# Developing my first Strategy/System



## johenmo (21 September 2008)

Previous shares have been gambles (no plan)  So from ASF and various books I am building something - more for longer term at this stage.  I don't have the time and depth of skills/experience yet for trading.  And with the market as is, I have time to build and test.  So below is what I have put together as the *building blocks* upon which to work - almost like a checklist for a newbie to go thru to make sure they don't forget anything.  Hence no detail yet as to indicators, % etc  etc.  I have to have an overall idea before working on the specifics.  Aim to commence with up trend stocks only.  Nat ready for shorting at all.

Constructive comments please - what have I missed.  My terms may not be the same as yours. What have I forgotten.  Tks to the many people on ASF who have influenced/contributed - too numerour to mention

Trading Setup
•	Time allocation to manage – when/ how often & how long (>12 mnth for CGT, unless exit triggered)
•	Resources – what, where, capital
•	Back test below system before executing for real – up, sideways and down market
•	Forward test in real time below system before executing for real
•	Trading in ASX only.
•	Determine which sectors won’t trade in 

Conditions 
•	Trade in up trend
•	Define the trend – what constitutes a trend
•	How to determine if a trend changes direction
•	Trend on areas – AOX, sector

Stock Research
•	stock fundamentals
•	director history
•	sector/sphere situtation (e.g. ASX 300) – present/future
•	TA of chart – daily, weekly 

Money Management & Risk analysis
•	Fixed fractional positing sizing - Risk per trade (% of capital) & position size (% of account)
•	Profit target & reason
•	Potential gain
•	Breakeven level
•	Risk/Reward ratio
•	Bookkeeping – incl evaluation of system

Trade Management
•	Initial Stop loss
•	Trailing stop loss
•	Time stop??
•	Entry setup/signal
•	Entry confirmation
•	Entry trigger
•	Exit trigger


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## jersey10 (21 September 2008)

johenmo said:


> Previous shares have been gambles (no plan)  So from ASF and various books I am building something - more for longer term at this stage.  I don't have the time and depth of skills/experience yet for trading.  And with the market as is, I have time to build and test.  So below is what I have put together as the *building blocks* upon which to work - almost like a checklist for a newbie to go thru to make sure they don't forget anything.  Hence no detail yet as to indicators, % etc  etc.  I have to have an overall idea before working on the specifics.  Aim to commence with up trend stocks only.  Nat ready for shorting at all.
> 
> Constructive comments please - what have I missed.  My terms may not be the same as yours. What have I forgotten.  Tks to the many people on ASF who have influenced/contributed - too numerour to mention
> 
> ...




what is the biggest position on any one stock you will take based on % of trading capital.

For example, if you have a trading capital of $50 000 what is the maximum amount you would put on any one stock?


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## johenmo (21 September 2008)

jersey10 said:


> what is the biggest position on any one stock you will take based on % of trading capital.
> 
> For example, if you have a trading capital of $50 000 what is the maximum amount you would put on any one stock?




Tks jersey10...At this stage I'm looking to make sure I have a "list" of everything I need to consider rather than the next stage of what are the specific numbers etc.  So your question is the next round of thinking.

I am considering fixed fractional position sizing so that should determine the size of the position - so If I am using the 2% rule it'll be based on 2% of 50K = 1K at risk.  Am I right? Maybe this isn't right for "investing".  I will work on various stop loss levels but one book mentioned 1% with 10% stop loss.  So if I went 2% with 10% stop loss then my position would be 10K each. Right?

From a practical (c.f. theoretical) POV, is fixed fractional position sizing suitable/best for longer term holds?

Tks


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## tech/a (21 September 2008)

You'll never satisfy everything in a checklist.

Its far simpler than most people make it.
Humans have a terrible habit of making the most simple the most complex.
Sorry but that's what your doing.

*(1) Trading setup.*
This is simply an Entry and an Exit all they are are beginning and end points.
• Time allocation to manage – when/ how often & how long (>12 mnth for CGT, unless exit triggered)

Its been my experience that longer term systems are easier to design than shorter term if wanting to trade portfolios.If trading shorter term I would suggest single entities like Indexes/Currencies or Futures.

