Will you take the same setups on multiple different stocks that are lining up according to your method(ie. pullbacks, MA cross, whatever you use to trigger you long or short)? Let’s say your overall view on the market is up so you are only looking for the strongest pullback trades. if you see 5 stocks that all look like they are lining up for a pullback trade, will you take positions on all 5 stocks, OR from here only look for the best looking one of those 5 and ONLY take a pullback trade on that one stock? I feel like putting on 5 of the same trade type is basically just taking a pullback trade but increasing your risk 5x because if one works, odds are they will play out on the other stocks you are looking at also. For example, I put on a position in SPY a few days ago from what looks to me like a pullback lining up. I am in the process of forwarding testing using 1share but knowing I am already bullish on the overall market, I am not taking setups on individual stocks (although they look good) because I really feel like its all the same trade. I haven’t thought about this at the time, but definitely something I will need to think about and incorporate into my trading plan going forward about how I will handle this. Also, what do you think of looking for “setups” that only look like textbook trades? Do you think there is anything to how good a trade “looks” atomically? I’ve noticed that in my analysis, there are some charts where I will take a look at them for multiple minutes and I feel like the longer you look at a chart, the more you are vulnerable to adding something there that may not exist(if you are a discretionary trader). then there are other charts that just jump out the second you look at it and its like BAM, oh yeah that’s a pullback lining up for sure! Does anybody else have any thoughts/experience with what I described above regarding those “textbook” looking setups? I have to imagine, the cleaner a setup looks, the better those probably play out.
Whether long or short, I take what the stockmarket gives me. Take note, the market indices DJIA, COMP, SPX, SPY, QQQ move independently, of each other as well as individual stocks. Your decision on trading a certain stock ticker should depend entirely, on the stockchart for that ticker alone. This is a game of percentages and if you have 5 good trades, you can either pick and choose 2 and hope one or both are the bigger winners. You do not know in advance. I would take all 5 provided I have not committed more than 10% of my capital. That is conservative. It would be foolish to exclude, other trades which could turn out to be the bigger winners. Personally, I would take all 5 trades if I could, provided it does not violated the 2% risk per trade and 10% maximum of capital alloted to my trade. Of course, you will have your losing trades. Expect it.
Why 10%? As long as you are only risking a percentage of your capital why limit the amount of capital?
If you lost all 5 trades, that is 10% of your capital. Assuming the worst case scenario of losing all of it. That is my approach which is conservative. It far easier to recover from a 10% drawdown than say a 20% drawdown. And taking 5 good trades vs taking 20 trades which are marginal or average, is way better. I have less trades now, but, making much more monies. And don't be deceived by the 5 trades. Each time I close a trade, I replace it with another trade. That 10% I am risking of my capital, is working hard for me.
I misunderstood; I read that you limited the size of any one position to 10% of your capital. I was wrong.
Setups are pretty much the same. Whether it be pullbacks, breakouts or reversal trades. Even if you follow the setup, no guarantee it would work in that particular trade. That is why you need the shotgun approach. If you have 5 good trades with 1 trade with a huge potential to give you say 300% return, you take all 5 trades. Otherwise, you are gambling if you just take 1 or 2 trades. You play the percentages and put on the trades. You just need a couple of the big winners to make it worth your while. A lot of times, the trade which you did not like very much, ends up being your largest winner.
I routinely do multiple trades intraday per stock/etf. For example I'm going to buy a bit of SQQQ SOXS SPXS SDOW SRTY premkt gaps up soon. I'll scale in if they go up in market later. Classic patterns in current markets are mean reversions, cup breakouts and ascending triangles
Why would you limit the amount of capital? Coming to setups, in my opinion, they are more or less the same.