Example of my conservative trading strategy

[lukeaye]

TRADING DIARY

STOCK; BTA.asx $2.55 29/8/09

REASON FOR TRADE; Stock has consolidated at a long term S/R point, and appears to have just about completed a fractal 4th wave and higher prices look achievable, I think a 5th wave is inevitable at this time. The last time the stock got to this level it was rejected the very next day, it has now consolidated at this level for 9 days. Momentum is now also favoring an upside move on the broader markets.

ENTRY STRATEGY; Entry will be on current market price of $2.55, I consider this a low risk trade so my stop can safely be put at $2.36. A G/S will be used as stock has shown history of gapping. No pyramiding will be used as the entry is not off a support point.

EXIT STRATEGY; My initial profit target will be $2.72, once this point is hit my stop will be trailed to $2.49, and at which point I will reassess momentum aspects. If the stock looks like continuing up, my stop will be trailed accordingly, if a pause is to occur I will take profits and look at reentering on a retracement. A pause would be 2 consecutive days of price being static. A trailing stop will be used with an 80 moving average. This will automatically indicate an exit.




DATE ENTERED; 29/8/09
ENTRY PRICE; $2.56
EXIT PRICE;
DAYS HELD; 3
PROFIT/LOSS;
EVALUTAION OF TRADE;

 

[lukeaye]

Progressive Chart

 

[lukeaye]

Oh my.

This maybe helpful.If you have an Elliott bent.

http://www.elliottwave.com/club/Elliott-Wave-Video-Crash-Course/default.aspx?code=27997

So your core risk strategy? How have you or do you skew your trading toward profit?
How many trades have you completed to prove this is a profitable method of trading (Your Gold Trade doesnt seem to "fit" with a method relative to your AMP trade--but maybe I just cant see it) or is all of this random trades with a "theory of what "should" work?

Is my elliot count wrong?

Quite a few trades, i also backtested it on countless trades, thats how i came up with some of these strategies.

I skew my profit towards trading using simple methods i have devised and backtested. i then use my money management and risk management, to decide at what point i can enter a trade and have a positive expectancy. if i have to put a stop to far away from my entry, and the reward isnt balanced, i wont take the trade. there is a minimum Risk to reward i will allow, relative to the rate of failure for these methods.

My profit comes from profitiabilty of a trade, not probabilty of being right, if that makes sense.

 

[lukeaye]

As i said, if there is anything anyone can offer to help improve me strategies, please let me know

 

[tech/a]

luke.
Im attempting to ascertain wether you actually have a proven (to yourself) trading method or a bunch of ideas which you trade around.

Most trade around a bunch of ideas and wonder why they are forever altering what they are doing and reading a million books and following the next poster who seems to have a good idea or shows a few winning trades.

This statement says to me you dont have what you say you have.
I'm not tryng to trip you up but to have you look seriously at what your doing with your trading.

Quite a few trades, i also backtested it on countless trades, thats how i came up with some of these strategies.

I skew my profit towards trading using simple methods i have devised and backtested. i then use my money management and risk management, to decide at what point i can enter a trade and have a positive expectancy. if i have to put a stop to far away from my entry, and the reward isnt balanced, i wont take the trade. there is a minimum Risk to reward i will allow, relative to the rate of failure for these methods.

If you had backtested you would be quoting all sorts of figures in support of the proven method.
You will have a blueprint which will show you if you are trading within the tested parameters.
The setups you are using I know cannot be coded so cannot be backtested.

You and anyone else who wants to trade seriously needs this information.

I seriously think we are seeing a discretionary trading idea at work---nothing more.

Thats how you will improve beyond your wildest dreams.

But hey if you post up your test results and Montecarlo analysis I'll apologise 1000 times and shut my mouth.
Id love to see code for Elliott Wave counts/rectangles/triangles and how you deal with Support and resistance plus your M/M skewing.

 

[aramz]

Luke,

First off thanks for posting your trading stategy. I am currently in the process of reading various books and getting together a sufficient amount of capital to trade systems like yourself so this thread in very interesting to me.

I am just wondering how you come about finding these breakouts and systematic trades if you don't mind me asking? Do you have customized scans you input into a software program such as metastock or bullcharts and get a list of potential stocks then evaluate them everynight and go with the best?

Do you also look at charts of the sector that stock is in and analyse a chart of the DOW aswell?

Do you generally analyse potential trades at night and then set buy limit orders before bedtime or do you trade fulltime and re-cap your potential trades in the morning and set buy orders then?

