# My trading system summary



## pavilion103 (12 February 2011)

I am new to trading, in fact I haven't traded my system in the live market because I know it has glaring faults and that it why I would like to get opinions as to what the biggest mistakes in my system are and if there are any positives about it that I should keep going forward. 

In a nutshell these are the details of my system:
- Trading CFDs, leveraging 3-5%
- 1R = 2% of capital (so a risk of $400 per trade on a $20,000 account)
- Stop losses varying between 1.25% and 2.50% from current price
- Trailing stop: close below the low of the previous 2 days
- Aim to stay in a trade circa 3-10 trading days
- Technical analysis (on my chart is 15EMA, 30EMA, Volume, Volume 14 day EMA). These are used to confirm entry signals (support/resistance/patterns). I like price to be above EMA and volume above its EMA.

Glaring faults that I can see:
1. Putting a stop 1.25% below price will see me stopped out in one day and if the price gaps I could suffer a loss bigger than 1R
2. Trailing stop will exit me out of a position fairly quickly
3. Leverage of 3-5% maybe too high?

My thinking behind what I've got so far:
1. Aim for an expectancy of 35%, avg winner 1.75R, avg loser 0.75R (expectancy 0.125)
2. Get out of losing trades quickly and trail stops in a way that will exit at sign of weakness.
3. Hit a few really big wins if a company moves up 4-5 days in a row. 


Now I know this system isn't the one I will use in the market. I am still learning and have very little idea about system development. Please feel free to tear this to shreds and help me get on the right track. I want to learn more, I am open, I am willing. I will take any advice constructively. I will but aside having to 'be right' and listen to the wisdom of more experienced and knowledable traders. 

Thanks you very much,
Matt


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## tech/a (12 February 2011)

Matt

Havent the time right now but you need to be shown how to position size and use your risk managements.
I use .05% and hardly ever get stopped on the first day.
Have a look at fixed fractional position sizing and If someone doesn't beat me to it will mark up a chart tomorrow which will give you one of those Ahhh moments.


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## gregraphic (12 February 2011)

tech/a said:


> Matt
> 
> Havent the time right now but you need to be shown how to position size and use your risk managements.
> I use .05% and hardly ever get stopped on the first day.
> Have a look at fixed fractional position sizing and If someone doesn't beat me to it will mark up a chart tomorrow which will give you one of those Ahhh moments.




I look foward to that chart as well, thanks tech/a


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## KurwaJegoMac (12 February 2011)

I'm not as experienced as Tech/a, but here is my 2twocents:



pavilion103 said:


> - Trading CFDs, leveraging 3-5%




Make sure when using CFD's you use appropriate position sizing - often people open a CFD position using their total leveraged amount to determine their %/$ risk, instead of counting their initial, unleveraged capital base ($20,000 in your case).



pavilion103 said:


> - 1R = 2% of capital (so a risk of $400 per trade on a $20,000 account)



Nothing wrong with this, provided it's within your personal acceptable risk limits. Most people don't even think of this step so well done.



pavilion103 said:


> - Stop losses varying between 1.25% and 2.50% from current price




On what basis are the stop losses derived? I.e. under what conditions will you be using say 1.25%, 1.5%, 2%, etc. You need to be a bit clearer as to the reasons behind your stop loss (e.g. a straight 2%, 10% below yesterdays close, at the 50 day MA, etc) Otherwise it's hard to comment on.



pavilion103 said:


> - Trailing stop: close below the low of the previous 2 days




Given your trading timeframe (3-10 days) it seems reasonable. Hard to comment on without appropriate backtesting. Have you tested this method? Backtesting or paper trading?



pavilion103 said:


> - Technical analysis (on my chart is 15EMA, 30EMA, Volume, Volume 14 day EMA). These are used to confirm entry signals (support/resistance/patterns). I like price to be above EMA and volume above its EMA.




Once again, paper trade or back test to see if it works. If you're comfortable with the expectancy, R value, max drawdown and are able to make a relatively smooth equity curve then go for it!



pavilion103 said:


> Glaring faults that I can see:
> 1. Putting a stop 1.25% below price will see me stopped out in one day and if the price gaps I could suffer a loss bigger than 1R




As Tech/a mentioned, no reason why you will always be stopped out - that being said, in T/A you're either right or you're wrong. If the trade goes against you just cut your losses and move on. You can be right 30-40% of the time and make good money, provided your R is good.

Regarding price gaps, this is a fact of trading. If you're not comfortable with this then you may need to reduce your risked capital (e.g. to 1.5%) in case your trade gaps. That's a personal choice - see what your backtesting and paper trading comes up with.



pavilion103 said:


> 2. Trailing stop will exit me out of a position fairly quickly




What is this based on? If you feel that this is the case, consider a wider trailing stop, or basing your stop on a different parameter ( low of the past week, %fall from peak, % of monthly volatility, etc) lots of different choices. You need to mix and match and play around until you find what works for you. It may be that your trailing stop works just fine - have you tested this?



pavilion103 said:


> 3. Leverage of 3-5% maybe too high?




This is really based on the individual. Some people don't like to use leverage at all and some never trade without leverage. So long as you ensure you have adequate risk, position and portfolio management there's no reason why you can't use leverage. Just ensure your position size is appropriate to ensure you only lose 1R or whatever ur risk is set at.



pavilion103 said:


> My thinking behind what I've got so far:
> 1. Aim for an expectancy of 35%, avg winner 1.75R, avg loser 0.75R (expectancy 0.125)
> 2. Get out of losing trades quickly and trail stops in a way that will exit at sign of weakness.
> 3. Hit a few really big wins if a company moves up 4-5 days in a row.




