Trading with ISA cash

[John26]

Hi,

I have 100k on my stock ISA.
Messed up pretty badly looking at daily chart and losing 10% in last 6 months (mostly ftse 250 stocks) - No discipline, ignoring stop losses, thinking / hoping for reversal against all odds!
This is now behind and happy to cut losses with no feelings or remorse, and move onto next trade - hard initially, but i feel so much lighter thinking best to lose 200 and move on, than lose 1,000. And just this alone means my bankroll is a lot more stable

Scrapped indicators - i was using RSi and MACD. These where doing my head in, and complicating things - much easier to look at support and resistance, along with volume.

Now I have a trading plan in place:

• Open based on weekly chart
• Risk: £200 per trade (stop loss) - cut loss as soon as stop loss is hit regardless, or if up by a few quid and think there's a reversal, happy to take a few quid and close
• Stop loss: previous low on weekly chart
• Entry: 2 green candles on weekly with second candle on higher volume than previous one, considering support and resistance, and 50 moving avarage - fine turning entry on daily
• Currently trying to exploit volume profile
• Max total exposure is 50K (keeping 50k back to be able to drip feed into a potential crashing market)

Questions:

• How does my strategie look from an exposure point of view
  I'm really not risking a lot - still learning - should i increase my exposure as i get better and consistant results?
  I know people talking about 1% rule, but 1k seems like a lot to risk on 1 stock, or do i need to grow a pair?
  Holding back 50% to be ready for crash good strategy?
  
  
• Hoping to stop working and live off of trading. I would be happy turning over 1.5k a month - How realistic would this be?
  1 - impossible?
  2 - depends how good I am?
  3 - easy peasy with 100k ISA?

Thanks.

 

[Riddler]

In order to know whether your strategy is any good you need to backtest it. Had the previous strategy been backtested, the one you were using and lost 10% in the previous 6 months I mean? If so, what were the results?

Since your account balance will fluctuate it is better to risk a percentage than a fixed amount of £200 per trade. I'm in my third year as a trader and I'm still on 1% because I haven't seen the results I want yet on a consistent enough basis, I will only consider increasing it once I do.

Your choice of language is a bit of a concern, you often express risk and losses as whole numbers but 1% is 1% at the end of the day, don't worry about if it's £1k, if your strategy has a positive expectancy and you know what market type(s) it works best in and only trade it in those conditions then you'll be profitable over the long-term.

Based on the limited info I have here my suggestion would be to not focus on doing this for a living in the near term, it sounds as if there is plenty of work to do first so keep at it, gather your data, analyse it and then use it to improve your trading.

Lastly, if you wish to use half the money to enter long positions on stocks as an investment and trade the other half, I would open another S&S ISA (if it has to be an ISA that is) with a different provider and then transfer the money there so that the money is always seperate and you can monitor the performance of and manage both portfolio's seperately.

 

[John26]

Thanks

In order to know whether your strategy is any good you need to backtest it. Had the previous strategy been backtested, the one you were using and lost 10% in the previous 6 months I mean? If so, what were the results?

Since your account balance will fluctuate it is better to risk a percentage than a fixed amount of £200 per trade. I'm in my third year as a trader and I'm still on 1% because I haven't seen the results I want yet on a consistent enough basis, I will only consider increasing it once I do.

Your choice of language is a bit of a concern, you often express risk and losses as whole numbers but 1% is 1% at the end of the day, don't worry about if it's £1k, if your strategy has a positive expectancy and you know what market type(s) it works best in and only trade it in those conditions then you'll be profitable over the long-term.

Based on the limited info I have here my suggestion would be to not focus on doing this for a living in the near term, it sounds as if there is plenty of work to do first so keep at it, gather your data, analyse it and then use it to improve your trading.

Lastly, if you wish to use half the money to enter long positions on stocks as an investment and trade the other half, I would open another S&S ISA (if it has to be an ISA that is) with a different provider and then transfer the money there so that the money is always seperate and you can monitor the performance of and manage both portfolio's seperately.

Thanks Riddler.

