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My trading system summary

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



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.
 

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.

A 20% gap down in a larger cap is pretty damned rare.
Click to expand...

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.


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

 
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.


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.
 
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.
 
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.
 
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.
 

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
 
Also forgot to add, which CFD broker did you end up going with and why?
 
DJG said:
Also forgot to add, which CFD broker did you end up going with and why?
Click to expand...

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?
 
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?
Click to expand...

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.
 
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
 
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
 
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.
 
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.
 
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.
 

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.
 

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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