Entering and Exiting a Position

This is the third iteration of my approach to entering and exiting a position (5-16-2010). (For purposes of comparison, you can check out the first version here (entry), here (exit) and the second version here.)

No major changes here. The big change formally came over Easter weekend 2010. (Much of this is my interpretation of FNG's approach, the basis of which may be found here.)

As is evident in my personal and publically available win/loss record, this is by no means a recommendation of what to adopt or what to do.

Principal 1:

The market is always moving. Some of the moves are small, and some of the moves are big. Market movement cannot be predicted, but it can be recognized, and it can be utilized. 

My job is to recognize the movement and use it. Big green candles mean a stock is moving up. Short green candles mean it is slowing down. Big red candles mean a stock is dropping. Short red candles mean it is slowing down. Short and simple - not to imply that this is easy to implement. By no means.

Principal 2:

When it come to trading, I am my own worse enemy. Emotions lead me to focus on myself rather than the market. Fear debilitates. Greed ruins. Hope distracts.

This is the big one. Emotional baggage places a huge demand on my resources. It causes me to change my focus and concentration away from the market and what it is doing, to myself, how I am feeling and how I can curb these feelings. I need all of my concentration on the market in order to respond. If my concentration is on myself, then I am responding to myself.

This means no more looking at the PnL during the day. Never. PnL is not part of my intra-day trading plan, and I trade intra-day.

I am not sure that I will ever get over this. It will take years of experience if I do. So no more. Out of site, out of mind. In theory anyhoo - going to be testing it out this week.

Practical application:

I have simplified this extensively.

My trading platform is NT 7 B15. I use 3 charts:

1. The 5 minute on the Q's and SPY, with respecitve volumes, current day open, hi, and low, the 7 and 17 period EMAs and a bar timer on the Q's. 
2. A 3 minute Haiken - Ashi of the trading insturment, including volumes, current day open, hi, and low, the 7 and 17 period EMAs and a bar timer (actually the bar timer is based on a 3 minute secondary 'invisible' (transparent) data series because NT needs a time bar for a bar timer; go figure =))
3. A 15 minute candlestick of the trading instrument, including the 7 and 17 period EMAs and a bar timer.

I use 2 of NT's market analyzers and have them both linked to the 3 minute HA and 15 minute chart. One is used for all currently watched stocks (changed EOD using TDA's screener results - see below) I have these set up with some custom indicators:

1. A column showing the difference between the day's high and the day's low. I use this to auto-sort the MA's so that the largest differences are always at the top. Large differences = big moves, and, in my opinion, more big moves.
2. A column showing the difference between the day's high and the last price of the instrument. I have a simple three color gradient (green) (from $0.20 to $0) applied to these so I can readily identify stocks approaching new highs.
3. A column showing the difference between the last price of the instrument and the day's low. In principal, the same gradient (red) and for the same reasons.
4. A column showing the spread between ask/bid. This is color coded as well (< $0.02) for ready identification.
5. A column showing the ration of the last 5 minute bar to the day's high minus the day's low. This highlights big candles and big movers. Most of the time.

I also have several other columns:

1. Last price, day's volume, position size, and unrealized gain (shown in a bar form, primarily used as  means of tracking multiple positions. I turned off currency tracking, so all I know is relative)
2. A candlestick pattern indicator to check for 15 minute and 3 minute HA dojis. If nothing is found, it displays '0', other wise it indicates the respective doji (potentially signalling indecision and potential change in movement).

I trade via the chart trader function using 3 ATM's:

1. Standard entry: 50 tick stop loss, no profit target, 500 shares.
2. Choppy day: 10 tick stop loss, 15 tick profit target, 500 shares.
3. Runners: 75 tick stop loss, 100 tick profit target, 1000 shares.

After an order is filled, I move the stop loss to where I think it should be graphically by dragging it. Chart trader asks for confirmation on each order. (A bug: I have had it place orders for an unintended instrument, i.e., not the one currently displayed on the chart. I am working with NT's support on this, but I have not been able to pin it down. Very disturbing. Be wary if you use this.)

The second part of the system, and probably one of the most important parts, is TDA's Strategy Desk running in the background, screening all eligible stocks for big moves (bar ratio = 50% or greater of day's high - day's low). Finding the right stocks is key. Occasionally I add a custom rising and lower screeners for overall market momo or for finding trending stocks not on the MA. The MA list is populated EOD using another TDA screener checking for the day's biggest movers.