Finally is the only style of trading you generally do atm and how many trades do you deem as comfortable to run with at one time?

I know there are quite a few questions there sorry about that. You seem like someone keen to share your knowledge. I appreciate others input on this thread to and try to take in their rundowns of the trades Luke presents as best i can.

Cheers guys

 

[lukeaye]

No you are correct, they are not backtested in that manner, i backtest them manually, not by computer. If i was versed in that then i would provide that evidence, but basically my systems are proven by my couple of years of both paper trading and real life trading. i do have parameters which i set, but as you said, i have no real statistical evidence, backtested from programs, to prove what i am doing is right or wong, just results from what i have traded, and back traded.

Hence why i am asking for constructive critisim, i thought if i posted my strategies and showed what i was doing (right or wrong), then others could also see how to develop one properly. I basically keep a manual diary of results, of what worked what happened, and an evaluation of what i could have done better, and how i could have done it better each time. With those results i continually work towards better strategies, if i could use these computer programs the results would be a lot better you are saying? and probably less time consuming by the sounds of it. that is definentley something i want to explore, im a bit old ashioned in that sense i guess.

But tech im in no way preaching that i am trading guru, im simply sharing some of my finidings right or wrong. i want to improve just like everyone else.

 

[lukeaye]

Luke,

First off thanks for posting your trading stategy. I am currently in the process of reading various books and getting together a sufficient amount of capital to trade systems like yourself so this thread in very interesting to me.

I am just wondering how you come about finding these breakouts and systematic trades if you don't mind me asking? Do you have customized scans you input into a software program such as metastock or bullcharts and get a list of potential stocks then evaluate them everynight and go with the best?

Do you also look at charts of the sector that stock is in and analyse a chart of the DOW aswell?

Do you generally analyse potential trades at night and then set buy limit orders before bedtime or do you trade fulltime and re-cap your potential trades in the morning and set buy orders then?

Finally is the only style of trading you generally do atm and how many trades do you deem as comfortable to run with at one time?

I know there are quite a few questions there sorry about that. You seem like someone keen to share your knowledge. I appreciate others input on this thread to and try to take in their rundowns of the trades Luke presents as best i can.

Cheers guys

Hi Aramz,

Well i go about everything the old fashioned slow way. i know what set-ups im looking for, and so will watch certain stocks as they move the i want them to and put them in my watchlist. it takes hours every night, and i wish i knew how to do all the programing that others do, but i simply havent learnt it yet. that is def the way to go though, but i cant help you there sorry.

Yeah whatever stock im looking at, i also check against its indicie, as well as the major index it belongs to, its not always beneficial to look at the dow over the aussie SPI because i have noticed of late that we are starting to deviate from the dow does. Also remember that our markets are predmoninetly resources and the US is financials, so really movements can differ greatly.

No i have a full time job, so i spend every spare second i have looking for set ups, and then placing orders, i have the luxury of looking at the stock market at work a bit as well, so i monitor it to some extent.

It depends on what you are prepared to risk i guess, i tend to risk 1-2 % per trade. But i will prob only ever have say 4 or 5 long open at one time if im bullish on particular stocks, otherwise if the broader markets turn on me, it can turn into a big drawdown.

I usually will hold whatever im trading for as little as a few minutes, up to say a month or 2. and i trade options and cfds.

 

[Sean K]

Nice work lukeaye, good to see people putting their strategies out for analysis and genuinely interested in some (hopefully) constructive suggestions.

Your trading does look more discretionary even tough you've 'backtested' etc. If you're going to go down the path of trading a mechanical system you'll need to invest in the software and learn how to use it.

Personally, I've been descretionary investing and trading for 15 years (4 years full time) and still do charts on a free charting program, so each to their own I guess.

 

[lukeaye]

Hi Kennas,

When i get some more time i will write out all my rules, so you can see what i do mechanically. i spose looking at what ive posted it does look a bit unpracticed, but i do have strict mechanical rules, that i have written for each strategy. Yeah well ive basically put my pride on the line for the sake of others and myself to improve my trading.

What free software do you use kennas?

 

[Sean K]

tech is the one to set you on the mechanical path lukeaye, if that's where you want to go.

My 'free software' is just the Big Charts that I paste up here. I do use ETrade and IG charting sometimes, but find I don't really need any of the features. Simple works fine for me.

