NY Scalper MM and Black Jack
Today, July 15, 2011, NY Scalper Money Management took 10 trades for +$625 (before slippage and commission) with 8 winners and 2 losers.
I am not a black jack player, but I do study the strategies behind black jack to see the if it adds any value to trading systems and money management. Several of the Market Wizards from Jack Schwager’s book started out as successful black jack players before becoming successful futures traders. The NY Scalper Money Management Version can be similar to black jack theory.
How does it work?
NY Scalper Money Management version is a derivative of the basic NY Scalper and NY Scalper II strategy. NY Scalper in its basic form looks like a great strategy based on the equity curve, winning percentage, trading cycle, and trading frequency. The problem with the strategy it its basic form is that it’s average profit per trade is too low. The money management version is a strategy that takes the same trading signals as the NY Scalper version but boosts the average profit per trade by attempting to “time” the counter trending periods. We time these counter trend cycles by only trading when there has been either:
- an intra-day, closed trade drawdown of $300 or more
- or if any day has a loss of $100 or more then we trade it the next day
We watch the base system hypothetical results to determine when to trade the Money Management version.
The logic behind this approach is that we have a basic system, NY Scalper that trades frequently and is very cyclical. The average profit per trade becomes cyclical since there are winning streaks and losing streaks based on the market alternating between trending and non-trending periods. NY Scalper is a high frequency counter trend trading system.
How do we measure or anticipate a counter trend market intra-day? Instead of applying an indicator, we use the losing streaks to tell us that our counter trend system has lost a certain dollar amount and we may be ready for a winning streak. Once we have lost a defined dollar amount, (which usually happens during a strong trend), we begin to trade the counter trend in anticipation that the market cycle is now right for a counter trending market. This is not a perfect approach but hypothetical back tests show good results. Walk forward testing shows promise as well with an increasing average profit per trade of over $40 the last six months. Performance reports for the last 6 months, last 1 year, and last 2 years can be downloaded below and show how this strategy has had a better equity curve “walking forward” than it has in the past.
On 6/23/2011, NY Scalper base version lost $382. This was a perfect setup for the NY Scalper Money Management to trade the next day.
On 6/24/2011, NY Scalper Money Management version took 11 trades for +$1,187.50
How do we program this? In Tradestation, we use a DLL to send equity curve information from the NY Scalper window to NY Scalper Money Management window. This is the only way to observe the equity curve in one window and generate hypothetical trades and analyze the baseline equity curve. The second window can then use the baseline equity curve to make its trading decisions and examine the winning and losing streaks.
In June 2011, the strategy had systematic trade profits of $2,775 on 59 trades and $47 average profit per trade. For high frequency strategies, an average profit per trade of $35 or more, before slippage and commission, is our goal since that will be enough to take care of slippage and commission and have some profit left in the trade.
Currently this is a one contract trading systems but it is similar to black jack bet sizing theory and changing your best size based on the count of the deck. In blackjack theory, you bet small if the deck has more non-face cards left in the deck while you start betting larger when there are more face cards left in the deck. A larger number of face cards in the deck gives the blackjack player an edge over the house to beat the dealer and hit blackjack or beat the dealer hitting on 17. As in trading, it still doesn’t guarantee every hand is a winner.
In Black Jack it is hard to sit on the sidelines and count cards. Black Jack players sometimes work in teams and “spot” out tables by having players scattered throughout the casino, placing the minimum table bet, and when the timing is right (a deck rich in face cards), the spotter will send a “secret signal” over to another player to come to the table and start making larger bets. The movie “21″ staring Kevin Spacey, is an entertaining movie on how this Black Jack teams work together and shows how disciplined black jack players follow a system and are not gamblers.
The benefit of trading the markets is that we can sit on the sideline and “count all the cards” that we want and wait until the odds shift in our favor.
NY Scalper is a trading system for the E-mini S&P futures that takes advantage of choppy tight ranging markets. The average profits per trade on this strategy are very low since it trades so frequently. This is one of the few strategies I recommend to use with discretion. In order to boost average profits per trade, it is possible to start automating this strategy after a losing streak and then begin trading it until there is a run-up. After a run-up then pause the system again until there is a drawdown.
The entries are all limit orders with tight profit targets. It is possible to “work the entries” on this strategy instead of blindly automating it. Working the entries from an automation perspective would require limit entry orders to be filled (with no cancel and replace if not filled within a certain amount of time – this can cause missed winning trades). When automating like this, for this system, you would also require that the exit limit orders are cancelled and replaced at the market after a certain time period (15-60 seconds). It is important that when trying to fill an exit limit order that the trade does not turn into a loser if the exit limit order is not filled.
This system is not perfect for 100% automation. The low average trade profits will turn the strategy into a break even to a potentially losing approach after slippage and commission. For those system traders who like to use discretion with a system, this is one of those trading systems that trades frequently enough where some discretion can be added.
There is a money management version of this system that trades only after a losing day of $100 or more. The number of trading days and trade frequency is reduced but the average profit per trade is boosted to almost $25 before slippage and commission.
*The reports go back to 1/1/2005
*No Slippage or Commission is taken out
There are three version of NY Scalper. NY Scalper is the original version while NY Scalper II is a more selective version with slightly higher average trade profits and different exits. NY Scalper Money Management is the strategy described above that only trades on days where the previous day’s trade had at least a $100 loss.
NY Scalper Equity Curve
NY Scalper II Equity Curve