My open book trading plan - Two month test

[It's Snake Pliskin]

Hi all, Thanks for comments, so helpful for a beginner (actually not even started) guy like me

Re: 2% ... this sounds ok to me coz that means you virtually have 50 positions, poz size 1.5K, $20 entry $20 exit, so 2.5% roughly goes to fees, so stock must go up by more than that atleast (this is very rough, I know 2% amount will decrease or increase )

Re: paper trading for 2 months
I'm developing a plan now, it involves using advice from professionals and not use chart analysis. "duplicate then innovate" :
and instead of paper trading for 2 months from now... I will simulate trading for 2 months from 2 moths ago till now using archived reports/advice documents.

The reports come from "wise-owl", my judgement so far is that they are good at what they do, and that is all I need... "guidance by professionals" so that I can minimise mistakes made by me as a beginner until making some profits.

2nd stage... Use portion of profits with increased risk vs increased return trades.

Final goal is to be a daily options trader... I've realised this is harder than it looks. The swings are pretty high... too much for me right now

Mistakes
... mistakes were mentioned, I would like to see a forum thread that lists traders real life mistakes, and how they could have avoided or minimized them with sound planning.

So from your thesis I take it you will make your own decisions when you are in profit and won't require the help of professionals?

Blindly following experts without evolving can only lead to one thing when ne goes out on their own. Following professionals with understanding may be different.

 

[nomore4s]

Hi all, Thanks for comments, so helpful for a beginner (actually not even started) guy like me

Re: 2% ... this sounds ok to me coz that means you virtually have 50 positions, poz size 1.5K, $20 entry $20 exit, so 2.5% roughly goes to fees, so stock must go up by more than that atleast (this is very rough, I know 2% amount will decrease or increase )
Mistakes
... mistakes were mentioned, I would like to see a forum thread that lists traders real life mistakes, and how they could have avoided or minimized them with sound planning.

I think you've misunderstood this a bit. The 2% everyone is refering to is max risk not position size. So for $75k, 2% risk per trade would be $1500, what some posters are saying is that this is to big and should be more like 1% or $750.00

I'm pretty sure there is a thread on the mistakes everyones made,

 

[chrisdedavid]

So from your thesis I take it you will make your own decisions when you are in profit and won't require the help of professionals?

Blindly following experts without evolving can only lead to one thing when ne goes out on their own. Following professionals with understanding may be different.

"thesis" yep sorry heh made me laugh though.. thanks.

I'm all up for criticism and comments help etc... that's why I'm here. Getting as much advice as possible without being able to give any back really :

I have many ambitions with trading, I've played stock market games and made profits (twice)... that was all by investing in companies that I simply liked AMD, INTC, IBM, then a few short sells where just following trends.

But... I will not be blindly following... just using pro's to point out promising leads, then I investigate further. The reports show charts, company outlooks etc... If I wanted to be blindly trading I would simply pay a broker... that's not the plan.

 

[chrisdedavid]

I think you've misunderstood this a bit. The 2% everyone is refering to is max risk not position size. So for $75k, 2% risk per trade would be $1500, what some posters are saying is that this is to big and should be more like 1% or $750.00

I'm pretty sure there is a thread on the mistakes everyones made,

Thanks for clearing that up, that makes more sense now... but don't agree with it heheh. (i can see "mistake" signs in my head ... potentially me making a mistake here)

I like to look at charts and set stop levels depending on the trend, volatility, and share price. Cheaper stocks may have more swings than more expensive ones.

What if I invest 1.5K of my 75K ... should I set the stop loss at 0.00 as that would be a 2% loss?

 

[professor_frink]

Thanks for clearing that up, that makes more sense now... but don't agree with it heheh. (i can see "mistake" signs in my head ... potentially me making a mistake here)

I like to look at charts and set stop levels depending on the trend, volatility, and share price. Cheaper stocks may have more swings than more expensive ones.

What if I invest 1.5K of my 75K ... should I set the stop loss at 0.00 as that would be a 2% loss?

Hi chrisdedavid,

Have a look at this post by Nizar, should clear things up for you

https://www.aussiestockforums.com/forums/showpost.php?p=161774&postcount=6

 

[nomore4s]

Thanks for clearing that up, that makes more sense now... but don't agree with it heheh. (i can see "mistake" signs in my head ... potentially me making a mistake here)

I like to look at charts and set stop levels depending on the trend, volatility, and share price. Cheaper stocks may have more swings than more expensive ones.

