Feedback on Trading plan continue...- Here are the points..
Common points - What u have written here is mix of trading plan and trading system. scope of TP = your complete trading practice. Should include what u do after mkt hrs, before mkt hrs, on weekly / daily / monthly basis etc. When will u put money in your acct/ when u will withdraw/ how much etc , What will u do to invest in you to improve as a trader (u are the most valuable asset to yr trading buss/ What is yr backup plan to handle any unforseen circumstance etc etc.
That is topic for another post.. Let me focus on Trading system that u are trying to draft here.
(A)I think, usage of 3/8/13 ma and juggling between timeframe is not very clear. Generally we can use 2 or 3 TFs in our trading. At early stage, just use 2 TF. Higher TF to form your opinion. nad lower TF to pull the trigger and take trade. Odds are in our favour when our trade direction is supported by higher TF.
When I mentioned about triple MA, the intention was to decide if trend is in place and whether it is still intact or not.
Fast setting of 3/8 is fine at higher TF. but on your trading TF, that might result in too many whipsaw. 3 and 8 bar MA on 5min just covers 15 /40min of action. IMO, that is
not sufficient to make trading decision. 1 big bar and open is sufficient to skew the MA calculation in Trading TF.
Suggestion - use them on say 15m/30m/ 60m to decide if trend is intact or not. But make your entry decision based on somethign else.
When all 3 are nicely arranged (happens 65 to 70% of time) then u have clear signal for trend trade. when 30 to 35% time when they are mixed up, you are better off taking coffee break if you don't have strategy to trade that type of mkt condition..
(B) Indicators - When using small MA numbers, better to use EMA which give higher weight to recent bar and effect of long bar gets neutralised gradually.
SMA gives equal weight to each bar.. and hence the moment long bar gets in/out of calculation, it skews the result.
Don't mix, RSI / BB here in their standard form. You can use RSI confirm the trend.. or help u not to take a trade when RSI is in OB zone etc. Better to decide the purpose of
using a particular indicator. You can use same indicator for diffirent purpose. Like BB - can help u get into breakout trade.. or can also help u in trading reversal.
When u use BB (20,3).. u are trying to trade 20 bar MA of your chart TF.. and 1% exceptional cases in that timeframe. 3 stands for 3 standard deviation.. which means that 99% of price is covered in this range.. and only 1% goes out of 3 standard deviation. So statistically, out of evey 100 bars, u will get 1 bar going out of 3 std dev BBand.
Bottomline - know what u are doing.
(C) Good that your entry rules are quite clear (8.3 points from L/H of the bar etc) but I doubt if they fit the timeframe of 5 mins. I don't know how u got the number of 8.3.. But let me put my thought procsss here. You are trading 5 min bar. Average size of 5 min bar is 10 pts. Most likely trend (70 to 80% of the time) on 5 min bar will be less then 5 to 6 bars before we see the reversal. If we consider
40% of area is overlapped between bars then most like you will see the opportunity of size = 10 pts * 5 bar* (1-40%) = 30 pts.
If u are using filter of 8.5 pts for entry and exit and lets keep 3 pts for brokerage on each leg.. It is going to cost you (8.5+3)*2 = 23 pts. That means out of 30 pts, 23 is gone now. So where is the money left in the trade. Reality could be far worse then this..
8.5 filter on 30 min bar might be OK where average size of bar is 40 pts. so same calculation will give = 40*5*(1-.4) = 120 pts. So you can afford to give up 23 pts
(D) For exits, my prefernce is to use market structure based price level - PH/PL etc. They are easy to identify on the chart just at a glance.. Indicator based
exits are late cause they need bar to close. and many times u see big breakout bar on chart, but indicators have not considered it cause they are still waiting for
bar to close. Exits are most important part of your System. So plz put more time on it.. Manual Backtesting of your strategy helps in this cause you can see
each of your trade on paper.. and develop the feel of better exits points.
(E) Angle of MA line - You can make it more objective by comparing the last value with value 2 or 3 bars back. If the absolute difference is > xxx pts then MA is sloping else it is sideway.
By backtesting you can find out reasonable value for xx points.
