1.1 To make money on a consistent, long-term basis.
1.2 To improve day in and day out.
2.1 Plan every trade: Know exactly what prices/time you plan to enter and exit. Be aware of what you are willing to lose.
2.2 Every trade must have a risk to reward of 2:1: Never get into a trade unless the reward to risk is 2:1.
2.3 Set a Target Price: When entering a trade set a target price and always adhere to the target. It is normal to trade around a position but always have your initial size on if your target price is reached. It is extremely hard to let profits run and its essential for my trading to improve.
2.4 Patience: Know your levels before you start the day. I need to do my homework the night before and know where I want bids and offers before the day starts. Once I put my orders out I need to have patience so that the trade comes to me. Chasing only gets me in trouble. When I let a trade come to me I’m in a good mental and it allows me to make rational decisions.
2.5 Time of Day: Be aware of the time of day. The morning is the most inefficient time of the day, therefore I should be most active during morning trading and look to take advantage of over reactions and look for relative strength. During lunch time the market is very quiet and I should do my best to stay off the keys. The afternoon should be the time where I focus on getting the book set up for the next morning.
2.6 Keep a journal: Constantly reflect on my trading, what I did wrong and what I did right. At the end of the day I should review the notes from that day, review charts and start to form thoughts on the market and how I should trade the next day.
3.1. Daily: (JT Stop Loss: down 75bps I will hedge at least 75% of my book) Every trader should have a daily stop out limit, but now that I will be managing a portfolio I do not believe a hard stop is the answer. If I happen to get in trouble and the book is down 75bps (75bps on $250,000 is equal to $1875) I will hedge out 75% of my exposure. I will hedge using SMH’s (Semiconductor ETF) or Q’s (QQQQ) based on the make up of the book.
3.2. Share Sizing: (JT Sizing: Notional Capital = $250,000; no position to exceed 20% of total absolute value). First, determine the total amount of capital you wish to trade with. Always be sure that the sum of the absolute values of every position does not exceed your total risk capital (or applicable leveraged figures). Next, when managing a portfolio of names, no single position should constitute greater than 20% of the entire absolute value of one’s entire portfolio. Sticking to this rule will help keep one’s portfolio well balanced and prevent outsized losses in an individual name.
3.4. Givebacks: (JT Givebacks: If the book is up 1% sell 10%, Up 2% sell 20% and Up 3% sell 30%) To be a successful trader you need to have the ability to let your winners run, therefore my giveback will not black and white. I will have several rules that are listed at the top. I don’t want to get greedy so I’m going to force myself to sell into strength and book profits when I can.
4.1. Daily: (JT Goal: 50 basis points) The general role is that you should be looking to make twice as much as your willing to lose but since I’m managing a portfolio my daily goal will be more realistic. Also, the down 75 basis point day is a worst case scenario and should not be happening often, if it is something is very wrong and the book will be take down to zero. I feel 50 basis points is a lofty goal but I feel it’s feasible.
4.2. Long-term: (JT Goal: A $25,000 month) Your long-term goal should not be based on a dollar value as much as it should be based on consistently achieving positive days. On average, you should be green on three out of every five trading days. Furthermore, your winning days should be larger than your losing days. The ability to achieve these two goals will allow you to make money in the long run.
4.3. Increasing Your Goal: If you find that you are consistently achieving your daily profit target, it may be time to increase your goal. A good rule of thumb is to increase your goal by 30% if you hit your target at least 50% of the time. Remember that increasing your profit target also involves increasing your daily risk limits. As such, increasing your daily goal should be done slowly and deliberately. Increasing your goal too quickly can lead to inappropriate share sizing and lack of confidence and control. Remember, if you can make $100 on a consistent basis you can make $1,000 on a consistent basis.
5.1. This book will be focused on swing trades. The trading opportunities will be generated from technical analysis, fundamental analysis, short term catalysts, and price action.
Technical Analysis: I will use basic support and resistance, chart patterns, moving averages, stochastics, RSI, volume, MACD, and other technical indicators to generate trading opportunities.
Fundamental Analysis: Will use basic fundamental ideas that will be confirmed by Dean to generate ideas.
Short Term Catalysts: Analyst meetings, upgrades/downgrades, and positive mentions in newspapers (i.e. Barrons) are all potential short term catalysts that could move a stock from day to day.
Price Action: Watching for relative strength on a day to day basis. This will give me a good sense of which names to take overnight. By watching names closely you get a sense of which names have bid support, when you notice a name has a bid it is often a tell that someone knows something and positive news could be around the corner. Opposite is true for shorts.
5.2. Name: Pivot Points
Description: I will use camarilla pivot points for guidance to add and subtract to names in the book on an intraday basis. I will add to names at S3 and S4 and sell into strength at S4. Pivot points are not gospel but the will be a nice guide to trade names intraday.
5.3. Name: Mean Reversion
Description: Ill be looking for names that have traded 90% of their ADR (I use a formula that averages the 5, 20, and 30 day average). If a name has done 90% of their ADR by 10 o’clock I will run a TWAP over the next hour, 10:00 – 11:00, making a bet that the stock reverses and move back towards unchanged for the day. This is a daytrade and I will not be taking this position overnight. I will also use the ADR to generate my stop, I calculate 12bps of the ADR and then subtract that fro the low of the day. At 11am the stop will be placed just below the lows of the day. (12bps of by ADR calculation)
5.4. Name: BB, RSI, and MACD Model
Description: I have a model that generate Buy and Sell signals based on Bollinger Bands, RSI, and MACD. If a stock is within 50bps of the lower Bollinger band, has an RSI below 40 I’ll receive a buy signal. Then once the MACD line crosses up through the MACD signal line I will receive a confirmed buy. This is all generated using a daily chart and has had success during earnings and analyst days. (The opposite is true for shorts but I want the RSI to be above 70)
6.1 LED: CREE, AIXG, VECO, RBCN
6.2 Clouds: VMW, CTXS, FFIV, CRM, AKAM, RAX, TIBX,
6.3 Video Games: ATVI, TTWO, ERTS, THQI
6.4 Computers: AAPL, MSFT, DELL, HPQ
6.5 Semiconductors: ALTR, XLNX, ATML, ONNN, CRUS, TQNT, INTC, MU
6.6 Steel: X, STLD, MT, AKS, ATI
6.7 Coal: BTU, ANR, CNX,
6.8 Agriculture: POT, AGU, MOS, MON, IPI, CF
6.9 Search: GOOG, YHOO, BIDU, SINA, SOHU
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.