Seeking consistency
My trading break over the last few weeks has been useful and has given me a chance to do some more reading and analyse where my problems are. I identified some key areas where I am falling down and hence need to rectify. They are:
1. Position sizing: I have been really inconsistent with this, but I've now got a method for calculating what the position size should be based on average true range from my work in my competition thread on this.
2. Over trading: I have found that swing trading suits my style the best and so I'm going to cut down the amount of trades I make per week as I need to be able to put the appropriate amount of time into the research before putting on a trade and also have enough time to monitor the position during the week.
3. Targets: Although my target method mentioned in the opening post is sound for longer swing trades I've found that I particularly like a max trade length of a week and so I've developed a new target method based again on average true range where I look at the 200 day ATR and the 52 Week ATR. This is still a work in progress, but I've found a target range between 1 and 2 x the daily ATR is very achievable each week, and so I will be aiming for this from now on and aiming for a higher win/loss ratio as well.
4. Relative Strength: This has become a key principle for me lately and I've been doing a lot of reading on the subject. There is some great work on this in Point & Figure Charting by Dorsey and I'm using the techniques to analyse stocks relative to their sector and the market before I even consider trading them. It's a really detailed subject, but I think it's going to become key to my trading method as well as average true range.
Another change I have made is that I withdrew around 77% (£3000) of my money from the spread betting account and have placed it in my ISA. The reason for this is that I keep my position sizes below 0.5% of my account and have a max draw down per month of 3%. So the majority of my money is just sitting idol making the spread betting firm interest and is at risk if a black swan event happens. So I thought about it and realised that I could mitigate my black swan risk and make some interest on my trading fund by moving three quarters of it to my ISA and investing it in very slow moving cash bonds and gilts etc. I haven't decided which yet, but I should be able to make 3-6% a year interest in these low risk funds and the money would be available to withdraw if I ever blew up the remaining 23% spread betting account. The spread betting firm also has an 80% margin limit where they close the position automatically if it breaches this level, so that will be in-effect my disaster stop if the product gaps through my stop loss. It's very unlikely though that I will ever get near this as my position sizes will still be very small, though proportionally bigger because of the smaller account size at around 2% per trade. I will also only have one position open at a time so my risk should stay relatively small.
Anyway, I start again on Monday and will be trading my one trade a week method. Results from my other thread have been fairly good so far so lets see if I can continue this and make this into a consistent trading method.
Cheers
