My new strategy: Entry, Exit, Position Sizing

[typhoon1983]

This is my first post on T2W and I'm also a beginner trader. I am not able to short sell because my account has only 20,000 and TDAmeritrade won't let me short, daytrade, or trade options until I have margin... which will be when I have 25,000 in my account. So here's my strategy with what I got.



My First Strategy:

I can only trade stocks and NO shorting (which is a pain in ars)

Starting account value: $20,000 USD

Entry: 2 or 3 days down (in a row) where the closing price is lower than the opening price.

Indicators: (pick two that apply) on a month or 2 month candlestick chart....

1. DMI [ADX is on top, DI+ in the middle, DI- on bottom]

2. RSI [Under 35]

3. MACD: (pick two that apply)

a. MACD "and" EMA is above '0' zero
b. MACD "crosses" EMA on the upside
c. MACD "moves away from" EMA on the upside

Exit:

Stop loss at 1% of "total account value"
Limit sell order at 3% gain of "total account value"

OR

Stop loss at 4% of "security value"
Limit sell order at 10% "security value"

Position Sizing: Between 20% - 25% of total account value



So as you can see, I don't have much to work with but I really need to start making profits in order to start selling short. If anybody has any suggestions or comments, all are welcome. Thanks.

-Dan

 

[tripleogstar]

if you want to short, why don't you just open a spread betting account. You only put down the money which equates to stop loss x bet per tick.

 

[mutandis13]

if you want to short, why don't you just open a spread betting account. You only put down the money which equates to stop loss x bet per tick.

As far as I am aware Illegal in the USA

 

[HaloTrader]

if you want to short, why don't you just open a spread betting account. You only put down the money which equates to stop loss x bet per tick.

If you don't know that Spreadbetting isn't legal in the US - You shouldn't be giving advice to anyone. You just promoted an activity which would break the law - Congrats!

 

[BoarDome]

Stop trolling halotrader. The posters nationality is clearly UK - in which case he forgot to change it.

Now back on topic -

Have you back-tested this and - more importantly - how long have you forward tested it for?
Results?

 

[pedro01]

Your exit srategy makes little sense - instead of having your risk per trade setting the place you exit a losing trade, you should exit at the point you know your initial 'reason' for getting into the trade is no longer valid.

So - if you go long - you could have the prior days low OR the last swing low as your point at which you get out because the trade is going against you.

Once you know that & you know how much you are willing to risk - your position size should be :

Number of shares = Risk per trade / (Entry Price - Stop Loss Price )

Also - you say you will apply indicators to the monthly or 2 month chart ? Sounds a bit odd.

Why not look for candidates on the daily chart & then perhaps look for an entry a few ticks above yesterdays high ?

 

[typhoon1983]

Your exit srategy makes little sense - instead of having your risk per trade setting the place you exit a losing trade, you should exit at the point you know your initial 'reason' for getting into the trade is no longer valid.

So - if you go long - you could have the prior days low OR the last swing low as your point at which you get out because the trade is going against you.

Once you know that & you know how much you are willing to risk - your position size should be :

Number of shares = Risk per trade / (Entry Price - Stop Loss Price )

Also - you say you will apply indicators to the monthly or 2 month chart ? Sounds a bit odd.

Why not look for candidates on the daily chart & then perhaps look for an entry a few ticks above yesterdays high ?

Pedro,

Thanks for your input. I'll probably end up taking some of your advice. Just a few questions though...

1. What do you mean by last swing low? Is it just yesterday's low or the last downtrend's low?

2. For "risk per trade"... is that dollar amount? Would I just see what 1% or 2% of my account value is and then divide it by (Entry Price - Stop Loss Price ) to find my position size? That would make my "number of shares" considerably lower and not really an even number right?

3. Also, is a daily chart like 1 day? Wouldn't that make my indicator entry reasons change in a matter of minutes? Will this work with swing trading?

4. What do you think about exiting a trade on a winning trade? This is where most of my problems are.

Sorry for all the noob questions. I know you tried to make it sound as simple as possible, I just need more experience before I can understand everything I think. It's just your advice IMO sounds pretty good and I want to make sure I get it right. Thanks again.

 

[pedro01]

Pedro,

Thanks for your input. I'll probably end up taking some of your advice. Just a few questions though...

1. What do you mean by last swing low? Is it just yesterday's low or the last downtrend's low?

I meant the latest retracement/pullback in a trend, if any. I say trend because you should initially focus on 'with trend' moves. Going against the trend has brought me a few moments basking in glory and a lot of moments of keyboard abuse. I wouldn't advise a strategy that looks for counter-trend moves personally.

