I started using Tradestation to trade British Pound futures just two months ago.  The power and flexibility of Tradestation has really impressed me and allowed me to improve my trading model.

Today, I begin trading the 3rd generation of the Cable Glider system.  A summary of changes follows.

1) I will be trading British Pound futures at the CME alongside British Pound spot.  I started this side by side testing in August with the idea that I would like to have the systems synchronized and measure the relative costs of slippage and commission in each market.  One of the main things that drove me to the futures market in the first place was the idea that my trading costs might be reduced.  My current opinion is that this seems to be true at my current trading size, which to date has not exceeded 20 contracts on any single trade.

2) I will be using a different parameter set for each market, as determined by the ongoing optimization in both markets.  I’m currently using a genetic optimizer to periodically re-optimize the systems with a fitness function that uses net profit, gross profit, gross loss, and maximum intraday drawdown. 

3) Entry signals for both markets will be driven from the futures price chart.  Since the futures market is a true transparent market, I believe it gives me a cleaner picture to set up entries.  I never liked the fact that in the cash market, I’m getting a stream of bid prices rather than a stream of actual transaction prices.

4) Cross-market MACD confirmation will be used in both markets.  That is, I will require that a price breakout be confirmed by MACD in both markets.  This little tweak has already saved me from entering what would have been a losing trade in the futures market on the very first day of trading.

5) Exits will be managed by the optimized exit parameters in each respective market.  Once I’m in a trade, I don’t want to fool around with setting exits that rely on more than one data stream.

6) I will not attempt to synchronize trades in both markets.  The expectation of synchronized trades drove me crazy in the month of September.  By trading two different parameter sets, I gain a measure of diversification that is not possible otherwise.  This system diversification gives me a second level of equity curve buffering in addition to the smoothing effect of keeping a living expense capital reserve account.

Cable Glider II had a lifespan of only 4 months.  All months showed a profit, and the total compounded return on risk capital was just above 125%.  No, that is not an annualized figure.  It is a 125% return in four months.  I’m much happier putting CG II to rest this way;  the first Cable Glider system was suspended at the end of May after a large drawdown.

I’m still on the lookout for improved execution and reduced trading costs.  My next move on that front will be to investigate API trading with Interactive Brokers.  Their commissions appear to be identical to Tradestation, but the cash forex spreads look tighter, they pay interest on cash balances, and their unique umbrella account allows for cash balances to be SIPC insured.  The programming involved to trade at IB is a whole new ballgame, so I don’t expect I’ll be making the move anytime soon.

The algorithm that controls the stop is, once again, proprietary, but it’s fairly simple, and resembles a 3 times volatility stop as described in Van Tharp’s Trade Your Way to Financial Freedom. All I can say is that in my case, the only way that I adjust this is to make the stop slightly wider when hitting the stop will result in a loss. In my opinion, this allows each trade a better chance of closing profitably and helps me to maximize the profit of each trade. Clearly, this does not minimize my loss on any given trade, but my experience and my backtesting show me that a tighter stop results in lower total profits due to getting stopped out too many times.  Remember, the full risk control picture is the fusion of my stop loss settings and my position sizing, which I will describe later.

I believe that the urge to take profits affects all traders. We’ve all often heard that nobody ever went broke taking a profit, and that is certainly true within the context of a single trade. Taking profits too soon can certainly have a negative effect on a trading system.  In my case, I have found no mechanical way that allows me to take profits early and still perform as well as I would if I would just let the stops handle it. My personal experience and results reinforce the old adage that the way to make money is to cut my losses short and let my profits run.