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July 2016 Trading Combine®| Summary Part 1

Lesson 7 Chapter 2

Final Summary – Part 1 of 4

So, let’s get started by cutting to the chase; The final summary is that I did not pass the combine that was started on July 5th.  Let me say it again, loud and clear,  I DID NOT PASS the combine started on July 5th.  There are a few reasons for this (which will be detailed out below) but the bottom line is that I did not pass this combine…and that’s “ok”.


Grab a cup of coffee, a beer (or another favorite beverage) and get ready, this is going to be a long post that will cover several topics about this combine, realistic expectations and trading in general.  So, be forewarned this is going to be a long post full of numbers and examples.

The Elephant in the Room

No one likes to talk about it when they are not successful at something.  I am no different.  But ignoring the elephant in the room is not good either.  In order to move forward, I need to close out this chapter so we can move on.  So, let’s get started by analyzing this combine.

The Final Summary

You are Positive for the Month, How Did You Fail?

The question is “You are net positive for the month of July, how is that you failed the trading combine?”


  Let me explain…


Different than trading your live account, (where PnL is the only bottom line), a TopstepTrader combine requires that once you reach a certain level (+$2,000 or more in the case of a $50k combine) that you cannot then fall below the initial $50k.  In the chart above you will see that I did fall below on Thursday July 14th.

Here is the explanation of Max Trailing Drawdown from the TST website.

So, in summary, even though I am net positive in the month of July (the only thing that is important in your “live” account), I dipped below the trailing drawdown which eliminated me from being able to successfully pass this trading combine.  Regardless of whether or not I make $100,000 the rest of the month, the bottom line is I would not be able to pass this combine because I dipped below the Trailing Max Drawdown.  Make sense?

Ok, You Were Really Close to the Objective, How Did You Let That Happen?

That is a really good question and I am not sure I can give you  a sufficient enough answer to provide satisfaction.  But here is the answer.

I am an active trader running a trade room.  The TopstepTrader combine allows you to have a max daily drawdown of $1,000 or 2% of the trading account size.  A 2% daily max drawdown is well within the prescribed risk tolerances for an active day trader.  So, let’s do the math.  We will use the CL as an example.


Assumptions:  2 contracts per trade; Trading the CL


  1. 12 tick stop = $240 per trade
  2. $3.78 per trade (round-trip) commission = $7.56 per trade
  3. Each losing trade = $247.56 per trade (assuming no slippage)
  4. You can lose a net 4 trades before you hit the daily max drawdown.


As you can see below we have isolated the 3 losing days.  Let’s analyze these losing days (click image)

I was net negative an average of 3.7 trades per day.  While you can see from the volume of trades, that I didn’t lose every single trade that I took, the bottom line is that the net losing trades on the day was 3.7 trades.


There is a balance act between trying to trade out of a hole and stopping after 1 or 2 net losing trades. If you google search “best practices” for trading you will find that there is an assumption that after 3 net losing trades that would be the time to stop trading for the day. The assumption is that either your system is not working on a particular day or you are “out of sync” with the market.  Either way though 3 net losing trades is a recommended stopping point.  So, again lets do the math on “net” losing 3 trades.


1.)  Net 3 losing trades (2 lots x $247.56) x (3 trades) = $742.68


So, if I have a net 9 losing trades over “x” period of time (in this case 3 trading days), I would fail the TopstepTrader combine (max drawdown requirement).

 Is Your System Broken?

I get asked this question (and far worse when I have losing trades…lol).  The simple answer is “no” the system is not broken.  There are several factors that go into whether a trading system is profitable (or not) over the long term.


These factors include:


  • Risk Management
  • Position Sizing
  • Win percentage
  • Win Ratio (Winning trade vs. losing trade)


Without turning this into a seriously boring math course, the bottom line here is that if you have a trading system that wins 70% of the time, every 100 trades will have 30 losing trades. Just by pure, randomly distributed trading sequences, you will have a period of time where you will have a “net” 9 losing trades over the course of 100 trades.   Additionally, if your win percentage is 50% or 60% the odds become exponentially greater the you will have a period of 9 “net” losing trades.


The Final Question…Your Losing Days Were Bigger Than Your Winning Days…Why?


The simple answer is “yes” the losing days were bigger than the winning days…which contributed to the fact that I did not make it through this combine.  This is not always the case, but during this 9 day sample period it was the case.  The reasons?  There are several reasons, but most revolve around “follow through” on winning trades.  Simply put, my trading style is one of taking trades to targets which are generally 2 to 3 times the stop loss. When I have losing days it is typically because I have the right idea, but the market does not go in my favor to target, takes me out at break even and when I try to re-enter I end up losing.


There were several factors contributing to the “no follow-through” scenarios during this 3 day losing streak.  Those included, contract rollover week, summer trading environment, uncertainty remaining around the BREXIT vote and mixed signals on the strength (or lack thereof) in the global economy.


The next question inevitably becomes, why didn’t you make the adjustment if you knew all of those things were happening.  And the simple answer (if not a little sarcastic) is “of course, if I knew (with 100% certainty) what the market was going to do ahead of time, I would have changed the pattern”. So, as hindsight is always 20/20, it would have been prudent to quit sooner and/or take smaller targets. Oh, and if I could trade from the left side of the screen instead of the right side of the screen that would be good too.  (more sarcasm)


The Oil Trading Group. (“OTG”) does not hold itself out as a Commodity Trading Advisor (“CTA”). Given this representation, all information and material provided by OTG is for educational purposes only and should not be considered specific investment advice.


CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.


Trading performance displayed herein is hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.


Risk Disclosure

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones' financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not indicative of future results.

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