I thought I would give an overview of my system. It took me a while to settle into my system but it is founded off what works for me. I’ve had some help along the way from people who helped solidify my thinking and beliefs. But most importantly 3 books have been the foundation to my success (and none of them give you a trading system to use 
Market Wizards – Jack Schwager
Trade Your Way To Financial Freedom – Van Tharp
Trading In The Zone – Mark Douglas
I believe it is important for someone to devise their own system and what works for them as opposed to trading someone elses off the shelf system (did that, and it didn’t work for me).
My belief is that pretty much most systems will have a positive expectancy over time that are founded on sound money management and respect for risk. I believe most people think success is based off the right magical system (aka something that is external to them). When in reality this is not the case, success is something that resides within us, and in most cases we end up self sabotaging ourselves and blame it on external things such as the system without addressing the real problem, ourselves and our beliefs. Look at any successful person – NONE of them do the same thing, they do their own thing. Which means success is based of the person, NOT what they do.
With that being said, what did I want out of a system? I wanted a simple entry that was visual. I am able to pull up a chart in the required time frame, and be able to instantly know whether I would have traded it and how without using any indicators or price manipulation. The Keep It Simple Stupid (KISS) principle.
Once in a trade I wanted an exit system that was automatic. I did not want to have to monitor trades once entered. This is where my biggest “ah moment” came when I read about website from someone that introduced me to “One Cancels All” grouping of trades. That really put me on the right path to an automated exit strategy. I was also introduced to the Futures Market, and I instantly gravitated to this and away from Stocks.
I wanted a day trading system. I liked closing out the trades by the end of day and updating my books so to speak. I liked the cleanliness of starting fresh each day, it gave me a mental seperation of the previous day to the current day. Prior to that I was trading a trend system I bought from someone. As much as I learnt from it (I didn’t make any money from it due following someone elses rules which didn’t suit me, I believed in the system but it wasn’t my own, I needed to own it for it to work). It could takes weeks for a trade to pan out, I wanted quicker results. In day trading it’s minutes or hours. That works better for me.
I also wanted a time frame for my entry. I didn’t want to have to spend all day trading or looking for trades.
With that being said, this is what I came down to.
When the market opens up, I give myself 30 minutes to find a trade. I use 5 strict patterns that are visually easy to see. If no pattern is found, I shut down and try again the next day. In general 1 of the 5 patterns is found about 50% of the time. So 50% of the time I find no trade and do not trade that contract that day (not trading is something to get used to, as it’s hard in the beginning to sit on the side lines, you always want to be in the action).
I follow the trend, I enter the market on STOP orders either Long or Short and only at a new High/Low for that day within the required 30 minute time frame.
Once in a position, my Stop Point (which drives my position size) is based off a visual from the chart. I always know my stop point BEFORE entering a position.
I use a fixed reward of 2 times my STOP amount. So if my stop amount is 40 cents from my entry on an Oil Contract, my profit point will be 80 cents from the entry.
Once entered into a position, I must now protect my position. 3 orders are necessary.
1) STOP order to keep my loss at my predefined amount
2) LIMIT order, which will be my profit taking point
3) MKT on close order. If my stop or limit order don’t trigger, I have an order set that triggers 1 minute before the market closes, and will sell immediately at MKT price.
These 3 orders are grouped together as an OCA group (One Cancels All). If either order fires, then the others are automatically cancelled or adjusted for a partial fill (happens once in a while on the LMT order if price just touches it and bounces off).
Once my 3 exit orders are in place, I can walk away, there is nothing left for me to do.
I risk 1% of capital per trade, and will trade upto 3 different contracts a day.
The system is now fully programmed and automatic with no human intervention necessary. It runs from a server in my house.
I do monitor it to make sure nothing bad happens. I have an application on my iPhone that allows me to remote connect to my server and keep an eye on it for safety. Take today for example, I was having breakfast at a café with a friend as the markets opened up. I glanced over at my phone twice just to make sure everything looked fine. Took me less than 5 seconds to do without having to mention what I was doing.
Over hundreds of trades, my win rate is 42.9% with a 2:1 risk:reward. Enough to stay ahead of the game with slippage and commisions. I’ve attached 2 screen shots (in USD), 1 shows an all losing day, and an all winning day. These types of days are rare, but they do happen (none have happened yet this year). People like to hear about winners, but need to know losing happens a lot more than winning. But when an all winning day comes, it could be 60% of my profits for the whole month sometimes much more. It is often that my profits for a whole month happen in 2 to 3 days. The rest of the month is just break even, win a bit here, lose a bit here, no trading this day etc…
That’s about it. Pretty simple really, and works for me. I hope this helps.