 

[lukeaye]

yeah i also just use IG atm, basically trading patterns, breakouts, triangles, EW so forth. There the only set ups i have trades for at the moment which turn me a profit. It is hard to test new thoeries manually, its the time factor that kills me.

 

[johnnyg]

luke.
The setups you are using I know cannot be coded so cannot be backtested.

You and anyone else who wants to trade seriously needs this information.

I seriously think we are seeing a discretionary trading idea at work---nothing more.

Thats how you will improve beyond your wildest dreams.

For those of us are trading discretionary and using different technical methods (E/W,S+R/Congestion patterns/Volume patterns/ect)how do you check that your on the right path? Do you complete 50/100/200 paper trades and then analyze your results to see if you have an edge and then decide whether to trade live from there?

For me personally after I complete 50 paper trades I'll go over my results and see what areas need improving. 1 thing I'm going to use will be a simple trailing stop strategy, whether its a trailing M/A or bar count back, I want something that works well most of the time, and that I know exactly what it is before I enter the trade, instead of a discretionary stop.

 

[lukeaye]

I have set rules and parameters, so dont think what i do, can be called purely discretionary.

And kennas can i ask have you been very succesful with your discretionary techniques?

 

[Mr J]

For those of us are trading discretionary and using different technical methods (E/W,S+R/Congestion patterns/Volume patterns/ect)how do you check that your on the right path? Do you complete 50/100/200 paper trades and then analyze your results to see if you have an edge and then decide whether to trade live from there?

I would do it by analysing the methodology, not the results. 50 is an insignificant sample if we're looking at results, but it's plenty for analysing methodology. Try to determine whether your trading philosophy is sound. It's hard to do without an experienced person looking over your shoulder, but you might get good feedback on a forum.

 

[Wysiwyg]

Just a question again about your Elliot wave numbering. BTA is another example that you place the wave count in the wrong place (as per basic Elliot wave rules) and no more obviously than placing the wave count on the side of the waves. It is crest and trough.

 

[lukeaye]

Just a question again about your Elliot wave numbering. BTA is another example that you place the wave count in the wrong place (as per basic Elliot wave rules) and no more obviously than placing the wave count on the side of the waves. It is crest and trough.

Not having a go at you or anything but show me how you would number it please

 

[tech/a]

Luke.

As you can see there are people like Aramz who are working through that which you are and have been for sometime.
Ive seen this many times in the 15 yrs Ive been trading.

The point I continually make and seems to many as a personal attack(not from this thread but in the past) is the following.

(1) Unless you know why your theory makes $$s there is no hope in hell that you'll make a CONSISTENT PROFIT----a win here a few losses there---frustration and disillusion.

(2) If your going to use an analysis type in your trading make sure you have a sound grasp of it. Elliott Wave analysis is the whipping boy of 2009 on this site---from what I see those who have a go of it dont adhere to even the simplest of rules. Doing so will in any analysis ensure failure.

(3) A fully tested method will give the trader a blue print to follow.One that will tell him if his drawdowns,strings of loses,exits due to stops,Reward to Risk are all as they have been tested.
If you dont know if its normal a string of 5 loses normally have the trader looking at his method!---where as it may well be very normal.

Trader after trader posts ideas and theories which can be seen by some of us as flawed. So we say so.

Its NOT about the analysis (provided its sound).
Once youve traded and designed a few winning methods you'll know exactly where I'm coming from.

 

[aramz]

Tech A, thanks always for your input. I don't percieve anything you say as a beat down. Your posts come off as someone whose been there, done that and learnt alot and are offering wise words. Anyway i'm just trying to grasp a few things here. You mention discretionary trades and systematic trades. In order for Lukaye's trades to become systematic what guidelines should he follow?

Would he go about a similar method but focus on certain trades that have been successfull and input these certain indicators and search criteria which have made these trades successfull into a code for a custom scan? Would he then scan away and when the criteria is met he enters various trades and then meticulously records all aspects of the trade?

I am just trying to understand what you are saying about how to improve Lukaye's current trading approach by making his methods more systematic.

Would he need to use a trade manager type system aswell as software and then backtest? Would this in turn make his method faster more efficient and 'systematic'. Am i on the right path here in interpreting you analysis of his trading approach and how to better it?

Cheers

 

[Wysiwyg]

Not having a go at you or anything but show me how you would number it please

Best ask an Elliot Wave practitioner to number beyond 1 but I will get you started. The first peak is number 1.