Regarding point 1 - I'm thinking that the 35% figure you quoted should be win % not expectancy? The 0.125 is your calculated expectancy? If that's the case, then that's fine - if your system has a positive expectancy it will make money in the long run. 

Regarding point 2 - Cutting losses quickly is integral to trading effectively. Make sure you don't forget this when you go live - all too often people fall into the trap of "it'll recover" or "ill hang on until it reaches my entry and then get out".

Regarding point 3 - You'll find that with your trading a lot of your small losses will be offset by your small gains. It's the big gains of 3R, 4R, 5R, etc that make you profitable. 



pavilion103 said:


> Now I know this system isn't the one I will use in the market. I am still learning and have very little idea about system development. Please feel free to tear this to shreds and help me get on the right track. I want to learn more, I am open, I am willing. I will take any advice constructively. I will but aside having to 'be right' and listen to the wisdom of more experienced and knowledable traders.
> 
> Thanks you very much,
> Matt




Don't sell yourself short Matt - you're already ahead of so many other traders out there and I think you've made a VERY good start so well done. As Tech/a said, make sure you understand position sizing and risk management. 

Keep it up Matt! Well done


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## tech/a (13 February 2011)

A lot to get through here.
Fortunately KurwaJegoMac
has touched on some good points.

Position sizing is very important and also the key issues of 
(1)A trailing stop and 
(2)an initial stop have been touched on. 
Both are vastly different.

We keep hearing Cut losers short and let winners run.
So how do we design a method so this can occur.

The balance of allowing an initial purchase to move in our favor but arrest it if it doesn't (Quickly) is a key ingredient.

*As Nick Radge once said "Nothing wrong with being wrong---Its how long you remain Wrong that matters!"*

So *we should buy with Momentum* when we can say that clearly momentum is in our favor.
Momentum occurs at Support/Resistance so I find 2 things (For me) are imperative
(1) a trade must be initially involved in momentum (Breakout)
(2) a trade must prove to me it has moved from stability to momentum.

This way I can place a tight stop if a close area of support or explosive volume (Gap/Wide range) is around.

*Quick note on VOLUME* You MUST learn what is buying (Demand) selling (supply) volume --- I note one of your conditions is high volume---If supply rushes in then volume will be high and often you'll be stopped out---perplexed as high volume was evident! Breakouts on average or low volume can be powerful---NO SUPPLY!

*HINT* So stops should have a logic and strongest possible point of placement to avoid being stopped out.

OK so Ive made my buy (You can determine any entry criteria provided it CLEARLY shows Momentum in your direction).

HOW do we let profits run BUT keep profits we have.

*Trailing stops*

These are implemented to protect open profits ---there is a time they should be loose (During strong movement in your direction) 

and times they should be tight (When price moves *exponentially* -- OR when price *clearly* shows signs of exhaustion (You'll have to educate yourself to identify both).

*Exits*
Often my trailing stop will be my exit.
But if it isn't--- A point where it is no longer clear in the life of the trend that it is going to continue.

So to the important Position sizing See charts below.




Here is an example of a trade ill be looking at Monday.
2% risk on my capital is $2000
As I classify this as a Risky short term trade Ill only risk .5% of my capital on it.

I Dont know if it will fly or reverse.
I have up to 20 trades in my portfolio.
Some fly and some are culled. Often if a trade is stagnant for a few days and analysis (VSA) doesn't indicate movement in my favor I will sell a position EVEN THOUGH it hasn't hit my stop.

I would rather take a very small loss and re set myself in a position which has more potential NOW. (Opportunity cost).
Here is a shot of my portfolio which as you can see is in various stages of holding



This is from a few weeks ago.

Has changed quite a bit from then but shows the various stages of trades in a portfolio being constantly managed.


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## tech/a (13 February 2011)

I still haven't covered position sizing clearly enough and I'm out of time again.
Ill do it tonight and answer any questions then if they appear.


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## gregraphic (13 February 2011)

thanks kurwajegomac and tech/a...very helpful.


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## Mistagear (13 February 2011)

Hi P,

It is pointless having a trading system which stipulates a stop loss in percentage terms. It will lead to increased fail rate simply because the stop is within the normal range of the stock, even on some occasions where the direction has been correctly identified.
A stop needs to relate to the current volatility of the particular stock and/or a likely level of support.
For this reason you need to work backwards, where you determine the best place to place your stop and then divide your maximum dollar loss by the tick difference between where you are about to enter and where you will place your stop.

eg; If you decide the best place for your stop is 10c from your entry and your maximum loss in your system is $500, then you place a buy for 5000 shares.
5000 x $0.10 = $500
This way, your risk is controlled by adjusting the size of position and your stop is outside the "noise" of that stock and suitably placed.

sure others will explain better than I have, but hope this helps.

Cheers, M


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## pavilion103 (13 February 2011)

Thanks for the help guys. Some very long and informative posts. 

I'm not sure if I explained myself clearly enough when I talked about the way I use my stops. 

I will try to explain this. I'm not sure if it will make sense but if so can I get some opinions please. 

So, I risk $400 per trade max.
I create a stop using technical analysis (support/resistance etc.)

