What do you think of this new trading setup I am piloting? I don't mind you critiquing the plan as long as it's a reasonable argument and decent language. TA: --Use "4-timeframes method" (aka LONG-TERM and SHORT-TERM periods) 1) Firs time-frame: 9-mininute candle stock chart. MACD, EMA (20-day) and MACD Histogram. 2) Second time-frame: 6-min candle chart. Same momentum and oscillators. 3) Third time-frame: 3-min candle chart. Same momentum and oscillators. 4) Fourth time-frame: 1-min candle chart. Same momentum and oscillators. 5) Applied Price Channels to identify when prices hit Upper or Lower Bands. --Entries and Exits: Entry: LONG TRADES 1) *IF 9-min* chart is UP it must be confirmed by price being on or above EMA with Bullish EMA trend. This trend must be confirmed by MACD and MACD Histogram bullish trends tracing higher highs or higher lows (aka improving macd). 2) *IF 6-min* chart complements 9-min chart's pattern then proceed to analyze the trade further for Long trade. 3) *IF 3-min* is on or below EMA and there is a temporary Bearish trend it confirms the entry position. 4) *IF 1-min* chart is below EMA with Bearish MACD it indicates an entry zone...it's perfect if price is close or hitting Lower Band of Price Channel. IF 1-4 conditions are true then go LONG. USE the opposite for SHORTS. I'll try to post my results daily unless I did not trade. Welcome any feedback.
Daily results are fine, but what about the back test results over a long enough period of time, such as, say, the last 5 years? Without the validation, your plan is as good as any other.
Money management is more important. You've only got 1/2 a plan here. Exits are more important than entries. You need to know when you are going to cut losses or take profits. IOW, you aren't doing anything that hasn't been done before. Some make money doing this, while others lose money. the difference between the two is the way that they manage the account. Proper capital allocation and management techniques are essential. Some say cut losses short and let winners run. I think that is a lame cliche. Better in my opinion is "don't let profits turn into losses and always respect you stops."
There are several different approaches. I trade options mainly, so I use the methods that work well for me in that arena. Some people say that you should predetermine a stop and a target. They say that the stop should be closer than the target, or IOW that your potential reward should outweigh your risk. Often suggested is a 2:1 reward to risk. Example XYZ stock bought at $100. Stop at $95 and limit sell at $110. You can use a basic system like that if you'd like, but if you ask me it is a bunch of bologna. It is a problem associated mainly with stock traders. They tend to ignore the other important part of the equation. Probability of touching (POT). Options traders' world revolves around probabilities as that is how options are priced, so they are less likely to disregard it. What it comes down to is this. If you buy a stock randomly, and your target is twice as far away as your stop, do you have a winning strategy? Or better yet, did the 2:1 ratio increase the success of the system. No, because the stop is now twice as likely to get hit as the target. You lose $5 twice for every time that you make $10. So rather than "cutting losses short, and letting winners run", I say don't let profits turn into losses. Avoid big losses and also big gains. If you achieved a large gain on a single trade you either took large risk, or allowed an already acceptable gain to run. This is equivalent to allowing an acceptable gain the chance to turn into a loss. Let's say that you bought XYZ @ $100 and it is now @ $105. You decide not to close the position and move your target to $110. By the end of the day XYZ is @ $101. Did you make money? Yes. Did you lose money? YES!!!! The entire $5 gain was yours and you lost $4 of it. Paper gains and losses are real. Margin calls reinforce that fact constantly. Conversely if you sold the shares @ $105 and it subsequently rose to $110, did you lose. No, you can't lose something that you never had. Realize that by staying in a position you are essentially just taking a new position, at what many would argue are less desirable circumstances. That is of course, if you subscribe to mean reversion. There are key factors that are working against you. One of the most important is that for every loss an even larger gain is required to recoup. This is magnified as the loss grows. Example, to get back to break even a 5% loss must be followed by a 5.26% gain. 10% loss needs 11.1% gain 25% loss needs 33.3% gain 50% loss needs 100% gain Working for you are two other factors. Losses get smaller the more you lose, while gains get larger the more you win. Start with $100: 10% loss = $10 The next 10% loss = $9 The next 10% loss = $8.10 Next 10% loss = $7.29 Conversely: 10% gain = $10 the next 10% gain = $11 Next 10% gain = $12.1 So what I am getting at is that you need to decide what sort of tollerance your system has for losses. It is then ok to set you r:r at 1:1 if you'd like. If your system has a win rate of >50%, you'll make money in the long run assuming you can handle the drawdowns. If your system allows for 50% losses on each trade, it is likely that you can't handle 3 successive losses. If it only allows for a 2% loss then 3 in a row isn't all that bad. You need to determine a lot more about your system though. You've stated an entry strategy, but what about how it behaves once you are in it? For example, I have one strategy that 7/10 trades is good for 5 points on the spoos. Problem is that the 3/10 that I'm wrong it is good for at least 10-points the other direction. This analysis will define your exit strategy. One poster here mentioned back testing, which is fine. I prefer present testing. Put in the time to follow the system intraday under real conditions and honestly keep track of entries/exits. Find out when your system generally breaks down, and try to avoid those situations. Anyway, you should get where I'm going with this by now. Back to my original statement. "You've only got 1/2 of a system."
Today's setup and results were good but it appears I need to adjust entry oscialtors on the Short-term window. From now I know I'll use Stochastics for entry indication...when LONG-term trend is UP I'll wait for Stochastics to go to overbot status along with touching uppper Bollinger and for entry...price must be on or below EMA (20). On the LONG-TERM chart price must be on or above EMA to confirm the bullish trend. SIDELINE Plays - IF trend is weak or flat it's now my rule to stand on the sidelines, it's better than specualating whether it'll tick up or down. TREND - must be confirmed by EMA and by MACD/Histrogram tracing to higher or lower levels. More tomorrow.
Prem/Disc to Fair Value, depth of Book, RS of peers/sector/market, Spoo "pivot trough" (to determine price ranges), Volatility of stock to determine std. deviation (Price x Volatility divided by the square root of time, 19 for intraday ranges), and take VIX into consideration...and, of course, the "engine" of the day, break out or support levels, Spoos in either top or bottom third of the self-calibrating tick stock, ....all this, at minimum, to determine entries and exits. The above is simple tape reading, with full understanding of the stocks you're trading (always trade the same stocks, that way you don't have to do all the fundamental/technical research every day). Try not to get involved in the "stock du jour" - or the latest "hot" stock, because then you're the "new guy" in someone else's poker game, vs. playing at "your house" every day. None of this is difficult or overwhelming, it just takes some exposure and practice, and is the crux for all basic trading, IMO. Just trying to help, Don