• Resources – what, where, capital

Id suggest $25-30,000 otherwise in my view your under-capitalised--the more the better.

• Back test below system before executing for real – up, sideways and down market

A common error,you wont find the holy grail---don't expect your or any method to work in every market.The market trends the greater majority of the time---start there.

• Forward test in real time below system before executing for real

I don't see a "system" below?
• Trading in ASX only.

Maybe so but test other bourses as well.

• Determine which sectors won’t trade in

Wouldn't it be wiser to say "When" than WONT.

*(2) Conditions*
• Trade in up trend
• Define the trend – what constitutes a trend
• How to determine if a trend changes direction
• Trend on areas – AOX, sector


All these are simply filters in you "System" not conditions.

*(3) Stock Research*
• stock fundamentals
• director history
• sector/sphere situation (e.g. ASX 300) – present/future
• TA of chart – daily, weekly

These are all part of the "Universe selection process.
Beyond that all will have little relevance to your trading as it will trigger a simple buy or sell with NO consideration of the CURRENT fundamentals or director performance.
Survivorship is less important that the reason WHY your method will consistently profit.

*(4) Money Management & Risk analysis*
• Fixed fractional positing sizing - Risk per trade (% of capital) & position size (% of account)
Investigate fixed capital position sizing,Pyramiding and Compounding profits.

• Profit target & reason
With a syste you dont need a "Reason" if its triggered--buy or sell then you buy or sell.
• Potential gain

I think you mean reward to risk again not necessary to know in advance for a "System",your results from testing will lay out for you your "Systems" R/R and $ return for $ Risked.
• Breakeven level

Not needed in a system

• Risk/Reward ratio

See above

• Bookkeeping – incl evaluation of system

Best Ive seen is STATOR you'll be able to mirror your blueprint.

*(5) Trade Management*
• Initial Stop loss
• Trailing stop loss
• Time stop??
• Entry setup/signal
• Entry confirmation
• Entry trigger
• Exit trigger

These are your conditions.

This is an excellent Power point presentation from Howard Bandy.
I'll bet it cost his attendies far more than us.

http://www.blueowlpress.com/NAAIM.html


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## fimmwolf (21 September 2008)

I like the way you have broken it down into sections. It makes it seem far more manageable when viewed as several small problems, rather than one large one.

I found an example of  a trade plan which appears very simillar, perhaps you will find it useful.



> *Example trade plan*
> 
> 
> 
> ...


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## johenmo (21 September 2008)

Tks Tech/a and fimmwolf.

Tech/a - I've read a lot of your posts and you consistently say keep it simple.  I can take what you've said and work with that.  I did sort something out but it seemed too simple and as I read more, I obviously got confused - still in the learning (knowingly incompentent) stage.  I have seen vague references/examples and they seemed pretty simple.  I shall go back and read that post (the best I've ever seen).

Re the sectors won't trade in - I recognise I have a better "understanding" of some sectors (food companies, transport companies) than others (exploration).  This was about getting a better understanding of the sector before investigating.  I relate to the Aust and NZ exchanges due to living in them - I can see that I am limiting potential opportunities.

Back test in different markets is to show to myself that the (eventual) system is for a specific market.  I did some playing with AB and found that the simple system profited in up , and didn't in everything else.  

I'll go straight into the link.

Fimmwolf - tks for yr example.  I did use this to build the list.

You've saved me a lot of time and work.  The comments are really appreciated.

Johenmo


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## johenmo (12 February 2009)

tech/a said:


> You'll never satisfy everything in a checklist.
> 
> Its far simpler than most people make it.
> Humans have a terrible habit of making the most simple the most complex.
> Sorry but that's what your doing.




Tech/a - 5 months later and I can say it fell into place.  It really is so simple - not easy - but simple.  I have been paper trading a very simple system and it's OK.  But it is revealing a lot to me in terms of trading in timeframes of days/couple of weeks.

Canaussieuck wasthe catalyst that converted your message into understanding.

Many thanks for getting me past barrier number one - me.  Now for barrier 2 - the rest of me!!
J


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