What if I invest 1.5K of my 75K ... should I set the stop loss at 0.00 as that would be a 2% loss?

Your position size is determined by the 2%.
E.g XYZ - Purchased @ $1.00, stop set at $0.90 = 10c risk.
Therefore MAX position size is $750/$0.10 = 7500 shares x $1.00 = $7500
I also make allowances for fees when doing this so my max loss would be $700 + fees. e.g $700/$0.10 = 7000 shares

 

[theasxgorilla]

What if I invest 1.5K of my 75K ... should I set the stop loss at 0.00 as that would be a 2% loss?

The short answer is yes, if you're only going to put 1.5k into a position and you're prepared to risk 2% of total equity each time you take a bet you can effectively have no stop.

 

[tech/a]

Ok, so heres my plan.

-Capital: 75,000 AUD (i would normally trade CFD's with approx. $30k)
What parcel size will you be trading?
Fixed?
Maximum?
-Universe: Will be my IG Market list that Lesm kindly gave me for the mech system testing. It can go both long and short (most of the time )
-I will attempt to take long and short positions in stocks that present low risk entries using typical chart pattern analysis, incorporating some VSA, and some really primitive EW.
OK
-I will only risk 2% of starting capital on any trade, using strong support/resistance and fixed fractional positioning to determine quantity purchased.
Fine again
But as you say your going to be leveraged
so you only have $600 to risk/trade.
This will then determine position size\ie wether you have to deminish the size of the parcel due to being able to purchase more than to have allocated /parcel size.

Lets say you have a $1 stock.
Risk is 3c
$600/.03 = $20000 worth you could buy.
If your Maximum single position size is $10,000 then you can only buy that amount of stock and your actual risk on THIS trade will only be 1%.

Simple really!
-I will move stops to B.Even ASAP.

I would only move to B/E when you have atleast a 2:1 R/R OR there is a technical higher low you can move the stop to.
-I will use a trailing stop (higher low)
Fine
-I will use a profit stop (50% increase in less than 2 bars) to be honest i have not really thought about this allot yet, i am interested in suggestions here.

This is a outlier move profit stop--thats fine as well just add it to your exit criteria as an OR option.
I presume the trailing stop OR the outlier move will take you out of a trade.
-Anything i'm missing here?

Probably.

Cheers,

Few thoughts.Will be good for you to do this.

 

[chrisdedavid]

Hi chrisdedavid,

Have a look at this post by Nizar, should clear things up for you

https://www.aussiestockforums.com/forums/showpost.php?p=161774&postcount=6

Thanks professor, makes more sense that way.

 

[IFocus]

Hi Can

Didn’t see any mention of the time frame you had in mind. Choosing up front how many bars you are looking for can start to help maybe influence / determine your position sizing, risk, stop, trade frequency etc.

The best traders I have seen always have a very clear time frame in mind.

Have included a chart of AOE, which part of the move belongs to you?

This exercise will be huge for your own progress (and other forum members too) congratulations you just took the next step towards long term success

Focus

 

[CanOz]

Hi Can

Didn’t see any mention of the time frame you had in mind. Choosing up front how many bars you are looking for can start to help maybe influence / determine your position sizing, risk, stop, trade frequency etc.

The best traders I have seen always have a very clear time frame in mind.

Have included a chart of AOE, which part of the move belongs to you?

This exercise will be huge for your own progress (and other forum members too) congratulations you just took the next step towards long term success

Focus

I would like to think we could have rode that whole trend Focus...i think my trailing stop would have held out, only just though.

Heres a little summary of the rules:

The open book system rules.
Universe: IG Markets Controlled Risk securities list
Starting Capital: $75000, unleveraged
Trade duration: Medium to long term
Trade direction: Long and short
Risk % per trade: 1% of available capital per trade
Position size: To be determined by fixed fractional positioning @ 1% capital risk:
Initial stop: Just below strong technical support
Breakeven Stop: 2 x initial stop
Trailing stop: just below new higher low
Profit stop: Yet to be determined - open to discussion.

 

[CanOz]

Heres a few potentials for Monday.

Cheers,

 

[nizar]

I would like to think we could have rode that whole trend Focus...i think my trailing stop would have held out, only just though.

