Paper Trading Journal

[Slope Trader]

Rules
1. Use multiple set ups depending on market conditions. Breakouts, pullbacks, etc.
2. 10, 30 and 50 day MA;s need to be stacked
3. Do not trade against the general short term market trend
4. Max 10% of total capital in one trade
5. Max 1% of capital at risk
6. Stop gets put in at time of entry
7. Targets flexible, but generally sell half at 10-15% gain. Take profit earlier at my discretion
What am i missing?

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In addition to what Bad_Badness and schizo suggested, I'd add that there are usually a few more details included about entry, initial stop-loss location and exit rules.

For example, when a new candle closes that is a signal for a long order, will you buy using a stop order above this new close or with a stop order above the high, or a limit order below the close, or on the open of the next candle, etc.?

and will a stop-loss order be entered into the system at the same time as the entry order... where will it be placed, e.g., below the low of the signal bar, below the low of the most recent swing low, below the lowest low of the last two candles, at a price that is a multiple of the current Average True Range below the entry price, etc.?

and will you place a target price limit order into the system at the same time that the entry and stop-loss orders are entered... and what rules will be used to set the target price...

will you trail the stop-loss order during the trade as it goes in your favor... or will you simply wait for price to either hit the stop-loss or the target...

These details will affect the profitability of a system, and defining them means that it can be backtested. I'm a big proponent of backtesting, even manually, to know if a strategy has ever been profitable in the past; good results in such tests don't guarantee anything, but if a strategy was never profitable in the past then it's definitely something that shouldn't be traded in the future.

 

[Slope Trader]

KG, you might find these suggestions for rules, some general and some specific, useful too:

https://www.newtraderu.com/2015/01/13/30-of-the-worlds-best-trading-rules/

 

[KGTrader4]

Thanks ST, I will take a look

 

[plinakos]

But I think it’s covered by my rule that says no more than one percent of capital at risk on any one trade, No? So if I’ve got $100,000 in capital and I don’t want to put more than 10% into any one stock, on dividing $10,000 by the price per share and that’s how many shares im buying.

This way implies that your stop loss is a fixed 10% per trade which To maintain the 1% at risk you have to divide 1.000 (based on the 100.000 capital) by the per share loss when your stop loss is hit plus any slippage of the execution price alongside the 10% allocation capital and choose what gives you less stress.

ie…. for a stock that is traded at 40$ your allocation rule permits buying 250 shares, but if your technical stop loss is 5$ per share the 1% capital at risk permits for 200 shares or the reverse in other cases. That way you have a better capital usage in some early setups and you can exceed at a certain percentage the max allocation, in case of ETFs for example, without deviating the 1% capital at risk rule. Still you need to have a fixed max capital allocation for price gaps and other black swan events.

Another way to asses risk for each stock is a multiple of ATR (Average True Range) instead of a fixed stop loss percentage.. or a subjective technical stop loss, still alongside the max capital allocation rule.

In addition besides defining risk you should define reward as well, ie only taking trades that have 1 unit of risk for 3 units of expected profit.

Finally you have to establish a rule for stock share liquidity/ free float / daily volume or stock market capitalization so to be sure that you don’t get stacked in a trade, as well as, beta and a diversification rule for max correlated stocks, sector weighting, etc, ie with stocks fully correlated then the 10% max allocation may have be violated without being noticed.

Just my 2 cents words.