Will be challange to see this on chart.. But if u want to calculate this on higher TF, then u can easily use Excel to calculate it. If you put some basic knowledge of solving equations.. then
u can also determine the expected price level in next bar.. if that is hit.. then your MA calculation will give u trigger. That way u don't have to wait till the completion of bar.. but can be ahead
of all other MA followers..
(F) Position size is not what u have mentioned. It is about how big shd be yr trade size so that u stay in business.. and blow your account.
Even if you have a system that is 99% succecssful, but that 1 % can be your next trade.. and it shd not throw u out of business.
Easiest will be to define - for 50k Rs in account, 1 wil trade 1 contract. Out of which 25k will be for margin and 25k will be towards trade risk. I monthly loss is >10 %, I will stop trading and analyse what
is going wrong and how to correct it.
Good that u are addressign it here. In my view, for derivative trading, the % of acct on risk shd not be total account.. but the amount left for risk capital. If u have 50k acct.. u can't touch 25k of margin money so u can't calculate as part of risk money. To stay in the business u need min 25k in yr acct. What u can risk is remaining part.. which is not complete acct but (acct size - margin capital).
If you are risking 5% then 20 wrong trade and u are out of business.. That is why it is suggested that keep this to 2 to 3% limit so that u have enough trades to recover your loss and be a long term player.
This is not 20-20 match. but test match and we need to have plan to Bat for all 5 days...
(G) This part is not addressed correctly. IMO, this should address the market situation / personal situation.. when present, u will skip trading this strategy.
eg - if it is trend chasing system.. but u get signal from your big picture analysis that it is mixed market.. like 3/8/13 are not aligned properly.. so u skip trades.
Or you have urgent delivery at office / Health problem / important date with GF .. so skip trading.
Thats lot of stuff.. but that shows my weakness (my breaks are bit weak so once Ferrari is in motion, it is difficult to stop)..
Feel free to ask any doubts /discuss etc.. I am sure, other experienced people will also give views on this. Hope that I too get slightly different perspective from their feedback and response on this.
Happy Trading. Looking forward to see TRADER WOD soon.
Common points - What u have written here is mix of trading plan and trading system. scope of TP = your complete trading practice. Should include what u do after mkt hrs, before mkt hrs, on weekly / daily / monthly basis etc. When will u put money in your acct/ when u will withdraw/ how much etc , What will u do to invest in you to improve as a trader (u are the most valuable asset to yr trading buss/ What is yr backup plan to handle any unforseen circumstance etc etc.
That is topic for another post.. Let me focus on Trading system that u are trying to draft here.
(A)I think, usage of 3/8/13 ma and juggling between timeframe is not very clear. Generally we can use 2 or 3 TFs in our trading. At early stage, just use 2 TF. Higher TF to form your opinion. nad lower TF to pull the trigger and take trade. Odds are in our favour when our trade direction is supported by higher TF.
When I mentioned about triple MA, the intention was to decide if trend is in place and whether it is still intact or not.
Fast setting of 3/8 is fine at higher TF. but on your trading TF, that might result in too many whipsaw. 3 and 8 bar MA on 5min just covers 15 /40min of action. IMO, that is
not sufficient to make trading decision. 1 big bar and open is sufficient to skew the MA calculation in Trading TF.
Suggestion - use them on say 15m/30m/ 60m to decide if trend is intact or not. But make your entry decision based on somethign else.
When all 3 are nicely arranged (happens 65 to 70% of time) then u have clear signal for trend trade. when 30 to 35% time when they are mixed up, you are better off taking coffee break if you don't have strategy to trade that type of mkt condition..
(B) Indicators - When using small MA numbers, better to use EMA which give higher weight to recent bar and effect of long bar gets neutralised gradually.
SMA gives equal weight to each bar.. and hence the moment long bar gets in/out of calculation, it skews the result.
Don't mix, RSI / BB here in their standard form. You can use RSI confirm the trend.. or help u not to take a trade when RSI is in OB zone etc. Better to decide the purpose of
using a particular indicator. You can use same indicator for diffirent purpose. Like BB - can help u get into breakout trade.. or can also help u in trading reversal.
When u use BB (20,3).. u are trying to trade 20 bar MA of your chart TF.. and 1% exceptional cases in that timeframe. 3 stands for 3 standard deviation.. which means that 99% of price is covered in this range.. and only 1% goes out of 3 standard deviation. So statistically, out of evey 100 bars, u will get 1 bar going out of 3 std dev BBand.