Heres a little summary of the rules:

The open book system rules.
Universe: IG Markets Controlled Risk securities list
Starting Capital: $75000, unleveraged
Trade duration: Medium to long term
Trade direction: Long and short
Risk % per trade: 1% of available capital per trade
Position size: To be determined by fixed fractional positioning @ 1% capital risk:
Initial stop: Just below strong technical support
Breakeven Stop: 2 x initial stop
Trailing stop: just below new higher low
Profit stop: Yet to be determined - open to discussion.

Can.
I have seen a system hit 84% winners and make 30% annual return with acceptable drawdowns and it was based on 2 exits:
1. Profit taking exit at 100%
2. If 1 was not satisfied, then a 3 year time stop was used.

Even though such a pair of exits goes against the saying of:
"Chop your dogs and let your winners run", the results are still what i would call, above average.

Universe was s&p500, money management 10% each position.
Entry was random.
Drawdowns were acceptable (to me), with average max peak to valley drawdown of 21%.

I read about this and saw the reports and monte carlo on reefcap forum. A great tool for discussion of mechanical systems trading.

Somethings to think about -- and test.

 

[nizar]

Heres a few potentials for Monday.

Cheers,

Ady looking good for an entry for me on Monday.
I like the way it bounced off 25c -- the resistance point. On volume as well.
With end of day stop a touch below 25.

Cul as well, stop with a close below 6.

What do you think of these?

Actually what is your entry criteria?

 

[CanOz]

This was a good short the other week, could be another potential trade, long this time.

Nizar, ADY is not in my universe unfortunately...entry's criteria to find reversals, breakouts, triangles etc. so i can get in with a stop just below strong support.

This is a descretionary system remember. Were you thinking it was mechanical?

Cheers,

 

[doctorj]

I'd be waiting to see what this one does on monday before entering long - If it holds its ground and closes up, I'd be interested.

 

[tech/a]

Anything I'm missing here?

Probably

CanOz In all seriousness if the quality of setup you are looking at is like the one above,then your likelyhood of success is very remote.Your attempting to trade against the governing trend.

When taking a discretionary trade

I ALWAYS ask myself.
(1) Where is the trade relative to the governing trend.
(2) How long am I likely to be able to stay with the trend.
(3) Why should I NOT be in this trade?

Sure you can trade pullbacks.
But the above doesnt qualify as a pullback does it?
Frankly I wouldnt even be looking for a short setup in it either.
Remember stocks run in 4 cycles.
(1) Accumulation
(2) Uptrend
(3) Distribution
(4) Retracement.

You want to trade OUT OF (1)
or WITH (2)

 

[professor_frink]

I'd want to see a higher low established in PSV before making an entry.

 

[tcoates]

CanOz - best of luck (in all seriousness). You might be right. I personally also the weekly chart and there is nothing convincing there for me.

Tim

 

[CanOz]

CanOz In all seriousness if the quality of setup you are looking at is like the one above,then your likelyhood of success is very remote.Your attempting to trade against the governing trend.

When taking a discretionary trade

I ALWAYS ask myself.
(1) Where is the trade relative to the governing trend.
(2) How long am I likely to be able to stay with the trend.
(3) Why should I NOT be in this trade?

Sure you can trade pullbacks.
But the above doesnt qualify as a pullback does it?
Frankly I wouldnt even be looking for a short setup in it either.
Remember stocks run in 4 cycles.
(1) Accumulation
(2) Uptrend
(3) Distribution
(4) Retracement.

You want to trade OUT OF (1)
or WITH (2)

Thanks Tech for your input.

Most of what i'll present here in the next few days are charts for the watchlists. I've got quite a few more yet to come. Your comments, however stupid they make me feel at times, are a learning experience for me and
I really appreciate the comments on them. Remember i can go short (in theory) and this is an area where i'm even worse at picking opportunities, IMO.

Professor, i totally agree. I would be looking for a it to confirm the breakout and then make the new higher low around that old support i marked with the line.

To search for opportunities, what i like to do is go through the sectors first. The weakess sectors then i can scan for shorting opps, and the stronger sectors for long opps.

The only issue i have at the moment is confining it my my universe. The reason (for Nizar) that i'm using this universe is that i will eventually want to use this system for CFD's. The universe is the IG Markets controlled risk CFD list.

Cheers,