Making Trading Decisions on Current Month’s Profit/Loss

Keeping track of intra-month profit or loss

In real time trading I have noticed that once you reach a certain loss for the month its best, sometimes, to circle the wagons and quit trading until the beginning of the next month.  This concept works best for very short term or day trade algorithms, as its very easy to get started back up.  You can do this with Trend Following, but you must build a logical and replicable process for re-entering existing positions.  Let’s assume a trading algorithm whose averaging losing month is $1500 and you are currently down $2000 – what are the chances that you will revert to the mean or draw down further?  Probably 50/50.  Who knows you might turn around and actually make money by month’s end.  If you review a track record of a hedge fund manager, trader, or algorithm and they show a bar chart of monthly returns and there sticking out like a sore thumb is a big down bar, that kind of makes you think that could happen again.  If you can control the monthly downside without sacrificing the existing Profit:DrawDown ratio, then why not do it.

Sample Code To Monitor IntraMonth $P/L

if month(date) <> month(date[1]) then
Begin
	begMonthProf = netProfit; 
	print(d," ",t," ",begMonthProf);
	canTrade = true;
end;
Capture Beginning Of Month Net Profit

Here I am comparing the month of the current bar against the month of the prior bar.  If they are not equal, then we have a new month.  Store the netProfit in the variable begMonthProf.  All you have to do is compare the current bar’s netProfit to begMonthProf and make a decision.  Here is some code:

Making a Trading Decision Based on Monthly $P/L

		If dayOfMonth(date) > 15 and begMonthProf - netProfit >= intraMonthMaxLoss then canTrade = false;
If Down MaxLoss for Month and Past Mid-Month - Quit Trading

If the day of the month is greater than 15 (month half over) and the difference between the current netProfit and begMonthProfit is greater than a negative intraMonthMaxLoss then quit trading for the month.  Only turn it back on the first bar of the next month.  See how this works for your algos.

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