Please comment on my day trading plan

Discussion in 'Professional Trading' started by jr07, Mar 22, 2010.

  1. jr07


    This Day Trading Strategy aims at seeking daily positive returns from long/short positions in stocks based on large price movements that are accompanied by breakouts in volume.

    Stock Screening
    The strategy focuses on the Energy, Healthcare, Financial and Technology sectors and performs an initial scan of the entire stock universe within these industries based on the following criteria:

    Price: 5$ < p < 50$
    Average Daily Volume: > 1,000,000 shares
    Market Cap: < $10Bn

    This currently results in approximately 250 stocks out of which only a few will be in focus for the day, primarily based on before the open news, announcements, results reporting or analyst upgrade/downgrade/initiation. Then 5min charts are opened for the main 20 stocks “in the news” and these are monitored throughout the day.

    Money Management
    Position size is capped individually at 10% of buying power. The number of stocks is determined based on the price level and this rule.

    Risk Management
    A protective Stop Loss is placed upon entry at a level which signifies a change in direction, i.e. previous highs/lows are used to determine this price level. If the price moves in our direction a magnitude which equals the delta between entry and the stop loss level, the latter is moved to break-even.

    Entry Signals
    The entry signal is given by a break in any given period of the 100 period Simple Moving Average of the stocks’s volume.
    Exit Signals
    As soon as the stop loss is placed, which determines the exit at a loss level, the delta from entry to stop loss is multiplied times 2 to determine the exit level at a profit. In other words, a 2x1 ratio is used to determine automatic exit at a profit. As mentioned in the risk management section, if the stop loss is moved towards break-even, an exit at this level may occur. Finally, a manual exit may take place if the trend abruptly changes direction supported by volume size similar to the one present at entry conditions.

    Big Rules
    - Trades are never placed before 9:45 a.m.
    - All positions are closed end of day independently of their status
    - Strong price AND strong volume movement must be present to activate a trade. Price moves without volume or volume spikes without price movement are ignored.
    - Manual trend lines are used/drawn to aid potential manual exit.
    - If there is a strong general market momentum, no trades are entered in the opposite directions, i.e. if there is a strong downtrend and negative momentum in the market, no long trades are entered
    - No Tops or Bottoms are called.

  2. Have you done any back testing?
  3. jr07


    No, not really. Since stocks in the news change so much I don't think this is possible. How can I know which stocks I would've traded on feb 15th 2007, for instance?
  4. how much time is involved to use the system?
    Do you have to spend all day watching the market?
    Trading around news is usually whippy.
  5. jr07


    Yes, all day watching the market.
  6. All I can suggest is to Sim Trade your strategy for 100 trades and see what the results are.

    Good luck.
  7. jr07


    I have and the results are not very good, with a % win rate around 50%. That is why I was asking for feedback, I would like to improve my % win rate
  8. With a win rate of 50% and a 2 to 1 reward to risk you should do just fine.

    You might also look at letting your winners run past the 2 X risk.
  9. What makes you think a break of the "100 period " MA of volume is a good entry signal?

    Playing news or earnings stocks is tricky. I doubt this kind of approach will have an edge. Ken Wolfe has done a lot of work on these types of stocks. You might want to review some of his suggestions.
  10. Hello Jr07,

    You said to comment so I am. I have a number of questions because there are a number of items we are not privy to from your plans list that are not shown that may affect how your day trading will actually work and how your plan is set up. Some of these items are:

    Have you specified what your goals and objectives are for the trades you make? For example what kind of average profit per day can you expect to get from your trading.

    Account sizing. Are you starting with $50,000 and up so you can pay for any learning curve in trading? Are all you funds for trading only and not ”scared money?”

    No Prior experience in trading: If you have never traded before than position size will have to be much more limited. Unless you do this you may go through your account quickly while you are learning to trade. As others noted you will have to back test your edge and consider paper trading it to confirm how the edge works.

    Prior experience in trading: If you have day traded before and blown accounts like the rest of us then you need to define controls over losses. I don’t see any mention of drawdown controls or account management? What is the maximum loss you will allow for a day and cumulative before you stop trading?

    Trading Log? What roles will this play in your plan? How often will you review your trading and lessons learned feedback?

    Do you have a daily work schedule for each day? For example do you do daily market reviews? Is defining market trend part of this? Are you going to review not at just the sector level but pick the best performing industries and then the stocks in them?

    How often will you do performance reviews of your trades? What key stats will tell you that you are meeting your goals and objectives? Are you meeting your expectancy?
    #10     Mar 22, 2010