My first trading plan

[Warr87]

Warr87, I think easiest place to start is money management, my interpretation of Fixed fractional
20 positions, 5% in each eg $20000 capital = $1000 worth of stock in each open trade.
So at this stage if any one stock becomes delisted you lose 5% of your capital, true but rare as a system usually gets you out before that happens.
Risk - usual risk suggested is max 2% of any open trade. If you place your isl (initial stop loss) say 50% below your purchase price then you are risking 2.5% on that trade. (just an example)
you will find your own way of placing your ISL just make sure less or same as the 2% rule.
Money management great place to start and once followed consistently increase the time which you need to find the way for you to become a consistently profitable trader.

That is one way for fixed fractional. Mine is based on Van Tharp where I am risking 1% of total capital. If I place my ISL just below the trend line (in order to avoid daily volatility) this might be 30c or 50c (depends on the stock). This will then determine my parcel size. Your parcel size is already fixed in your example.

And I do have to start taking notes as well so I can look back and analyse my performance.

 

[willoneau]

Parcel size isn't fixed as stock prices are different.
people can have many different idea's were trendlines go and professional traders know were they are too?
would you use a trend line or trend range for example?

 

[Warr87]

I know trend lines are very subjective and take practice to use them correctly. And I have been using a trend line not a range.

 

[willoneau]

Why did you choose to use trend lines if i may ask?

 

[Warr87]

It made sense to me. It was a good visual aid. I'm open to exploring other (possibly mechanical) indicators that would be better.

 

[willoneau]

Alot of things that seem to make sense don't work, if they did the success rate would be much higher.

 

[peter2]

Some nice ideas in your initial trading plans but it's much too vague. You're not sure about your setups, entries and exits. A long way to go yet and there's much to learn.

IMHO you don't have enough capital to start trading. You need to save and add a lot more, imo you need $30K.

I'd suggest you learn more about AB, test heaps more, especially the weekly systems that @Skate has outlined. While you're learning, save like crazy. There's no need to rush to get into the market especially when you're under-capitalised.

Sometime in the next few years while you're learning and saving, the markets will dip. There may even be a recession, who knows, but a market dip will be a great time to think about getting into the market if you're prepared.

 

[willoneau]

Hi peter2, i don't think he wants to hear that even if it is true.
Are you suggesting 30k because of commission drag?

 

[Warr87]

Some nice ideas in your initial trading plans but it's much too vague. You're not sure about your setups, entries and exits. A long way to go yet and there's much to learn.

IMHO you don't have enough capital to start trading. You need to save and add a lot more, imo you need $30K.

I'd suggest you learn more about AB, test heaps more, especially the weekly systems that @Skate has outlined. While you're learning, save like crazy. There's no need to rush to get into the market especially when you're under-capitalised.

Sometime in the next few years while you're learning and saving, the markets will dip. There may even be a recession, who knows, but a market dip will be a great time to think about getting into the market if you're prepared.

Yea it turned out more vague once I started to write it down. But writing it down and having others look at it is a way for me to try and make it clearer.

And I agree $10k isn't enough. I was thinking $20k would be more of a minimum, but $30k would be even better. By the time I stop paper trading I should have an initial $20k.

 

[Warr87]

I've been doing a lot more reading, and there is still a lot more to go. Also improved my coding.

Based on some back testing and optimisation, I'm currently looking at 6 > 34 EMA with Price < $3.00 using weekly charts. The open would be made on the monday, a trailing stop of 30%, 10 max positions with an account of $20,000.

I am not sure if I should be using something else other than price, perhaps volume, to filter out stocks for the simple EMA crossover of 6 > 34.

 

[peter2]

Your trading education seems to be progressing well. It also seems that you prefer the tech side of trading. Specialise with what you prefer but take the time to learn about other approaches. I'm a chartist myself but know a little about fundamental investing and really respect those that do it well. The most important thing I've learned from hugely profitable investors is patience. I hope you can be patient while you're learning (and saving).

OK so now you've defined your trend (6 > 34 ema). Will you scan for recent crossovers (6 crosses 34 ema line from below) or all charts where 6>34 ? The scans will find plenty of opportunities. What do want to see on the chart now? Do you want to see a shallow consolidation or a deeper pull-back that doesn't change the trend ? When you see your setup, how are going to buy? How are you going to manage your downside exposure (risk)?

Keep it coming.

 

[Warr87]

Thanks peter2. I actually read a lot of your stuff, as I find myself being drawn to your style. Between your trading, Skate'sm and willoneau I am finding a lot of good stuff. And while I have defined a system for this account, I have a number of other ideas I would like to try later if I manage to survive. I also agree that you need to know a little bit of other approaches too. I've taken more to technical analysis than I have fundamental. I do believe there is something to be gained from having fundamental analysis skills. If I had 100 stocks to chose from for my next trade, and all are essentially identical, obviously something like fundamental analysis would help. And I am trying to be patient. At the moment since I have find a system that I really like I obviously have the urge to just jump in now. But I will wait and paper trade live while I can. I have already come up with problems in how I should best apply my TS.

Yes, the plan is to scan for recent crossovers. I have a price filter that has helped. I also tried a volume filter but that didn't yield me any better in my testing. But I have used volume much in my coding before so I'm not even sure if I used it properly. While looking at the charts I have also added a 52 EMA for a longer term comparison. While it isn't part of my scan, it will help me filter out some. I also look for the pull backs and consilidation to see if the momentum is likely to at least continue up (or rather, is there still a leg of this for me to follow). The fast EMA allows me to catch on quick and close out quick as well. While I am likely going to get out a little early at times, back testing has shown my avg losses are low and when I do catch onto a trend it is significant! The biggest losses are when the 30% trailing stop is used just after an entry is made.