If for example I enter at $8.67 and identify a support level at around $8.53. I give myself a bit of room and place a stop around $8.51. So the stop is 1.85% away from my entry price. 
I decide on the number of CFDs I will trade using: $400(2%)/16 = 2,500 CFDs

Now that I leverage them by say 3% (and this is obviously larger than the 1.85% difference from current price to stop) it means that I have $650 of my own money in the trade, but my stop loss at $8.51 will exit me at a loss of $400(or 2%), rather than $650.


*How does this sound? Have I misunderstood any of the above? Is this the correct way to go about it?*

Secondly, a question for the guys who use support/resistance levels and other patterns/trend lines etc... how do you backtest your system? I am assuming it isn't possible to run an extensive backtest when it is discretion you are using to enter the trade rather than a mechanical entry (e.g. high of the last 30 days)?

Thanks,

Matt


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## tech/a (13 February 2011)

Mistagear said:


> Hi P,
> 
> It is pointless having a trading system which stipulates a stop loss in percentage terms. It will lead to increased fail rate simply because the stop is within the normal range of the stock, even on some occasions where the direction has been correctly identified.
> A stop needs to relate to the current volatility of the particular stock and/or a likely level of support.
> ...




Well yes that can be the case.
Techtrader has a stop of 10% of initial purchase price which is 1% risk! It can work and both testing and trading the method have proven so.

But I do agree with your points,on MOST occasions those traded in T/T were out of the ATR of the stock being traded at 10%---smaller stocks certainly wont!

But Your post leads me to the other charts I was going to post.
And explains to a degree what you are saying ---I think.

*When looking at this chart and the various possible Stop placements think of
(1) Allocation of capital and how its affected by your choice of stop.
(2) Return on investment and how that is effected.R/R
(3) Possible time in the trade and Capital allocation with regard to opportunity cost.
*

All important factors in Initial stop placement

_*

*_


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## tech/a (13 February 2011)

pavilion103 said:


> Thanks for the help guys. Some very long and informative posts.
> 
> I'm not sure if I explained myself clearly enough when I talked about the way I use my stops.
> 
> ...




Matt why are you leveraging?
You cant back test a support resistance method with any software I'm aware of.
Either increase your position size or Decrease your risk.



> So the stop is 1.85% away from my entry price.



Irrelevant.


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## pavilion103 (13 February 2011)

tech/a said:


> Matt why are you leveraging?
> You cant back test a support resistance method with any software I'm aware of.
> Either increase your position size or Decrease your risk.
> 
> ...




I am looking to trade CFDs. Wouldn't it make sense for me to leverage with such a small starting capital base? I just assumed that I would be leveraging. 

I'm really confused right now. In the above example that I used if I am buying 2500 CFDs at $8.67 then that works out to $21,675 in total. If my account is $20,000 then I can't use that much per trade without leverage. 

I am obviously missing something here. Please pardon my ignorance.


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## tech/a (13 February 2011)

No you can leverage if you want.
Just asked why.

You can certainly do as you say risk is still $400.


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## skc (14 February 2011)

pavilion103 said:


> Thanks for the help guys. Some very long and informative posts.
> 
> I'm not sure if I explained myself clearly enough when I talked about the way I use my stops.
> 
> ...




Shares can regularly gap 10, 15, 20% in a day, even in the ASX200 universe. Using your above example, if the stock gaps down 20%, you have just lost $4,300. Can you handle that ? Will you be able to keep trading psychologically? Don't give the market a chance to ruin you.

Use leverage all you want but don't leverage to the point where something goes wrong and you can't trade anymore. If you trade long enough a gap like that will happen on the wrong side eventually. You can use leverage to trade more positions, rather than larger positions. 

To avoid getting killed by poor position sizing - you have to keep your total position size in check. 

Look at Tech/A's example. He's assuming a $100K account and his position size was 70,000 shares at 4c = $2,800. Or 2.8% of his account size. 

With $20K, I would look at may be 40% of my account as a maximum. So $8K.


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## pavilion103 (14 February 2011)

skc said:


> Shares can regularly gap 10, 15, 20% in a day, even in the ASX200 universe. Using your above example, if the stock gaps down 20%, you have just lost $4,300. Can you handle that ? Will you be able to keep trading psychologically? Don't give the market a chance to ruin you.
> 
> Use leverage all you want but don't leverage to the point where something goes wrong and you can't trade anymore. If you trade long enough a gap like that will happen on the wrong side eventually. You can use leverage to trade more positions, rather than larger positions.
> 
> ...




This is a very good point that I overlooked in the development of my system. 

I have a couple of questions. 

Using my example of buying at $8.67 and stop loss of $8.51 with account size of $20,000
Position size = 400 (2%)/0.16 = 2,500 CFDs. Position size = $21,675

Obviously this is much too big. So I tried to figure out how to reduce this. One way is obviously use a wider stop, however I feel from a technical point of view this eliminates a good trading opportunity at a level of support. So my other alternative is reduce my position size to 1% per trade ($200). This produces a position size of roughly $10,300. This is much better (maybe not ideal). So factoring in a possible 20% gap against me I would lose $2,000 or 10% of my portfolio, rather than the 20% I would have lost risking 2% per trade. 
Is this correct?

This leads me to the question. If the distance between the entry price and stop was double (32c instead of 16c), is it best to still trade the 1% ($200), or could I then go to 2% ($400)? I understand that it may vary with strategy but is it usually advisable to risk the same percentage (in this example 1%) per trade, or doesn't this really matter?

Thanks,
Matt


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## tech/a (14 February 2011)

pavilion103 said:


> This is a very good point that I overlooked in the development of my system.
> 
> I have a couple of questions.
> 
> ...





