Wednesday, November 30, 2011

Rules of Engagement - Trading Plan for week of 12/5/2011

No trades today 
I was out longer than usual this morning and when I returned, that big spike up due to the "collusion" of the world Central Banks injecting Cortisone threw my charts (and me) for a loop.  Therefore, I generally stood back and just watched.

In addition, the sound of construction workers banging away in the basement combined with not enough sleep last night also contributed to my lack of action (to play it safe, even on SIM).  However, I did try an entry, but it didn't fill.  And I also missed one of Renato's alerts that ended up being profitable.

Although I didn't trade, Renato gave several alerts that I believe gained at least a few ES points in total.  The summary he gave of his net performance for the month of November was simply amazing and inspiring.  He has made me into a believer that taking small and steady bites every day can add up to substantial returns over a month.

So I worked on my trading plan
The lack of trading gave me time to focus on my trading plan for next week when I start trading live once again.  As I wrote in my last trading plan back in August, the primary goal will be to test my ability to follow my trading rules -- in other words, maintain discipline to focus on the process.

I have deliberately simplified the setups in the trading plan below in order to respect the proprietary nature of the DS system.  But for those who are familiar with DS, I'm sure you'll see that these rules are very straightforward and should be easily to execute (at least in theory).

How I will judge myself
At the end of next week, I will not rate myself on whether I made a profit or not, but how well I executed according to the plan.  I know based on my trading schedule, I will most certainly miss many good opportunities during the pre-NY open.  However, of those trades that I do take, I will score them based on how well they met the criteria as well as how well I executed according to the plan.

* * * * *
Trading plan for week of December 5, 2011
[Not locked down yet, so this is still subject to revision] 

       30 minute and 377 tick charts based on DS levels, as well as my 5 min chart

       RSI, moving averages, vwap, pivot levels

The following setups are in scope:

(1) Renato's DS Alerts
  • They work -- just take them!
  • If applicable, refine entry point with 377t chart
  • If there are conflicts, Renato's trade overrides all other setups
(2) Retest of 30m DS level
  • Wait for close on 30m bar, with entry on following bar
  • Ideally, trades should not be taken between 11:30AM and 1:30 PM
(3) Reverse Play on 30m level
  • Similar to Reverse DS4 setup, except this can apply to any DS level
  • Ideally, take this in the direction of the intraday trend
(4) First Touch of 30min DS level
[Not sure if I'm going to leave this in here or not for next week]
  • If DS4 is involved, wait for the farther level (and realize that many profitable entries will be missed!)
  • These FT setups should account for < 20% of total setups
  • Since FT may be riskier, these setups must have one of the following, or else pass!
       (a) 377t DS4 with RSI, or
       (b) Confluence with additional non-DS level such as trendline/vwap/pivot level
Limit order will be placed at +2.00 points (8 ticks).  This order will be sent automatically as part of a bracket order at the time of entry.

Exception: In an instance where the setup takes place at a known critical support or resistance level, once the stop is raised to +2 ticks, I will have the discretion to let the trade ride for a greater profit.  However, this should only account for < 10% of total trades.

Risk per trade not to exceed 2% of portfolio

Start by trading 1 contract (therefore, risk per trade will be < 1% of portfolio)

General rule - allocate $8k-$10k per contract

The stop will be placed -2.25 from entry price, unless there is clear and compelling reason to adjust by no more than 2 ticks.

The stop loss will remain at the original location unless:
   (1)  The trade is +1.50 (+6 ticks), then stop will be raised to entry price/breakeven (0 ticks)
   (2)  The trade is +1.75 (+7 ticks), then stop will be raised to +0.50 (+2 ticks)

Max daily account loss = 5% of portfolio

Max intraday drawdown = If daily profit > $500, drawdown will be kept < 30% of max profits (i.e. highwater mark)

  • Find ANY REASON to pass up a trade -- I don't have to trade.
  • However, if the setup is valid, pull the trigger!
  • Don't fight the trend, save your mental and emotional capital.
  • Remain in the "Now Moment" -  Follow the plan and just let go -- let the trade win or lose.  Zen out, man. 


Tomross58 said...

Hey Grove,,

It's amazing to me how so many of the things you bring up in your blog are things I am thinking about or did'nt think of and help with added thoughts.
I have been struggling with the management part you mention as I will also start out live soon and use just one contract. I also was thinking about the 2 pt profit target and 2.25 stop which has worked out nicely on sim. But,,,,that 1.50 / 1.75 area when in profit and moving the stop up to break even and then 2 ticks profit is where I was stuck. Should I or should'nt I let it breathe. Well with just one contract and a point and half move in your direction I would rather stop out even than have a loss. That is a great rule I think and one I will also apply.
You gave some good ideas here and to me this is how you are making Rena's system your own. You are not changing his proven stratigies but you are managing your trades in your own way. Just my thoughts.


Grove Under said...

Hi Tom,
Thanks for the feedback, but I have to admit, the scaling out part was what Renato recommended to me about a month ago. And after trying it out, I'm very comfortable with it.

His main point with an all-in/all-out +2.00 point scalp strategy, you should never let a decent winning trade turn into a loser.

There will be times when you'll get stopped out at b/e or +2 ticks, and then have it go back to hit your +2 point target. But that's just the trade off you have to accept, since there will also be times when you'll be happy you got out at b/e.

And another way I look at this strategy is like this: When you're already +6 ticks in the money, you'll more often than not get those few extra ticks to reach your 8 tick target rather than have it go against you 6 ticks for b/e.

Glad to hear you'll be going live soon -- good luck, I know you'll do well!