Please comment on my day trading plan

Hi Jr07,

I think you should pat yourself on the back. Many traders never get as far as you do in defining a trading plan. I think you are on the right track. But there are still a number of questions that are not clear based on the information you provided. These are some things to think about.

Because you are day trading you are going to have a time when your strategy does not work or you will get hit by changing markets. This has killed many a day trader. I was one of them. So now I swing trade successfully. If I had applied more stringent rules to my day trading I would still be a day trader. One of these controls is max daily loss and you are out for the day. This is one I do use in my swing trading. I have a max weekly loss and an account shutdown rule for cumulative losses in a month.

I also agree with sappjason about the 10% risk. I originally thought you were trading 10% of your account in one stock. If you are trading 10% risk per position. It will only take a couple of bad days and you could destroy a big part of your account. I had the same type of system about 12 years ago with a 6% loss. It looked good. It traded good … until volatility changed. Then I got wacked with several max losses in a row for a big hunk of change. These losses exceeded my total proits to date. When I tried to bring the position size back in line the system died. What I had produced was a curve fitted system fit into wide max losses that only worked in low volatility.
 
Quote from jr07:


Since January and after commissions, I have had
298 wins
447 losses

for a win ratio of 40%

Average win 289$
Average loss -209$

Not quite the 2x1 mentioned in the plan, but not all trades reach the profit goal and are exited manually if there is a change in direction.

But its the 40% win rate that really worries me. Its not even 50% as I mentioned at the beginning.
J
More...

Is this from live results or sim trading/papertrading.

If it's live, then you're getting somewhere and have a small edge which you can refine.

If it's sim/papertrading, then do not send this live. It will be a net loser.

While your plan is well put together, it does not seem your trading strategy is smth that can be expected to have any real edge. Maybe there is a pattern with the 100 MA in the stocks you have screened, but be realistic, there must be 1000s of traders trying to capture the same pattern. What is likely is that slippage is high for entries at those spots.
 
Quote from Rabbitone:

Hi Jr07,

I think you should pat yourself on the back. Many traders never get as far as you do in defining a trading plan. I think you are on the right track. But there are still a number of questions that are not clear based on the information you provided. These are some things to think about.

Because you are day trading you are going to have a time when your strategy does not work or you will get hit by changing markets. This has killed many a day trader. I was one of them. So now I swing trade successfully. If I had applied more stringent rules to my day trading I would still be a day trader. One of these controls is max daily loss and you are out for the day. This is one I do use in my swing trading. I have a max weekly loss and an account shutdown rule for cumulative losses in a month.

I also agree with sappjason about the 10% risk. I originally thought you were trading 10% of your account in one stock. If you are trading 10% risk per position. It will only take a couple of bad days and you could destroy a big part of your account. I had the same type of system about 12 years ago with a 6% loss. It looked good. It traded good … until volatility changed. Then I got wacked with several max losses in a row for a big hunk of change. These losses exceeded my total proits to date. When I tried to bring the position size back in line the system died. What I had produced was a curve fitted system fit into wide max losses that only worked in low volatility.
More...

I do use 10% of account value in one single stock, not risk (the stock would have to go to zero with no stop loss for this position to bite 10% out of my account). The actual risk vs. account size of any single position is no more than 1%, assuming a trade with 10% of the account value is allowed to wiggle 10%. It's rarely this big, so I would say the actual risk per trade is much lower. I haven't had a single trade lose more than 1% yet.
 
Quote from duhmentor:

Your plan calls for a 2 to 1 reward to risk
Actual is 1.4 to 1
What is causing this?
More...

The fact that not all trades reach their profit target and change direction/trend before doing so and therefore are exited manually or at breakeven. This is something to think about... how come stop losses are always reached but not all profits targets are?... perhaps 2x1 is too greedy.
 
Quote from Anaconda:

Is this from live results or sim trading/papertrading.

If it's live, then you're getting somewhere and have a small edge which you can refine.

If it's sim/papertrading, then do not send this live. It will be a net loser.

While your plan is well put together, it does not seem your trading strategy is smth that can be expected to have any real edge. Maybe there is a pattern with the 100 MA in the stocks you have screened, but be realistic, there must be 1000s of traders trying to capture the same pattern. What is likely is that slippage is high for entries at those spots.
More...

The results are live, after commissions (and slippage of course).
Thanks for the feedback.

My continued development will lead me to continue exploring the issue of volume. Perhaps it's not its SMA, perhaps its something else, but I believe one must, as a minimum, go with the crowd when trading and not try to play hero by going against it. I haven't had too many problems going in at these levels.

My charting software has a PRO version which allows one to analyze volume further by splitting it into volume at the BID and volume at the ASK. I will test it to see how useful it may be or not.
J
 
Quote from jr07:

The fact that not all trades reach their profit target and change direction/trend before doing so and therefore are exited manually or at breakeven. This is something to think about... how come stop losses are always reached but not all profits targets are?... perhaps 2x1 is too greedy.
More...

Break even is OK
How many of the trades that you take off for change of direction never get to breakeven but eventually reach your target?

You might want to consider sizing your trades to amount of risk rather than % of capital.

What % of trades are taken off because of direction change?
How many are stopped out between your calculated stop and breakeven.
What I'm wondering is if the system is OK and you are messing with it.
A MA cross system will usually result in lots of whipsaw and a few big wins that make it pay.
 
BTW, I hope I don't jinx it with this, but it's the first time I've had a meaningful constructive discussion on this board without a single negative/aggressive post!
J
 
Quote from jr07:

The results are live, after commissions (and slippage of course).
Thanks for the feedback.

My continued development will lead me to continue exploring the issue of volume. Perhaps it's not its SMA, perhaps its something else, but I believe one must, as a minimum, go with the crowd when trading and not try to play hero by going against it. I haven't had too many problems going in at these levels.

My charting software has a PRO version which allows one to analyze volume further by splitting it into volume at the BID and volume at the ASK. I will test it to see how useful it may be or not.
J
More...

You were a little vague describing your entries. Are you trying to catch an exhaustion of a counter move in these stocks that gap open? Or are you trying to catch a break out? Those are pretty much the two possible day trading stategies. I think the former is hard to time, and the latter exposes you to a lot of failed b/os, but I'm sure you already know that.

One thing I would question on these trades is using a hard profit target. I believe the key to making money is to ride the big runners that go one direction all day. Have you tried to see how much you are leaving on the table by exiting on a target? If you're getting in on breakouts, you will never have a very good win/loss percentage, so the key is to ride your winners as long as possible.
 
I like some of your ideas, and have some general thoughts. First, I recommend that you do some searching through ET for posts by Dustin. He has been very open about some of his general strategies, which also revolve around relative strength/weakness with volume. I'm not sure what he has been up to lately however.

Second, are you using the overall market trend in your analysis? If the market is showing signs of strength, are you only playing longs or are you also taking your short signals. I played around with some relative strength ideas before, and I never had much success with selling weak stocks on strong market days or vice versa. I was hoping to find ways to remain relatively market neutral during the day, but trading against the market trend obviously seemed to blunt most of the gains.

Next, have you tried waiting for a pullback to time your entries? I was looking for strong stocks on strong market days/weak stocks on weaker market days, but rather than buying the high when my criteria was reached, I would wait for a pullback.
 
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