Plotting Your Strategies: The curve generator can quickly show you what a normal drawdown might look like for all of your trades and/or each of your strategies. This is valuable to know because if you start to see a draw down that is not what has been typical in the past, you can heighten your focus and perform some detailed trade follow up to see what is going on before it gets worse. Comparing Strategies for Consistency: The Curve Generator can also help you determine how consistent each strategy is. An example of how you can look at different curves and determine consistency at a glance is discussed below. This may not be the only definition of consistency, but it is one that can help you with your trading. Example: Looking at R Curves for Consistency The examples below show two R curves containing the maximum of 400 trades; one achieved results of 90R and the other 108R. There are some subtle differences in these curves that may be helpful for you to understand your own trading better. You ll notice in figure 11 (red circles) that although the results ended well there were periods of maybe weeks or even a month where the trader made no money with this strategy. The trader also had to battle back from at least two 7-8R drawdowns. This can be tough to do psychologically if you do not have a strong belief in your trading plan and may have warranted the trader taking a close look at their trades to make sure they weren t making mistakes. This seemingly small insight can be important for a couple reasons. Reason 1: The next time a drawdown like this happens the trader better understands this may be a natural drawdown that is simply the results of the odds of this strategy and will have greater confidence to keep taking trades without hesitation. Reason 2: The trader may have determined the cause of this draw down, and with the lessons learned, can prevent it from occurring again. Figure 11: An R Curve that Steadily Rises but has Some Lulls and Moderate Drawdowns The Trader s Psychology may have been a little challenging during lulls and drawdowns 12

13 Now let s look at figure 12. If you don t notice it you should! This R curve is a great visual example of discipline and consistency. This strategy produced 108R and it looks like the trader never even had a bad week. The trader may have had a few bad days here or there, but overall this is an example of an extremely consistent strategy that either presents itself often or is a strategy the trader had the discipline to wait for (likely both). If your R unit was $500, this strategy would have produced $54K in profits with seemingly no psychological struggling at all. Tip ($): Losing damages your psychology, sometimes not losing is winning. Sami Abusaad, Lead Moderator in the Pristine Method Black Room Figure 12: An R Curve that Steadily Rises, Shows Great Consistency and Discipline The Trader s Psychology was Not Challenging. A True Disciplined Professional! When to Make a Change: The curve below shows an example of a strategy that thus far has 20 trades (enough data to start evaluating the strategy). As you can see this strategy is not hemorrhaging money, but it is down -4R after 20 trades. If you see this, run the same 20 trades through the Strategy Tester to see if there was a management option that would have made the strategy profitable. If there was, you should switch your management to that style at least as a starting point. If there wasn t, then you need to do some manual trade follow up to see what is going on and how you can make this strategy profitable. If you can t figure out a way to make it profitable, either stop trading the strategy, reduce the R value, or focus on maximizing what is working instead. Either option will save you money! Figure 13: A lot of Work to Lose Money When you see this, consider a change 13

14 Tips ($): Do you have a discipline problem? If you do, try plotting an R curve or equity curve of all your recent trades, including all trades that had no strategy (i.e. categorized as NIP). Now go back and plot all your trades again, but exclude the trades that had no strategy. The results might help shock your subconscious into realizing that discipline equals money when it comes to trading. The results might look something like this over the course of a few weeks. You ll notice that the trader made twice as much by trading less and being more disciplined! The trader would have also avoided the psychologically damaging drawdown, shown in figure 14, with more discipline. Tip ($): Drawdowns like this one can damage your psychology, not to mention your brokerage account! You need to develop the discipline and trading plan rules to avoid them, as much as possible. Figure 14: Results over two weeks, including all trades that had no strategy Tip ($): Seeing is believing! Seeing what your lack of discipline might be costing you could help you change your bad habits, if you have them. Figure 15: Results over two weeks, excluding all trades that had no strategy (pure trading plan results) 14

15 Plotting a Percent Captured Curve: The Curve Generator also has the ability to plot custom Percent Captured R Curves. For example, if you plotted a 100% captured R curve, a curve will be plotted alongside your actual R curve that shows your potential results had you captured 100% of every move. Keep in mind that it is unreasonable to capture 100% of every move so it is better to choose a more reasonable goal for what you are trying to capture, such as 50% of every move. Using the Percent Captured R Curve to Improve Your Trading: Below is an example (figure 16) of a trader who plotted an actual R curve alongside the corresponding 25% captured R curve (green line). As you can see, over time this strategy s management captures on average 25% of the possible move. However, you will notice (red circles) that at certain points the results start deviating from what typically happens. When you see this, follow up to make sure you are following your trading plan. If you are following your trading plan then be aware that the market conditions have likely changed and proceed with a heighted level of focus and discipline. Figure 16: Actual Results Plotted with a 25% Captured Theoretical R Curve Below is an example (figure 17) of a trader who plotted an actual R curve alongside the 50% captured R curve (green line). As you can see, if the trader s goal was to capture 50% of each move on average, they need to make some changes. The trader should use the Strategy Tester to see how they can improve their management in order to help them achieve their goals. Figure 17: Actual Results Plotted with a 50% Captured Theoretical R Curve 15