Trading Plan

[40yotrader]

Originally posted by gerry875
40yotrader,

if you are already papertrading - you might have noticed that the minis tend to do some weird things sometimes after those reports. staying out of the market at those times is one simple element of risk management - i would say.

Thanks, I've been using the Yahoo link to note economic news.
I've seen the market take off 10-15 pts. after Fed announcements. My method has loose stops, so it hasn't been badly affected by newsworthy events. During papertrading I've only made sure I was around in case I got a reversal signal. I don't expect to trade any differently with real money.

let me just add that some of the trader's greatest enemies are the need to trade and the need to make it back. at least if you start trading with real money you'll know these feelings. so please try to not set yourself under too much pressure - try to enjoy the game - i know it's damn hard.

With a 100% mechanical system, I don't think I'll be doing any revenge trading or overtrading. Just entering the trades throughout the day is enough excitement for me. When I first started papertrading on Auditrack I was stressed out trying to figure out what direction the market was heading and how to do a market order versus a limit order. Now, I feel very comfortable with the process and the results.

Thanks for the advice.

 

[ddog]

My basic plan is very simple. Buy intraday breakouts with a trailing stop.

I am curious as to how you plan on entering your trades. Is it with a limit order on a pullback, a stop limit order or a straight stop order above/below the breakout level?

Have you backtested all three to see which works best?

 

[dbphoenix]

I don't recall ever seeing anyone as well-prepared as you are. My hat's off to you.

--Db

 

[mr roboto]

Originally posted by 40yotrader






My goal for 6 months of papertrading was to generate a profit of 75k. So far I've achieved over 95k with another week to go. It's feeling like a job, so I think I'm about ready to switch to real trading. I sold my house and moved to a apartment with my wife and kids to reduce our expenses. We only need 50k/year to get by. My plan calls for 150k/year in income, so even if I'm off by 50%, I should still make enough to get by and put a little in the bank.



If you do nothing else, please consider this: It sounds like you have come up with a good method for taking money out of the market, and perhaps it will, as you imply, allow you to make your planned 150k. But since your required living expenses are much lower, AND it appears you havent traded before, PLEASE--when you begin, trade small. You will immediately notice that it's a whole different feeling/ballgame when real money is at stake. The decisions that were easy on paper become "heart-thumping" when your hard earned (and saved) cash is melting away. You are bound (as all traders do) to have some losing streaks. How you handle those and recover mentally from them will play a MAJOR part of your eventual success or failure. Start with an initial goal of making 30-50k, and get comfortable with the ups and downs of trading that size. Then, as you get used to it, gradually increase your size to your original planned amount.

 

[40yotrader]

Originally posted by ddog

I am curious as to how you plan on entering your trades. Is it with a limit order on a pullback, a stop limit order or a straight stop order above/below the breakout level?

Have you backtested all three to see which works best?

The only one I considered was the stop order. I allow for .5 pt. slippage per round turn in the tradestation code. As I understand the orders, the limit and stop limit orders may not be filled. I just want a fill if a price is hit.

My basic method is to figure the daily range for the past 5 days. Then, I use a fraction of the lowest of the 5 ranges to figure my breakout point from the open. As the trade moves my way, I adjust a stop and reverse point. If todays range reaches 80% of the lowest of the 5 day range, then I take whatever position I'm in and switch to a trailing parabolic stop. Once out, I'm done for the day. Most days I'm done trading within 4 hours of the open.

My trades have over half being winners with the winners larger than the losers. This is no great method, but it's the best I could do. It should be good enough to reach my initial goal. Then, maybe I'll know something about trading and be able to come up with something better.

For money management, I'm more interested in cosistency than making a fortune overnite, so I chose to use a gambling strategy known as a progression on a loss. This way, I come out of drawdowns fast. The big risk is the ES market won't have any volatility for a extended period of time and I'll have lots of losers.
Without volatility I don't think anybody can make much money, so it's a risk I'll take.

 

[40yotrader]

Originally posted by dbphoenix
I don't recall ever seeing anyone as well-prepared as you are. My hat's off to you.

--Db

That's a scary thought. Because I've only got one chance at this, I thought I'd better give it my best shot. I know nothing about trading. I've tried to learn some patterns like flags and pennants, but when I wrote the code to backtest them, they lost money. I hope I'm around long enough to learn something. Right now I look at a chart and just go blank. Without a profitable backtested system, I'd be lost.

I'll probably finish what I have as a trading plan over the weekend and convert it to pdf for posting. With so many smart people looking over it, maybe you guys can offer some more of your good advice.

It's all very appreciated.

