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View Full Version : Your Trading PLAN and Rules: What are They? (here's mine)



Ken
05-03-2010, 10:58 AM
Hi traders,

As you know, it's essential to have a specific, well-designed trading plan that works for you. It must have numbers in it. I believe a lot of folks aren't comfortable being number-crunchers (I can't blame you!), but it's very important that you get very comfortable with your P&L management and position sizing and stop management, to be successful.

As our NASDAQ composite fails to take out new highs here, as of May 3, 2010, I am still intraday and swing trading long breakouts, but extremely carefully. I am scaling into short 3x ETFs on breakdown days, the ones like TZA/FAZ and others.

Here's the Story:

To help me trade this choppy/down market more carefully, while still seeking to capitalize on uptrend continuation breakouts, I've developed an extremely conservative new set of trading rules I'm using for many (if not all) of my trades.

All positions start with just $100-$200 worth of each individual stock (of the hundreds I trade), and scale up when they're in the money, using very tight stops.

So without further ado, here's the rules I put together that I'll be using myself. I do not start off with 500-2000 share size initial positions, as that's gambling, high-risk trading which I am averse to. To protect my capital, I'm being exceptionally 'tight' and conservative in my trades.

Ken's personal "Ultra-conservative" Trading Rules for choppy/downtrending markets (this is how I'm trading myself, as an example, in the 310+ positions I'm currently in, with my IB account):

ENTRY POSITION SIZE:
- Anything LESS than an in-trend, TRIN supported, 2-day high breakout, entered only 9:30-10:30, or 3:20-4pm, MUST start with No More Than $150 worth of the stock (eg inside entries, contra-trin, bounces vs breakouts)

-Anything WITH in trend 2d high early cup breakouts TRIN supported by 2d high COMPQ MUST be $150-$250 worth of the stock (no less)

INITAL STOPS:
- set stop such that it's a $10 stop ($1 stop for 10 shares, .50 cent stop for 20 shares, .20 stop for 50 shares etc); max of $20 per stop-out

ONCE IT'S IN THE MONEY:
- trail stop at just over breakeven til it's at least $10 in the money
- double down on position once it's over $10 in the money, trail stop just over breakeven til it's over $25 in the money, then trail stop within .05 of the market, to protect open profit

OVERNIGHT HOLDS:
- almost Never hold more than $300 per position worth of any single stock overnight, without very good reason

SHORT ETFs (TZA/FAZ etc):
- do not buy over $200 per position if trin is < 1.5 at time of entry, or if extended > 2.5 late in day, or if COMPQ is not at 2d low

MAX STOP SIZE: $20 max stops per position for almost all positions

RE-ENTRIES AFTER STOPS:
-start position over again with smallest sub-$100 dollar size using at least .10 cents over current market, for re-entry, then scale up with additional buy-stop orders at a minimum of $10+ in the money before adding to each new increment, maximum of 1k shares per position, trail stops ever-closer the more it's in the money, til a .02-.05 cent trailing stop takes out the position


SCANNING FOR NEW ENTRIES
I use a combination of techniques I train traders in, like ADX breakouts, 2-day high and 55-day high breakout cups, intraday sector movers and other tactics when scanning through charts to decide what to enter an initial position in


SCALING UP: ENTERING ADDITIONAL SIZE ON WINNING POSITIONS
- it's absolutely essential to use "tape reading", as I've taught for years, in deciding when exactly to pull the trigger on adding to a current open winning position; I look for specific signals I train traders in, with how to scale up


I hope this helps - best wishes. Develop your OWN trading plan, that has metrics like this, as a template of sorts, to help learn how to set specific metrics for your trades -- it matters. The tradeoff of using such tight stops, on small share size, is that it takes longer to produce winners. But the big advantage is, I minimize risk on each trade, to preserve capital.

FAQ: How do you get $1 commisshes? I use interactivebrokers.com
FAQ: What charting software do you use? esignal.com