Bottomline - know what u are doing.
(C) Good that your entry rules are quite clear (8.3 points from L/H of the bar etc) but I doubt if they fit the timeframe of 5 mins. I don't know how u got the number of 8.3.. But let me put my thought procsss here. You are trading 5 min bar. Average size of 5 min bar is 10 pts. Most likely trend (70 to 80% of the time) on 5 min bar will be less then 5 to 6 bars before we see the reversal. If we consider
40% of area is overlapped between bars then most like you will see the opportunity of size = 10 pts * 5 bar* (1-40%) = 30 pts.
If u are using filter of 8.5 pts for entry and exit and lets keep 3 pts for brokerage on each leg.. It is going to cost you (8.5+3)*2 = 23 pts. That means out of 30 pts, 23 is gone now. So where is the money left in the trade. Reality could be far worse then this..
8.5 filter on 30 min bar might be OK where average size of bar is 40 pts. so same calculation will give = 40*5*(1-.4) = 120 pts. So you can afford to give up 23 pts
(D) For exits, my prefernce is to use market structure based price level - PH/PL etc. They are easy to identify on the chart just at a glance.. Indicator based
exits are late cause they need bar to close. and many times u see big breakout bar on chart, but indicators have not considered it cause they are still waiting for
bar to close. Exits are most important part of your System. So plz put more time on it.. Manual Backtesting of your strategy helps in this cause you can see
each of your trade on paper.. and develop the feel of better exits points.
(E) Angle of MA line - You can make it more objective by comparing the last value with value 2 or 3 bars back. If the absolute difference is > xxx pts then MA is sloping else it is sideway.
By backtesting you can find out reasonable value for xx points.
Will be challange to see this on chart.. But if u want to calculate this on higher TF, then u can easily use Excel to calculate it. If you put some basic knowledge of solving equations.. then
u can also determine the expected price level in next bar.. if that is hit.. then your MA calculation will give u trigger. That way u don't have to wait till the completion of bar.. but can be ahead
of all other MA followers..
(F) Position size is not what u have mentioned. It is about how big shd be yr trade size so that u stay in business.. and blow your account.
Even if you have a system that is 99% succecssful, but that 1 % can be your next trade.. and it shd not throw u out of business.
Easiest will be to define - for 50k Rs in account, 1 wil trade 1 contract. Out of which 25k will be for margin and 25k will be towards trade risk. I monthly loss is >10 %, I will stop trading and analyse what
is going wrong and how to correct it.
Good that u are addressign it here. In my view, for derivative trading, the % of acct on risk shd not be total account.. but the amount left for risk capital. If u have 50k acct.. u can't touch 25k of margin money so u can't calculate as part of risk money. To stay in the business u need min 25k in yr acct. What u can risk is remaining part.. which is not complete acct but (acct size - margin capital).
If you are risking 5% then 20 wrong trade and u are out of business.. That is why it is suggested that keep this to 2 to 3% limit so that u have enough trades to recover your loss and be a long term player.
This is not 20-20 match. but test match and we need to have plan to Bat for all 5 days...
(G) This part is not addressed correctly. IMO, this should address the market situation / personal situation.. when present, u will skip trading this strategy.
eg - if it is trend chasing system.. but u get signal from your big picture analysis that it is mixed market.. like 3/8/13 are not aligned properly.. so u skip trades.
Or you have urgent delivery at office / Health problem / important date with GF .. so skip trading.
Thats lot of stuff.. but that shows my weakness (my breaks are bit weak so once Ferrari is in motion, it is difficult to stop)..
Feel free to ask any doubts /discuss etc.. I am sure, other experienced people will also give views on this. Hope that I too get slightly different perspective from their feedback and response on this.
Happy Trading. Looking forward to see TRADER WOD soon.
Looks like I have found my mentor in AW...and first time since I passed my 12 th exams I am having respect for a teacher......
And I dont know how to react to all of your helping hands.....seems like TJ is becoming my another home......
Now all of you putting so much efforts to see me becoming successful in trading, success is not optional for me rather I am obliged to become successful and that would be like truely showing my respect to you all....
Thanks AW; love you AW and love you all......
. Increase the TF to Daily and check for the same. I think u will get it.