Thanks for your reply.

Regarding 1% and £200: what i meant is that it is believed to be best to risk 1% max per trade generaly, which would equate to 1k in my case - this is more that i could bare to lose on a single trade.
I, however, for now only risk 0.2% per trade, which equates to £200.
Basically i do 20,000p / (purchase price - stoploss price)

With backtesting, well i have a free tradingview account (is this the best and easiest way to backtest?) and i'll have to look into this a bit deeper, and spend more time, hopefully i should be able to backtest 2 good candles on weekly, but when it comes to support, resistance, trendlines... not sure trading view can help me much there, or maybe it can?

Cheers.

 

[1nvest]

John, let me be a little frank. what you've just described with regard to entry and exit looks woefully inadequate
two green candles? what significance does the number of positive candles possibly have that warrants an entry?
and then your stop loss is the low of the previous..
Riddler suggested backtesting..
if you had (and i just quickly did against the S&P) shows you would have have a positive expectancy of just 42%. £100,000 would have generated a capital return of £400,000 after 60 years.
so no, looking at this i dont think you would be making 1% per month. you'll be lucky to make 1% per annum
using a weekly chart, you should be capable of getting win rates into the high 70s.

you have discounted the macd as it doesnt work on a daily?
i just backtested that too. a macd strategy would have generated a return far better than your weekly one. with a positive expectancy of just 40%
if i use the macd on a weekly i get a positive expectancy of 67%.
this simple indicator could be turning your 100k into £4mil. the one you have discounted so quickly

i would not be risking 1% or anything near that looking at what you've described

I might come across as a little harsh, but 100k is a lot money to just piss away on a half baked idea

 

[Riddler]

Thanks

Thanks Riddler.

Thanks for your reply.

Regarding 1% and £200: what i meant is that it is believed to be best to risk 1% max per trade generaly, which would equate to 1k in my case - this is more that i could bare to lose on a single trade.
I, however, for now only risk 0.2% per trade, which equates to £200.
Basically i do 20,000p / (purchase price - stoploss price)

With backtesting, well i have a free tradingview account (is this the best and easiest way to backtest?) and i'll have to look into this a bit deeper, and spend more time, hopefully i should be able to backtest 2 good candles on weekly, but when it comes to support, resistance, trendlines... not sure trading view can help me much there, or maybe it can?

Cheers.

No problem at all we're all here to help each other and improve one another (at least that's what I joined for) and I found your post rather interesting.

With regards to risk, if you risk 1% per trade you would have to lose 100 trades in a row to wipe out your account, a possibility I guess if you are using an untested strategy with poor execution but not likely if you've done your homework. But if 0.2% is more in line with your risk appetite that is fine, we all have our own risk profiles, but in this volatile market environment you may find you need more room for market swings, if you can stomach 0.5% that would be better but ultimately you should just reduce your account balance to where you are happy to risk 1% to begin with.

I did my backtesting manually using Trading View when I began, it was painstaking and took a great deal of time. I've since become aware that software is available where you can key in your inputs and then hit 'go' and the software will do it for you so it shouldn't take long but I still have never used it so am unable to tell you where to go but I do know that MT4 and 5 have a backtesting facility.

 

[John26]

John, let me be a little frank. what you've just described with regard to entry and exit looks woefully inadequate
two green candles? what significance does the number of positive candles possibly have that warrants an entry?
and then your stop loss is the low of the previous..

Thanks,
With regards to 2 green (bullish ish) candles - the second one with higher volume that first one suggests
momentum - look at weekly charts for stocks in 350 shares.
The stop loss i have is low on previous candle, then, as and if it moves my way, i change stop loss to 2 x ATR
I also consider support and resistnace - not a daft strategy, i don't think.

i would not be risking 1% or anything near that looking at what you've described

... and i am not - rather on 0.2% currently

I might come across as a little harsh, but 100k is a lot money to just piss away on a half baked idea

That's absolutly fine, and i appreciate honest feedback, so thank you, and yes, i need to nurse these 100k

Riddler suggested backtesting..