Risk my favorite topic.

*Matt*
There are times Ill put the House on 1 position.

A 20% gap down in a larger cap is pretty damned rare.
Personally I trade smaller risk capital on smaller caps with tight consolidations BUT in its place I will trade many positions.
I cant be sure how many of those trades will trigger and how many will go on with it.
But I do know that out of 20---4 or 5 will. Which ones I wont know till they do what the analysis says they should do.
With 20 positions I Dont want too much portfolio heat (If things go pear shaped and ALL positions Dive---whats my exposure---

What your doing is the CORRECT use of leverage.
Your taking a risk of $400 and trading the full 20K in one position.
That wouldn't bother me.
In fact Id set the trade and stops and away Id go.(I presume its CFD's)
Id then take a number of other positions.These will of course vary in capital drag depending on the trade and stop setting.
Provided your not increasing your risk with leverage then trade with it if confident.

So you could have 8 positions of $400 or so risk ($3200) and 50-60K of positions.
Normal Trading with leverage.


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## pavilion103 (14 February 2011)

*Quick note on VOLUME You MUST learn what is buying (Demand) selling (supply) volume --- I note one of your conditions is high volume---If supply rushes in then volume will be high and often you'll be stopped out---perplexed as high volume was evident! Breakouts on average or low volume can be powerful---NO SUPPLY!*

Tech/a, I'd love to hear more about this. The reason I say this is because it is counter to things I have read in terms of buying on heavy volume. I understand exactly what you're saying and it makes perfect sense. Is there a key to identifying what is buying volume? How do you go about this? I haven't read this in any materials as yet (or maybe I have and it went over my head)
Thanks


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## pavilion103 (14 February 2011)

Another one for Tech/a (by the way I appreciate your posting in this thread, very very helpful for me). 

I noticed in your portfolio that you are trading a number of lower priced companies (compared to the big names: BHP, Banks etc). What is your reason for this. Is it based on volatility? Or a mixture of factors. 

Would you advocate this approach for a beginner? Or do you think it's safer for me to have a play around with some of the more "popular" companies first while I am learning? Or does it make no difference at all in your opinion?


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## tech/a (14 February 2011)

Have a google around or join here

http://www.tradeguider.com/
and get a free copy of "Master the markets"

Its in their free download section.


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## Julia (14 February 2011)

tech/a said:


> Risk my favorite topic.
> 
> *Matt*
> There are times Ill put the House on 1 position.



I'm glad you made this comment,Tech/a.   The conventional wisdom is always to spread the risk to a very small proportion of available funds.    But there are plenty of times when whacking a large amount on something you're pretty sure about will net as much in a short time as many months of stuffing about with small gains on small caps.


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## tech/a (15 February 2011)

Julia said:


> I'm glad you made this comment,Tech/a.   The conventional wisdom is always to spread the risk to a very small proportion of available funds.    But there are plenty of times when whacking a large amount on something you're pretty sure about will net as much in a short time as many months of stuffing about with small gains on small caps.




Yes I did that with my wife!
After 12 yrs of small trades---




> I noticed in your portfolio that you are trading a number of lower priced companies (compared to the big names: BHP, Banks etc). What is your reason for this. Is it based on volatility? Or a mixture of factors.
> 
> Would you advocate this approach for a beginner? Or do you think it's safer for me to have a play around with some of the more "popular" companies first while I am learning? Or does it make no difference at all in your opinion?




Yes there is a reason.
Small caps are likely to move 20% in a week or even a day something like BHP wont do that in a month---well rarely.
I chase momentum Ill add it to my portfolio and when it ceases or reverses I'll remove it.
I can also find many many trades---more than I can possibly trade so I can be selective and can be Brutal in portfolio management.
Far better "Bang for Buck"

You really need to be able to read a chart before attempting these.
Cut your teeth on a few while you paper trade---thats what Id be doing paper trading until you can turn a regular profit.


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## skc (15 February 2011)

pavilion103 said:


> This is a very good point that I overlooked in the development of my system.
> 
> I have a couple of questions.
> 
> ...




It doesn't really matter. You set your stop price based on whatever technicals you believe in. You calculate the number of shares based on your risk per trade. You look at the stock you are trading and consider what is an appropriate 'gap risk'. You look at the gap risk and calculate what you are comfortable losing if that gap risk happens.

There is no point widening the stop just to make the position smaller. You make the position smaller by trading less shares!




tech/a said:


> Risk my favorite topic.
> 
> *Matt*
> There are times Ill put the House on 1 position.
> ...




Don't have the stats but probably not all that rare. Takeover premiums are usualy 25-30% as a start. Remember AXA or ASX? Pretty large caps with pretty large gaps.

Obvisouly depends on what you trade. Maximum gap for the Big 4 and BHP is probably in the 5% category. But gaps for STO (if a takeover comes) and KAR (when they face another delay of some sorts) could easily be 20%. 

But if you don't have the time or knowledge on a stock's fundamental, then keeping position size in check is quite important imo.



Julia said:


> I'm glad you made this comment,Tech/a.   The conventional wisdom is always to spread the risk to a very small proportion of available funds.    But there are plenty of times when whacking a large amount on something you're pretty sure about will net as much in a short time as many months of stuffing about with small gains on small caps.




Can you / would you do that with pure technical trading? I do this all the time but only with fundamental analysis / events type trading...


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## pavilion103 (12 March 2011)

I now have Amibroker up and running, have got my head around some basic code and have set up a "simulator" to trade each day. 