Nothing goes up in a straight line & you don't want to get taken out by the next pullback. In theory - the next pullback won't go lower than the last pullback as a friendly uptrend will make higher highs & higher lows.

I trade the ES & try to get in at specific price action within a pullback itself.

2. For "risk per trade"... is that dollar amount? Would I just see what 1% or 2% of my account value is and then divide it by (Entry Price - Stop Loss Price ) to find my position size? That would make my "number of shares" considerably lower and not really an even number right?

It won't be an even number but it's up to you to round it. As for considerably less shares - it will in some cases & won't in others.

Let's say the you use the last swing low as your stop loss. In one case, that may be $5 from your entry & in another it may be 50c from your entry. Basically - you'd skip on the first trade.

If you use an arbitrary amount for your stop loss that is not based on the point you know you are wrong, then you will lose your shirt. The reason I believe this is that between the place you enter & the place you know you are wrong is the 'wiggle room' you afford your trade. If you place your stop loss a fixed number of points, some times your stop will be within that 'wiggle room' and sometimes outside it. What that means is you effectively have a different exit strategy in real terms for each trade you place. Randomness will effect your results as much as your entry.

All my opinion of course !

3. Also, is a daily chart like 1 day? Wouldn't that make my indicator entry reasons change in a matter of minutes? Will this work with swing trading?

Yes - daily chart. 1 bar = 1 days action

4. What do you think about exiting a trade on a winning trade? This is where most of my problems are.

I'd paper trade it on with Tradestation or some other platform that supports paper trading. Like your stop loss, the exit should be the point at which you think the move is over.

Sorry for all the noob questions. I know you tried to make it sound as simple as possible, I just need more experience before I can understand everything I think. It's just your advice IMO sounds pretty good and I want to make sure I get it right. Thanks again.

 

[typhoon1983]

Pedro,

Ok sensei, before I run my revised strategy by you, just want to make one thing clear. A daily chart is 1 candlestick = 1 day? So if I have a months chart on there, I could set intervals to daily and that would be a daily chart with like 20 trading days right? That was what I meant the first time I said 1 to 2 month chart. If I'm still not getting it, let me know. And without further ado....


My First Strategy (revised):

I can only trade stocks and NO shorting

Starting account value: $20,000 USD

Entry: Buy after 2 or 3 day correction of an uptrend. Enter a few ticks above yesterdays high.

Indicators: (pick two indicators that apply) on a daily candlestick chart....

1. DMI: (pick one that applies)

a. DI+ "crosses" DI- on upside
b. ADX is on top, DI+ in the middle, DI- on bottom
c. DI+ "crosses" 25 on upside

2. RSI [Under 35]

3. MACD: (pick two that apply)

a. MACD "and" EMA is above '0' zero
b. MACD "crosses" EMA on the upside
c. MACD "moves away from" EMA on the upside

Exit on lossing trade: Stop loss at last swing low or last pullback's low.

Exit on winning trade: Dollar amount gains between...

(1.5 x Risk per trade) and (3 x Risk per trade) or the start of the next pullback.

Position Sizing: Risk per trade/(Entry price - Stop loss price)


Is this a solid, system? If I stay true and consistent to it, I'd probably make a profit right? If there's anything that needs to be changed or it's just a bad, system, feel free to punch me in the face and correct me.

 

[pedro01]

Pedro,

Ok sensei, before I run my revised strategy by you, just want to make one thing clear. A daily chart is 1 candlestick = 1 day? So if I have a months chart on there, I could set intervals to daily and that would be a daily chart with like 20 trading days right? That was what I meant the first time I said 1 to 2 month chart. If I'm still not getting it, let me know. And without further ado....


My First Strategy (revised):

I can only trade stocks and NO shorting

Starting account value: $20,000 USD

Entry: Buy after 2 or 3 day correction of an uptrend. Enter a few ticks above yesterdays high.

Indicators: (pick two indicators that apply) on a daily candlestick chart....

1. DMI: (pick one that applies)

a. DI+ "crosses" DI- on upside
b. ADX is on top, DI+ in the middle, DI- on bottom
c. DI+ "crosses" 25 on upside

2. RSI [Under 35]

3. MACD: (pick two that apply)

a. MACD "and" EMA is above '0' zero
b. MACD "crosses" EMA on the upside
c. MACD "moves away from" EMA on the upside

Exit on lossing trade: Stop loss at last swing low or last pullback's low.

Exit on winning trade: Dollar amount gains between...

(1.5 x Risk per trade) and (3 x Risk per trade) or the start of the next pullback.

Position Sizing: Risk per trade/(Entry price - Stop loss price)


Is this a solid, system? If I stay true and consistent to it, I'd probably make a profit right? If there's anything that needs to be changed or it's just a bad, system, feel free to punch me in the face and correct me.