Yes, sure, makes sense - what software do you guys use for backtesting? I am not a programmer.

Cheers.

 

[1nvest]

Thanks,
With regards to 2 green (bullish ish) candles - the second one with higher volume that first one suggests
momentum - look at weekly charts for stocks in 350 shares.

I work with momentum all the time. I've never seen just two weeks as an indication of growing momentum. is there anything else you look for to qualify this? other than volume

The stop loss i have is low on previous candle, then, as and if it moves my way, i change stop loss to 2 x ATR
I also consider support and resistnace - not a daft strategy, i don't think.

Thanks for that, it certainly makes things a little better, but id still be concerned about the entry

... and i am not - rather on 0.2% currently


That's absolutly fine, and i appreciate honest feedback, so thank you, and yes, i need to nurse these 100k


Yes, sure, makes sense - what software do you guys use for backtesting? I am not a programmer.

I use amibroker.

 

[John26]

I work with momentum all the time. I've never seen just two weeks as an indication of growing momentum. is there anything else you look for to qualify this? other than volume

On weekly chart (Firday pm scan) - showing 5 years

• I use 2 good consecutive up candles
• 2nd candle volume greater than previous candle (unless i see an engulfing, or a pinbar - then i'll consider regardless of colour
• Pivot points, and trend support and resistance
• Then i stand up and look at charts in my selection from a couple of yards back to get a different perspective
• I avoid entering after a long increase - I also avoid reconsiliation. I'm not necessarly trying to catch bottoms, but pullbacks i go for it (2nd wave) if candles tell me to, I fine tune using daily chart from monday - i very often am tempted to enter just before close Fridays
• I watch for spread % as well - i won't enter if spread is something stupid like 2%
• ftse 350 and AIM (i have a couple of smallcaps currrently as well

Exit

• Initial stop will be below previous candle. If trade goes my way, i swith to 2 x ATR
• On bearish candle i'll exit, also any big red candle with high volume

 

[1nvest]

alright, so 2 good candles, and lets say volume is up on the second
you consider this enough?
any resistance is a long way off
you mention trend support..this is the first you've mentioned trend. do you actually consider a trend? is it quantifiable?
if it is, i may be able to backtest it for you
clearly, or at least i hope its clear, this is 2 up candles and not exactly a winner for a potential long position

 

[John26]

alright, so 2 good candles, and lets say volume is up on the second
you consider this enough?
any resistance is a long way off
you mention trend support..this is the first you've mentioned trend. do you actually consider a trend? is it quantifiable?
if it is, i may be able to backtest it for you
clearly, or at least i hope its clear, this is 2 up candles and not exactly a winner for a potential long position
View attachment 318716

That wouldn't be a buy
I look for 2 good consecutive candles - both candles have to be current - so i always look at last 2 candles - if the candle before that is red only - so i look for

• red, green, green, or
• any colour doji, green, green, or
• any colour pin bar, green, green
• Red, engulfing green

If first highlighted candle (3rd from last were red, i still wouldn't enter, because last candle doesn't appeal to me (not decisive enough, too much wick and not enough body)

Trend support (3rd touch) I use filter candles first, then look at each potential seperatly, then cherry pick look at trends, support,... whichever have a better chance, stocks that have good trending history, i avoid stocks that look like pea soup
Trend resistance, approaching 3rd touch, i keep a close eye and watch out for fast reversal i will tend to take profit and not tempt the devil
Volume: i watch our for divergence

I know this isn't the holly grail, but...

Also, with regards to backtesting, i really question the reliability of it - unless a wide range of stocks is tested, over a period of 50 years perhaps, and results match the aggregate of 5 year period chunks say (markets change?), then what does that tell us?

Cheers


EDIT:
Sorry 1vest, i beg your pardon, yes this would have passed the 2 candle test - I thought you had highlighted last 2 candles, sorry.
However i probably wouldn't enter this on the basis that there is no support going back for at least 2 years - Is this a free falling stock? Also, too many gaps, if it gaps like this at weekends, i wonder what the daily chart looks like