Do you have lots of exceptions in your trading plan?

C

clambill

Well, that may sound like a “screwed-up” question but after doing some trading just to get some experience, I decided I would “do the right thing” and choose a strategy, write a trading plan, do some paper trading and so on and so forth.

OK, obviously, I noticed something bizarre when I started looking at my paper “trades”. My trading plan is based on an Oliver Velez strategy with a combination of technical indicators. I looked at some paper trades and started wondering things like: “What do I do if the stock gaps up or down? Do I take the profit right away or really wait for a crossover of a moving average?” I mean, after all, it might waste a lot of time to wait for the moving average to cross over. Or questions like: “There’s already a sizeable profit here, do I look to find a technical indicator that would tell me to sell just to find an excuse to sell?”

I find if I use some filters, the more filters I could use, the more I could eliminate some potential big wins. So, how much filtering do you find makes sense? I know it’s a subjective question but I wanted to know if any of you have any ideas on that.
 
Quote from clambill:
So, how much filtering do you find makes sense?
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The filtering you require (ie indicators and chart configurations) needs to be sufficent to give you clear, reliable and consistent signalling to play the market, open to close, turning around your position each time to sell the tops and to buy the bottoms of the gyrations that make up the movement of the days prices. You do this as a continuum, namely a connecting sequence of trades for the market session, open to close. This answer applies to liquid futures markets (eg ES, YM, CL).
:)
 
Quote from clambill:

Well, that may sound like a “screwed-up” question but after doing some trading just to get some experience, I decided I would “do the right thing” and choose a strategy, write a trading plan, do some paper trading and so on and so forth.

OK, obviously, I noticed something bizarre when I started looking at my paper “trades”. My trading plan is based on an Oliver Velez strategy with a combination of technical indicators. I looked at some paper trades and started wondering things like: “What do I do if the stock gaps up or down? Do I take the profit right away or really wait for a crossover of a moving average?” I mean, after all, it might waste a lot of time to wait for the moving average to cross over. Or questions like: “There’s already a sizeable profit here, do I look to find a technical indicator that would tell me to sell just to find an excuse to sell?”

I find if I use some filters, the more filters I could use, the more I could eliminate some potential big wins. So, how much filtering do you find makes sense? I know it’s a subjective question but I wanted to know if any of you have any ideas on that.
More...

If you have a well thought out trading plan then you will have an exit strategy that you should follow.

How often are you leaving money on the table when you follow your plan?

Are you just focusing on the trades that get away from you? How many have hit your target then come back to stop out?

What I remember of the Velez strategy is that he took profit at the swing highs and left the rest for other traders. He was just concerned with having a risk reward of 1:2 or better.

Going for the bigger moves means more stop outs and more breakeven trades. Sounds like your strategy calls for hitting singles instead of homeruns. Homerun hitters strike out more often. Both strategies work if you have the discipline to follow your plan.
 
A trading plan is like a combat plan, you must have a plan for every situation that is trained into you so you can just execute and react, not think. You must be adaptive and creative in the moment, able to change your style at a any moment, prepared for all scenarios.

Bruce Lee's combat philosophies are applicable to trading if you change the subject around. I recommend studying the Tao of Jeet Kune Do.
 
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