Get yourself a paper trading platform & trade it.

 

[chilltrader]

SB is illegal in the US.

Obviously its considered more dangerous than carrying guns around :cheesy:

But in a way it makes sense though... imagine all these punters losing on a leveraged product.. getting pissed... and having access to guns!

The situation is bad as it is... good thought by the authorities!

However... do you guys think if someone opened a SB shop called "Aim&Shoot Spreads" or "Spreadshooting"
it would get a license to operate?

 

[janick]

This is my first post on T2W and I'm also a beginner trader. I am not able to short sell because my account has only 20,000 and TDAmeritrade won't let me short, daytrade, or trade options until I have margin... which will be when I have 25,000 in my account. So here's my strategy with what I got.

My First Strategy:

I can only trade stocks and NO shorting (which is a pain in ars)

Starting account value: $20,000 USD

Entry: 2 or 3 days down (in a row) where the closing price is lower than the opening price.

Indicators: (pick two that apply) on a month or 2 month candlestick chart....

1. DMI [ADX is on top, DI+ in the middle, DI- on bottom]

2. RSI [Under 35]

3. MACD: (pick two that apply)

a. MACD "and" EMA is above '0' zero
b. MACD "crosses" EMA on the upside
c. MACD "moves away from" EMA on the upside

Exit:

Stop loss at 1% of "total account value"
Limit sell order at 3% gain of "total account value"

OR

Stop loss at 4% of "security value"
Limit sell order at 10% "security value"

Position Sizing: Between 20% - 25% of total account value

So as you can see, I don't have much to work with but I really need to start making profits in order to start selling short. If anybody has any suggestions or comments, all are welcome. Thanks.

-Dan

The only way to know whether to trade that strategy is to back test it on the equities you are planning to trade. You also need objective rules about the "pick two that apply" part.

 

[meanreversion]

You should consider looking at Average True Range for placing the stop. Try to place your stop beyond the noise of the market, e.g. 2 ATR. That way you won't get stopped if your position call turns out to be right. As for taking profit, I prefer to target a point of 2-3 times my initial stop distance, but backtest this to get a better idea of this ratio. I have tested and experimented with fancy trailing stop algorithms, but don't find any outsized benefit.

I would steer clear of partial take profits if the position moves in the money - this is the quickest way to minimize your profits, whilst ensuring your losses are nearly always on the full original stake.

 

[Time42012]

Dont limit yourself to just ameritrade, although I have no complaints about apex. If you really want to use margin, and do not have 25k, try opening a zecco account, as they will allow you to margin with only 2k. Although, I would not reccommend you starting out your new career as a short selling enthusiast, merely due to the fact that you can lose 200% of your account holdings.

 

[Neoripley]

Perhaps you need to read a couple of books? "A beginners guide to day trading online" by Toni Turner is a great basic introduction and easy to understand. You'll find a lot of things explained clearly and simply. And it's like less than $10 on Amazon. p.s. read it at least three times and you'll find three books in one - great value for money

 

[typhoon1983]

Thanks for all the feedback ya'll. I'll consider all your inputs.

Neo,

It's funny you should mention Toni Turner's "A beginners guide to day trading online." I went to a used book store looking for Steve Nison's books and left with this instead not knowing what it was.

I actually posted this thread before I read Stan Weinstein's book and I'm trying to use his strategy now. Tell me if this is a good new strategy...

My Second Strategy:

Picking stocks: i go through all the sectors and pick a few that are in strong uptrends or are in a level 1 basing with potential to breakout. then i go through the few sectors that i picked and put all potentially strong stocks on my watchlist w/ alerts to tell me when to get in.

Entry:

1. entry either on breakout or on confirmation of support within the trading range. (i heard it's easier to play a stock before the breakout and sell a part of the position near the resisitance)

2. after the breakout, entry on a pullback towards the previous resistance AFTER signs of strength

3. fast MA crosses over slow MA or signs of strength after confirmation of MA support (got that from toni turner)

Position sizing: still haven't mastered this part yet. i guess i'll stick to pedro's method of

Risk per trade/(Entry price - Stop loss price)

Exit: Stan Weinstein's method of putting a stop loss at below last swing low or support... then, if it goes up, move my stop loss to below new last swing low or support after a pullback.

the only thing about that exit is that i hate waiting through pullbacks. can't stand seeing my money fade. also, anybody ever hear the expression from investors "never seen a rich technical analyst." that ain't true right? i mean, i know there's no buffett of technical analysis, but there's gotta be some guys that made a billion dollars being technical.

what do you guys think?