 

[40yotrader]

Originally posted by mr roboto

But since your required living expenses are much lower, AND it appears you havent traded before, PLEASE--when you begin, trade small. You will immediately notice that it's a whole different feeling/ballgame when real money is at stake. The decisions that were easy on paper become "heart-thumping" when your hard earned (and saved) cash is melting away. You are bound (as all traders do) to have some losing streaks. How you handle those and recover mentally from them will play a MAJOR part of your eventual success or failure. Start with an initial goal of making 30-50k, and get comfortable with the ups and downs of trading that size. Then, as you get used to it, gradually increase your size to your original planned amount.

Thanks for the advice. I know you have the best of intentions.
I'll be starting with one Emini and plan to trade small during the month of November. This will give me enough trades to verify the slippage estimates. Once done, I've got to ramp up and see if this is going to work. Unfortunately, I don't have the luxury of lots of time to do this. My heart started thumping when I started drawing down my savings last year. I view this as an opportunity to see if this is something I can make a living doing. I've planned on extended drawdowns of over 20 losing trades in a row. If it's any worse, then I'll move on to plan B. I know my nerves will on edge for awhile. I've just decided, I'll have to be disciplined and take 100% of my trades. Anything less than a fair chance and I might as well give up now.....

Thanks again for the advice.

 

[dbphoenix]

I don't recall ever seeing anyone as well-prepared as you are. My hat's off to you.

--Db

That's a scary thought.

Yes, it is.

The suggestion made earlier about starting off small when you begin to trade for real is well-taken, regardless of how your paper-trading has gone. There's no big hurry. The market will be around longer than any of us.

--Db

 

[formikatrading]

In case anyone is interested in how I set up my Trading Plan, here's a brief outline:

1. First page is my Beliefs and Affirmations -- review each day before trading.

2. 2nd page outlines my general trading plan and includes the following: (a) Investment Vehicles; (b) Monthly Goals; (c) Annual Goals; (d) Additional Goals; (e) My Trading Edge; (f) Self-Evaluation; (g) Objectives; and (h) Words of Wisdom.

3. 3rd page outlines my Schedule for the day, including when I do scans, etc.

4. 4th page -- Rules and Guidelines

5. 5th page: Trade Setups and Market Scans

6. 6th page: Market Analysis / Indicator checklists

After that, I have section devoted to handling market bottoms - what to look for, how to play them, etc. I have included a bunch of charts in addition to descriptive analysis. The rest of the plan includes just helpful info and other insightful material.

 

[AAAintheBeltway]

Originally posted by 40yotrader



My basic method is to figure the daily range for the past 5 days. Then, I use a fraction of the lowest of the 5 ranges to figure my breakout point from the open. As the trade moves my way, I adjust a stop and reverse point. If todays range reaches 80% of the lowest of the 5 day range, then I take whatever position I'm in and switch to a trailing parabolic stop. Once out, I'm done for the day. Most days I'm done trading within 4 hours of the open.

My trades have over half being winners with the winners larger than the losers. This is no great method, but it's the best I could do. It should be good enough to reach my initial goal. Then, maybe I'll know something about trading and be able to come up with something better.

For money management, I'm more interested in cosistency than making a fortune overnite, so I chose to use a gambling strategy known as a progression on a loss. This way, I come out of drawdowns fast. The big risk is the ES market won't have any volatility for a extended period of time and I'll have lots of losers.
Without volatility I don't think anybody can make much money, so it's a risk I'll take.

I note that you are prepared for 26 consecutive losers, which should be more than adequate, and I salute you for playing it safe. I have to ask a couple of questions however. You have made $75k paper trading the ES in less than 6 months? What is the nominal capital base you have achieved that on? For a system basically trading one lots, that should give an extraordinary ROI.

How does the loss progression work? Am I correct in thinking if you had 10 losers in a row, you would be trading a 10 lot at that point? I've never tested that method, but I see the attraction. Have to say it seems dangerous. Most traders would want to cut back when their system is not working. I frankly don't understand how you can be trading a progression system, anticipating up to 26 losers in a row, and think you can hold your drawdown to 20%, unless you are using a huge account base. You don't owe me an explanation obviously, but I just want you to be sure you have analyzed this correctly.

I would also add that most volatility breakout systems don't come close to 50% win rate. I don't fully understand what you are doing, but I have serious doubts that an intraday vol b/o system using stop and reverse logic will make money, much less the kinds of returns you are anticipating. Again, I concede I don't fully understand what you are doing, and you seem extremely well prepared, but I would encourage you to be damn sure you have tested this thing correctly before you start risking your life's savings. Anyway, good luck. I hope you will keep us up to speed as to how you do.