There are a couple of points I want to run past people to get their opinions. I know there is no difinitive answer but anyone's experience would help:

In my explorations I get a number of results so I'm narrowing it down as follows. Let me know if anyone thinks this is a good way to do it or if there are some glaring deficiencies:

1. Only take a position where the initial stop loss (using technical indicators) is 5-10% away from entry price. 

2. I am using leverage to increase my number of positions (but with the same risk 1.5% of capital per trade). I'm only taking positions that are less than 40% of my overall capital. 

3. A maximum entry of 5 new positions a day (most days will be less of course if any)

4. Ratio of 75%-25% for long and short trades (whichever way the market is moving is 75%, the other 25%)


A couple of other questions I have are:

5. Should I only hold a certain amount of positions at a time? For example say my risk per trade is 1.5% or $300 on a $20,000 account. Should I only hold a certain amount at any one time e.g. 13 positions (circa $4,000) which is 20% of my overall account size?


6. With low-medium cap stocks gapping seems to be an issue. I could be 5R up and then it gaps down (below my trailing stop of 2xATR). Is this just part of the game when using these stocks?


Thanks,
Matt


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## pavilion103 (14 March 2011)

This sort of ties into my last post. I am trying to enter trades where my initial stop loss is 5-10% from the entry price.
This one came up in my exploration and gapped down severely. Is this a pointless trade to consider entering because the SL would be so far away from the entry price?


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## markhocky (4 April 2011)

Hi Matt,

Regarding leverage or, in your specific example, number of positions; i would consider max loss that could happen rather than 'typical' risk per trade.



pavilion103 said:


> 5. Should I only hold a certain amount of positions at a time? For example say my risk per trade is 1.5% or $300 on a $20,000 account. Should I only hold a certain amount at any one time e.g. 13 positions (circa $4,000) which is 20% of my overall account size?




Can't give specific numbers for your example without knowing more details, but as a rough guide: if your {account leverage x max loss from all positions) > 1}. You've got a chance of blowing all your capital. Also remember, if you're short your max loss can be greater than one.

More positions means you will be less susceptible to a single large move against you, but your assumed max loss should never be less than the market's systemic loss. Think '87 crash ( ~25% drop). Don't think it can't happen again!

I model my max loss like this:

Lm = (Li + (n-1)*Ls)/n

Where:
Lm - Max loss
Li - Max loss on a single position (e.g. 1 for long only)
Ls - Max systemic loss: the max correlated move against you, (e.g. market crash of 50%)
n  - number of positions

This can make it difficult for me to use leverage, but my first goal is to preserve my capital. It also gets more complicated when combining long/short positions.

Hope this helps. Also would welcome any (constructive ) criticism on my approach.


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## pavilion103 (4 April 2011)

Thanks for the help mate. 

I print screen helpful posts and save them in folders. I've done that with yours. Cheers. 


Having started this sim less than a month ago I am up to around 30 trades (12 currently active, I will go into further analysis about how much risk I should be taking on at once). 
After how many trades should I analyse my system. See what's working and what isn't? Is 50 too few? Is 100 better? I know there is no definite number but I'm trying to work out what too few is for a useful analysis.


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## markhocky (5 April 2011)

No problem at all. Just glad you found it useful.

With regards to tracking performance: I believe the rule of thumb is that you need at least 20 samples to draw any 'statistically significant' conclusions. If you are trying to characterise a probability distribution, more samples is better.

Because the distribution we deal with is not stationary (for example volatility increases and decreases), i suspect there is some upper limit beyond which more samples doesn't help. 

I probably shouldn't say any more on this because i'm hardly an expert on statistics.

I've read Mr Howard Bandy talking about something similary in one of the threads. Can't remember for sure, but i think it was in his thread about his latest book? Might be worth scanning that one if you haven't already.

Cheers,
Mark.


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## pavilion103 (23 April 2013)

I couldn't resist coming back into this thread. 

2 years ago, at the beginning months of my trading journey...... Feels like such a long time ago

I probably have a few thoughts to post but not much time right now. 


I record the hours each day/week that I spend on my trading education and it's at about 1,300 hours, since I started recording (I did a bit more before then). 

I'll post some thoughts another time. Might be useful for beginners.


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## DJG (23 April 2013)

pavilion103 said:


> I couldn't resist coming back into this thread.
> 
> 2 years ago, at the beginning months of my trading journey...... Feels like such a long time ago
> 
> ...




I look forward to you discussing how your journey has gone. - I assume you have gone live?

I didn't even realise this was an old thread until your post (didnt bother checking date stamps)

Thanks


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## DJG (23 April 2013)

Also forgot to add, which CFD broker did you end up going with and why?


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## pavilion103 (24 April 2013)

DJG said:


> Also forgot to add, which CFD broker did you end up going with and why?




I ended up going with Interactive Brokers, a bit of a process to set up but well worth it.

$6 per trade and such a variety of instruments available to trade. 
I also found the simulator account beneficial before going live. It is the same as the real one but just Monopoly money!


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## DJG (24 April 2013)

pavilion103 said:


> I ended up going with Interactive Brokers, a bit of a process to set up but well worth it.
> 
> $6 per trade and such a variety of instruments available to trade.
> I also found the simulator account beneficial before going live. It is the same as the real one but just Monopoly money!




Is that $6 per round trip? - seems pretty damn good!

Can you setup a simulated account without a real live account?
How's it all been since you formed your draft trading plan in the above posts?
Changed it at all?