Market Wizards – Jack Schwager
Trade Your Way To Financial Freedom – Van Tharp
Trading In The Zone – Mark Douglas
I believe it is important for someone to devise their own system and what works for them as opposed to trading someone elses off the shelf system (did that, and it didn’t work for me).
My belief is that pretty much most systems will have a positive expectancy over time that are founded on sound money management and respect for risk. I believe most people think success is based off the right magical system (aka something that is external to them). When in reality this is not the case, success is something that resides within us, and in most cases we end up self sabotaging ourselves and blame it on external things such as the system without addressing the real problem, ourselves and our beliefs. Look at any successful person – NONE of them do the same thing, they do their own thing. Which means success is based of the person, NOT what they do.
With that being said, what did I want out of a system? I wanted a simple entry that was visual. I am able to pull up a chart in the required time frame, and be able to instantly know whether I would have traded it and how without using any indicators or price manipulation. The Keep It Simple Stupid (KISS) principle.
Once in a trade I wanted an exit system that was automatic. I did not want to have to monitor trades once entered. This is where my biggest “ah moment” came when I read about website from someone that introduced me to “One Cancels All” grouping of trades. That really put me on the right path to an automated exit strategy. I was also introduced to the Futures Market, and I instantly gravitated to this and away from Stocks.
I wanted a day trading system. I liked closing out the trades by the end of day and updating my books so to speak. I liked the cleanliness of starting fresh each day, it gave me a mental seperation of the previous day to the current day. Prior to that I was trading a trend system I bought from someone. As much as I learnt from it (I didn’t make any money from it due following someone elses rules which didn’t suit me, I believed in the system but it wasn’t my own, I needed to own it for it to work). It could takes weeks for a trade to pan out, I wanted quicker results. In day trading it’s minutes or hours. That works better for me.
I also wanted a time frame for my entry. I didn’t want to have to spend all day trading or looking for trades.
With that being said, this is what I came down to.
When the market opens up, I give myself 30 minutes to find a trade. I use 5 strict patterns that are visually easy to see. If no pattern is found, I shut down and try again the next day. In general 1 of the 5 patterns is found about 50% of the time. So 50% of the time I find no trade and do not trade that contract that day (not trading is something to get used to, as it’s hard in the beginning to sit on the side lines, you always want to be in the action).
I follow the trend, I enter the market on STOP orders either Long or Short and only at a new High/Low for that day within the required 30 minute time frame.
Once in a position, my Stop Point (which drives my position size) is based off a visual from the chart. I always know my stop point BEFORE entering a position.
I use a fixed reward of 2 times my STOP amount. So if my stop amount is 40 cents from my entry on an Oil Contract, my profit point will be 80 cents from the entry.
Once entered into a position, I must now protect my position. 3 orders are necessary.
1) STOP order to keep my loss at my predefined amount
2) LIMIT order, which will be my profit taking point
3) MKT on close order. If my stop or limit order don’t trigger, I have an order set that triggers 1 minute before the market closes, and will sell immediately at MKT price.
These 3 orders are grouped together as an OCA group (One Cancels All). If either order fires, then the others are automatically cancelled or adjusted for a partial fill (happens once in a while on the LMT order if price just touches it and bounces off).
Once my 3 exit orders are in place, I can walk away, there is nothing left for me to do.
I risk 1% of capital per trade, and will trade upto 3 different contracts a day.
The system is now fully programmed and automatic with no human intervention necessary. It runs from a server in my house.
I do monitor it to make sure nothing bad happens. I have an application on my iPhone that allows me to remote connect to my server and keep an eye on it for safety. Take today for example, I was having breakfast at a café with a friend as the markets opened up. I glanced over at my phone twice just to make sure everything looked fine. Took me less than 5 seconds to do without having to mention what I was doing.
Over hundreds of trades, my win rate is 42.9% with a 2:1 risk:reward. Enough to stay ahead of the game with slippage and commisions. I’ve attached 2 screen shots (in USD), 1 shows an all losing day, and an all winning day. These types of days are rare, but they do happen (none have happened yet this year). People like to hear about winners, but need to know losing happens a lot more than winning. But when an all winning day comes, it could be 60% of my profits for the whole month sometimes much more. It is often that my profits for a whole month happen in 2 to 3 days. The rest of the month is just break even, win a bit here, lose a bit here, no trading this day etc…
That’s about it. Pretty simple really, and works for me. I hope this helps.