As for risk. I will use 10 max positions, $20k starting, and with the 30% TS leaves me at 1.5% risk. The max DD was only 10% during back testing (and when walked forward), and also tried on various universes too. I realises in real world trading the DD is likely to be higher, and annual return to be lower than back testing.

 

[willoneau]

10 positions with 30% risk is 3%

 

[Skate]

Thanks peter2. I actually read a lot of your stuff, as I find myself being drawn to your style. Between your trading, Skate'sm and willoneau I am finding a lot of good stuff. And while I have defined a system for this account, I have a number of other ideas I would like to try later if I manage to survive. I also agree that you need to know a little bit of other approaches too. I've taken more to technical analysis than I have fundamental. I do believe there is something to be gained from having fundamental analysis skills. If I had 100 stocks to chose from for my next trade, and all are essentially identical, obviously something like fundamental analysis would help. And I am trying to be patient. At the moment since I have find a system that I really like I obviously have the urge to just jump in now. But I will wait and paper trade live while I can. I have already come up with problems in how I should best apply my TS.

Yes, the plan is to scan for recent crossovers. I have a price filter that has helped. I also tried a volume filter but that didn't yield me any better in my testing. But I have used volume much in my coding before so I'm not even sure if I used it properly. While looking at the charts I have also added a 52 EMA for a longer term comparison. While it isn't part of my scan, it will help me filter out some. I also look for the pull backs and consilidation to see if the momentum is likely to at least continue up (or rather, is there still a leg of this for me to follow). The fast EMA allows me to catch on quick and close out quick as well. While I am likely going to get out a little early at times, back testing has shown my avg losses are low and when I do catch onto a trend it is significant! The biggest losses are when the 30% trailing stop is used just after an entry is made.

As for risk. I will use 10 max positions, $20k starting, and with the 30% TS leaves me at 1.5% risk. The max DD was only 10% during back testing (and when walked forward), and also tried on various universes too. I realises in real world trading the DD is likely to be higher, and annual return to be lower than back testing.

Hi @Warr87, I've been reading your posts with interest & there has been some good advice given to you already.

Enthusiasm
Being eager to start trading before all the legwork has been done is a major treat to the money you have set aside for trading. @peter2 has given you excellent advice that is worthy of a second read, lets not be in a rush to lose your money.

Repeatable patterns
Testing each & every idea is important ensuring you can find repeatable patterns that will give you a mathematical edge to you trading. On my 'Dump it here' I've given you a few ideas to test, I've even paper traded 3 of them for 6 months & posted weekly updates so others could follow their progress.

I explain the strategies in detail
Read from here, it may give you an idea to test: https://www.aussiestockforums.com/posts/1025758/

Find an idea that works before trading
We all have opinions of what works & what doesn't & without statistical proof you will find it difficult to have the confidence putting your money on the line trading that idea. My MAP strategy is a simple strategy & on paper it has the ability to make it.

The 'MAP Strategy' trading Plan
To keep this strategy as simple as possible:
(a) Buy whenever the Closing price is higher than a selected Moving Average conditional on the ROC filter being above 0% - OR - buy when the Closing price is at least 10% higher than the previous week close with Volume higher than the Moving Average period.
(b) Sell when the momentum stalls or when a trailing stop is hit.

In Plan in English
Buy when the price is moving up with momentum & Sell when the momentum stalls or the trailing stop is breached. Read my 'Dump it here' thread before you risk one dollar.

Lets be a winner at this game
I want you to make it when you start trading, so lets start out on the right foot instead of trading too early by giving your hunch ago. $20K is an awful large sum so give it the respect it deserves & do your homework before risking it. Don't forget I'm on your side.

Skate.

 

[Warr87]

10 positions with 30% risk is 3%

Yes, that was a stupid mistake. 15 positions with 30% risk is right at the 2% risk mark.

Hi @Warr87, I've been reading your posts with interest & there has been some good advice given to you already.

Enthusiasm
Being eager to start trading before all the legwork has been done is a major treat to the money you have set aside for trading. @peter2 has given you excellent advice that is worthy of a second read, lets not be in a rush to lose your money.

Repeatable patterns
Testing each & every idea is important ensuring you can find repeatable patterns that will give you a mathematical edge to you trading. On my 'Dump it here' I've given you a few ideas to test, I've even paper traded 3 of them for 6 months & posted weekly updates so others could follow their progress.

I explain the strategies in detail
Read from here, it may give you an idea to test: https://www.aussiestockforums.com/posts/1025758/

Find an idea that works before trading
We all have opinions of what works & what doesn't & without statistical proof you will find it difficult to have the confidence putting your money on the line trading that idea. My MAP strategy is a simple strategy & on paper it has the ability to make it.

The 'MAP Strategy' trading Plan
To keep this strategy as simple as possible:
(a) Buy whenever the Closing price is higher than a selected Moving Average conditional on the ROC filter being above 0% - OR - buy when the Closing price is at least 10% higher than the previous week close with Volume higher than the Moving Average period.
(b) Sell when the momentum stalls or when a trailing stop is hit.

In Plan in English
Buy when the price is moving up with momentum & Sell when the momentum stalls or the trailing stop is breached. Read my 'Dump it here' thread before you risk one dollar.

Lets be a winner at this game
I want you to make it when you start trading, so lets start out on the right foot instead of trading too early by giving your hunch ago. $20K is an awful large sum so give it the respect it deserves & do your homework before risking it. Don't forget I'm on your side.

Skate.

Thanks skate. The reading and learning will continue.