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## pavilion103 (24 April 2013)

DJG said:


> Is that $6 per round trip? - seems pretty damn good!
> 
> Can you setup a simulated account without a real live account?
> How's it all been since you formed your draft trading plan in the above posts?
> Changed it at all?




Ill comment more on my journey in the next couple of days when I've got some time.

$6 in + $6 out

You need to open a live account to trade the sim. Minimum opening balance 10,000 $US I think. But you only have to maintain about $2,000 once its open IIRC. Don't quote me on that though.


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## Kalaika (25 April 2013)

Hi Matt and other AussieStock members,

I am new to this site, i have been studying TA intensively for a few months (after fleetingly dabbling in the market during the past 15 years without much structure or discipline). I am currently preparing a plan to pursue trading more actively, similar to what I read from Matt at the start of this thread. I've nothing to add to the thread specifically but just wanted to compliment you all on the quality of ideas, input and openness of information being exchanged. This was the first thread in the forum I'd read and I immediately joined the site based on how good it was!

Hope to share more and learn plenty from you all over the weeks and months to come. Matt I hope the last two years have been fruitful for you with your own plan, both in knowledge gained and returns from your trading system.

Cheers
Craig


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## WilkensOne (17 May 2013)

Hey Pav, great discussion. 

I'm nearing the situation of your past self, just wondering how it all turned out 2 years later? I've been meaning to watch an episode of grand designs revisited =P

Wilkens


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## pavilion103 (15 June 2013)

Time to come back to this....

I actually consider this journey to have started in 2005, because it was fuelled by my passion for poker. I played poker once at a friend’s house and this began an obsession. I began to read poker books and play online. I started to become good and won an online tournament out of 2,000 people. I remember still going until 2am in the morning when I got it down to heads up. The satisfaction of winning a 7 hour tournament like that was immense. I went on to win another 7 of these multi-tournaments ranging from 200 to 2,000 people. It was addictive. I began to play at the Casino in multi-tournaments of 80 people and the first 3 times I came 2nd, 4th and 5th. Felt awesome having random people coming up to be shaking my hand as I was talking around after the tournaments. I was 19. 
Next stop 2008. My best mate began trading CFDs. Well maybe gambling is a more accurate word. He made $20,000 in one week and then lost $20,000 the following week and quit. This got me thinking that there is money to be made, but not in the manner he was doing it.

I opened a CFD account with CMC. I only put $1,000 in, lost a few hundred and realised that I had no idea what I was doing so I stopped. 

Late 2010 I remember looking at my bookshelf of about 250 books on investing, personal development, biographies etc and thinking I have absolutely no direction in what I want to achieve (I had bought 3 properties, which I’ve now sold). I needed focused application, not general knowledge. I’ll never forget the day I was at my desk in a property company on only $30,000 as a researcher and thinking how bored I was. I HAD to do something to become financially free. I looked around at others in my office and thought I cannot and will not end up like them, hating their job and stuck here. So my trading journey began. 
I began to get serious about trading. I knew the principles were similar to poker and I loved that. I knew trading was for me. I started recording my hours spent on trading each week and set myself targets. I also kept a trading journal, which I continue to update now. I had no idea how I was going to go about it, but I knew 100% that I would make it work, no matter what. 

I read about 30 or so trading books and began quickly to realise which ones suited me. Fortunately from my poker days, psychology and money management were quite natural to me and I got this aspect of it straight away. One of my early favourite books was “Trade Your Way to Financial Freedom” Van Tharp. My focus was now on actual trading strategy. Discretionary trading appealed to me because once again, this was similar to poker. Master the Markets by Tom Williams instantly clicked with me and I knew that I was onto something. When I joined Aussie Stock Forums and began to spend the initial stages looking through various threads, Tech/a struck me as someone particularly worth listening to. He was also passionate about VSA, so I began to go through the forum saving many of his posts (and some others). 

My initial attempts at creating a system were a little frustrating. I’d simply be looking at any breakout of highs and wonder why they kept reversing on me as I got in at the highest price. I was whipsawed all over the place. I had no idea what stop to use and thought I’d use either an ATR stop or the lowest low of the last ‘x’ bars. 
It was at about this time that I began to message Tech/a. I’d be asking questions frequently and he graciously helped me. Around this time, he recommended “The Chartist” subscription, to which I signed up and began to save the charts.

These messages turned into emails and then I asked if I could phone him. I enjoyed a few decent length phone calls to him which was a gold mine for me. I couldn’t write things down fast enough and began to get insights which brought clarity to my thinking about trading.

After 2 years patiently paper trading a simulator, I entered the market in October 2012 (luckily just prior to the nice run up). The trades we had worked on were mainly those under $1.00 and these were good but seemed difficult to trade as a beginner. I then moved onto taking trades on higher priced stocks (mainly $1.00-$7.00).
All the while, I continued to study and work at my craft. In January 2013, Tech/a decided that he would work with me on a portfolio of stocks to teach me a number of things. This is by far the greatest educational tool that I have had (see the thread about it). During this time we made over 50% in about 30 or so trades. This opened my eyes. A number of light bulb moments included 1) low risk micro continuation pattern momentum trades 2) moving stops to breakeven asap.  3) The impact of a few big winners on profitability (i.e. patience). 
This made me a profitable trader. 
The 3 hours alone spent at Tech/a's house on a Saturday morning at the screen discussing trading blew my mind. Plenty to think about on the hour drive home. 

Since the market topped and these trade setups became almost non-existent, I began turn my attention to futures trading, in particular the FTSE. During the recent month or so, I have begun working on this, spending nights in front of the screen and emails back and forward. I have been like a kid in a candy shop as I’ve explored this and absolutely loved it. I am in the initial stages of my education but things are beginning to click. 
Finally, my goals. I’m not setting quantifiable goals. I will let the market dictate that. As my knowledge continues to grow and my money compounds, that will take care of itself. I am under no illusions. The journey ahead will continue to be hard work (but luckily I enjoy this). I am now looking to produce a semi-passive income through trading. Firstly, to the point that I can go part time at work. Secondly, to the point where I can become financially free and pursue other interests /ventures in my spare time. 
This isn’t going to happen tomorrow but it will happen and I am very excited about it. But for now, head down because there is plenty of work to be done!

This is my journey so far. If anyone has any questions I’m happy to answer. I am no expert, not even close but happy to shed light on anything that may help others as they commence their journey.


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## galumay (15 June 2013)

Not my scene at all, but love the passion you bring to the subject and I wish you all the best for the future.

I am not surprised to read tech/a has been such a positive mentor for you, while my strategy is FA focused rather than TA, i am always challenged by tech/a's posts and his questions. he is a great contributor to ASF.


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## tech/a (16 June 2013)

PAV 

Many things I didn't know about you! Like your undertaking to yourself ---- I remember vividly sitting with my first wife after pooling our pays and doing a budget----we had $5 a week left for US ---- back in 1973
I remember saying that there was no way I'd be chained to financial hardship. The only way I saw out f this at the time was to govern my own financial future. My love of business began that day and continues today.

GALUMAY

Perhaps something for more thought.

I maybe wrong but I personally Feel that most fundamental traders and investors are mist comfortable with this form of analysis because it satisfies the human need to have a reason why something is likely to occur or is occurring. It is a quantifiable analysis.
Many years ago I realized that other than massive moves in markets general market action is noise between highs and lows. Similar in individual shares. 
I decided I'd be an expert in being wrong as I knew I'd be wrong more often than right---that----I have been absolutely right about.
This ---- the ability to manage my trades and portfolio when I'm very often wrong, yet still profit----I really feel ALL trader/Investors would benefit financially from. I remember JULIA taking control of her portfolio before the 2008 crisis. Positively.


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## Kalaika (16 June 2013)

pavilion103 said:


> After 2 years patiently paper trading a simulator, I entered the market in October 2012 (luckily just prior to the nice run up). The trades we had worked on were mainly those under $1.00 and these were good but seemed difficult to trade as a beginner. I then moved onto taking trades on higher priced stocks (mainly $1.00-$7.00).




Hi Pav,

Enjoying this thread, thanks for taking time to share your perspective.

I am still in the pre trading phase (refining my plan), and I don't know much about VSA (so I might be missing an obvious point) but i am interested to know why you selected sub-$1 stocks to initially trade, before expanding to $1-7? I am looking at some kind of liquidity filter around average daily volume / value, and I'd value your thoughts on how/why you chose a pure dollar-per-share filter?

Cheers.


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## pavilion103 (16 June 2013)

Kalaika said:


> Hi Pav,
> 
> Enjoying this thread, thanks for taking time to share your perspective.
> 
> ...




Volatility. I was looking for explosive moves in a short time frame. Also using fixed fractional positioning it allowed me to take more positions because the percentage gap to my initial stop was larger. I'd had some success but results were too erratic in that market which wasn't trending. 

I guess when I was new to the markets I looked at the opposite end of the spectrum, say BHP or the banks and thought 1) they don't move much in % terms 2) I have to take a huge position to accommodate my initial stop, tying up too much capital. So I ventured on the other extreme rather than exploring middle ground. So I guess in answer to the question it wasn't the decision of a trader who knew what he was doing!

I will still persist with those in a better market, I think there are some good quick gains to be had. But my main strategy will be mainly in that $1-7ish range.


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## pavilion103 (16 June 2013)

The other huge reason for choosing trading is the semi-passive income aspect of it. 

There is a tradeoff in terms of time. I saw two options:

1) Become hugely successful in a career. Work long hours, make my mark and make it to the top. 
2) Find a job that I enjoy but allows me the flexibility to pursue trading without burning myself out.


The thing that appeals to me most about trading is that, although there is a lot of hard work early on (i.e. thousands of hours), after this you have something tangible for life that can produce you high returns with little effort. It's like every hour spent goes towards getting the goose that lays golden eggs. Once I have the goose, the golden eggs will come perpetually into the future. At this point I have TIME and FLEXIBILITY. 
(That's why a business appealed to me also IF (big if) you are able to delegate and step back)

With a career, the thousands of hours lead to higher paying, more powerful jobs. But you need to continue to work. Sure you have the skill base, but you have no goose, only golden eggs. You need to continue to work hard to produce them. 


I currently work as a property valuer in the government. This provides flexi days, standard 7.5 hour work days and the ability to finish at 4pm each day if I choose. This leaves time for a few hours of trading at nights if I choose, without being burnt out after a 10 hour work day.


If there was a career that I was truly passionate about I would have considered pursuing that. But there isn't. 


I don't want to be trading all day either. I just want the TIME. I won't be sitting on an island all day either. I'll be pursuing ventures that I am absolutely passionate about as well as having a decent holiday each year.


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## pavilion103 (16 June 2013)

By the way, please don't think that I'm objectively saying that one path is better than the other. I have a mate my age who is already a senior manager (27 years old) in an accounting firm earning upwards of $130,000+ and I hugely respect that. This is simply the path that works best for ME and fits MY personality best. 

Maybe because I spent too much time reading books like "How I Made $2 Million in the Stock Market" by Nicholas Darvas!


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## Gringotts Bank (16 June 2013)

pavilion103 said:


> It's like every hour spent goes towards getting the goose that lays golden eggs. Once I have the goose, the golden eggs will come perpetually into the future.




As a Christian, how does this attitude match up with the following Bible quote?

"It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God".

Wouldn't that sort of belief create a lot of guilt for a Christian making money gambling in poker and the markets?

Jesus commanded, "Go sell all that you have, give it [the proceeds] to the poor, and come and follow me."


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## pavilion103 (16 June 2013)

Gringotts Bank said:


> As a Christian, how does this attitude match up with the following Bible quote?
> 
> "It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God".
> 
> ...





That particular quote is in reference to the attitude of your heart. I actually donate 10% of my money without fail. I'm in the process of looking at paying 50% for someone else to come to India with me because they can't afford it. 

One of the biggest reasons I want free time is for a large focus on philanthropic activities. Possibly as my primary use of time. Blessing people financially is an enormous priority of mine and my greatest passion. 

My life attitude is to do the best I can with the passions and abilities that I have and use this to bless others as much as possible 


Now that I have clarified that, I'm only interested in discussing trading in this particular thread. I hope you can respect that. Thanks.


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## VSntchr (16 June 2013)

GB, what a great system to enrich the church.

Lets not derail the thread tho....


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## pavilion103 (10 July 2013)

My futures trading journey has commenced in this thread

https://www.aussiestockforums.com/forums/showthread.php?t=26509&page=19&p=783487#post783487


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## pavilion103 (1 November 2013)

It's interesting how one's trading journey can evolve as you go along. 

My methodology is divided into four parts. 

1) Momentum strategy with ASX equities

2) FTSE Futures medium term strategy (try and get on a moves of hundreds of points with multiple contracts if possible). 

3) FTSE intra day trading

4) Sub 10c strategy with ASX equities



The futures strategies are to build up cash in the shorter term which can then be used in the momentum strategy, with a portion put aside for the sub 10c strategy. 
I see the momentum strategy as the stable way to grow my account at a reasonable rate. 

I see the futures as a way to build money quickly if successful.

Quite excited by all of this, particularly the possibilities with the futures trading. 


This journey has opened my mind up to potential that I didn't know existed.


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## tech/a (1 November 2013)

Interesting



> I see the futures as a way to build money quickly if successful




If successful why do anything else?


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## CanOz (1 November 2013)

Hmmm, 

I think an advantage of running some different strats is more that if one strat is not performing or you don't have time to manage it (FTSE for Eg.), then perhaps the others may perform a little better if not too correlated.

Otherwise, as Tech mentioned, why do anything else?


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## pavilion103 (1 November 2013)

tech/a said:


> Interesting
> 
> 
> 
> If successful why do anything else?





Because as the cash builds up, I'd be looking at where I can invest it. 

It doesn't require much money (tied up) in the account to trade a number of futures contracts.
There will be plenty of money left over, so why not invest it?


If you can get say 20% on the rest of your money then why not invest that in an equities strategy? Particularly one which is not time intensive!


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## pavilion103 (1 November 2013)

CanOz said:


> Hmmm,
> 
> I think an advantage of running some different strats is more that if one strat is not performing or you don't have time to manage it (FTSE for Eg.), then perhaps the others may perform a little better if not too correlated.
> 
> Otherwise, as Tech mentioned, why do anything else?





I think these are good points too. 

For example in recent months I haven't had the time to trade futures like I was before (I will be back into it when I return from India - start December). I won't always have time to be active in futures. 

What appeals to me with the 10c strategy in particular is that once the trade is at BE I can just leave it and not worry about it too much. Particularly if I'm away travelling etc. I like the idea of that.


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## tech/a (2 November 2013)

tech/a said:


> Interesting
> 
> 
> 
> If successful why do anything else?




In answer to my own question 

To me it's challenge to master the beast we are trading.
Small caps are different to Blue chips
Indexes to Currencies.
Options to Futures
Discretionary to Systematic

The understanding of one leads to better understanding of another.
The satisfaction of understanding is to me as satisfying as the profit derived.

But as I've often said.
Become an expert at something.
You only need one!


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## pavilion103 (2 November 2013)

tech/a said:


> In answer to my own question  To me it's challenge to master the beast we are trading. Small caps are different to Blue chips Indexes to Currencies. Options to Futures Discretionary to Systematic  The understanding of one leads to better understanding of another. The satisfaction of understanding is to me as satisfying as the profit derived.  But as I've often said. Become an expert at something. You only need one!




I do agree. I often tell people to pick something that they want to do and focus on learning to do that one thing very well.

I do see futures and equities as two different games. But both fulfill different objectives for me. I enjoy spending time learning both. 

Will this slow me down in terms of time to become proficient in either? Yes.

Do I mind? Not really

But I have found that I've gone through stages where focusing intensely on one has meant putting the other one on the back burner a little.

I dunno. I'm not naive. I don't want to be the best in the world at either. I'm fairly comfortable with the balance and am passionate about it all.

All in good time for me....

But this doesn't mean that I don't agree with you Tech. When focusing on two things there is a trade off and one will take away focus from the other.


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