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Hi,
this is my first post on this board. I'd like to share with you some
ideas on the following exploration I've created. Exploration can be
found here or on amibroker.com - afl list
The background for this exploration is the thesis, that any trader
could achieve superior results even with a mediocre trading-system,
when strict moneymanagement and risk-control rules are adhered.
Now, we all know, that the old saying "keep your losses short - let
your profits run " is easier said than done. Where to set the proper
stop - when to take money off the table once a trade is working
positive - these questions are , still not, easy to answer.
Based on the book of Dr. Van Tharp, "Trade your way to financial
freedom ", and Dr. Elders book " Trading for a living " I tried to
develop a system, which not only gives me some entries and possibly
exits, but also a feasable, tradeable money-, risk and positionsizing
management.
I based this system on volatility, since volatility is the expression
of changes in demand and supply.
Since I'm a shortterm-trader, my goal was, to have a system which
allows me to set stops out of the daily noise, and achievable
profittargets in short period of time ( 1 - 20 days max ).
Furthermore, I'm a notorious long-trader, so I wanted to have my
system only signaling long-trades.
I'm also a trader how likes to buy weakness and sell the strength.
Therefore, I decided, to use 2 simple Indicators as entry triggers ,
Stochastics ( 14,3 ) and MACD standard.
I'll not use STO or MACD sell signals as exit triggers. My exits are
volatility based ( stops and profit-targets ).
Furthermore, I wanted to limit my possible losses to max. 2% of my
account size per trade. The risk is determined by the 2% in
combination with a volatility adjusted positionsize.
This means in practice, that high volatile issues lead to smaller
positions, while low volatile stocks can afford larger positions.
Positionsize is automatically calculated in this exploration, based
on the underlyings ST volatility and last days price movement.
I "trail" my volatility stops ( 1.5 times the ST vcolatility as per
custom formula )on the chart by using the stop-price calculation
formula. I can also trail my profittarget - although it is initially
established when the signal has been triggered ( 2.5 times the ST
volatility as per custom formula ). However, if the stock moves into
a new trend, I could skip my initial profittarget and trail it along
with increasing prices or volatility.
The preferred entry price is also calculated based on ST volatility,
in order to achieve a reasonable entry pricelevel within the daily
trading range of the day following the signal. Please remember, that
I don't use support & resistance levels as tradesignal, but STO and
MACD signals.
I also tend to enter my orders well in advance of the opening the
following trading day, because I don't have the time to follow the
markets during the trading day.
Looking forward to your comments with much interest.
Best regards
Enough said, here's the formula for the exploration :
// This exploration looks for simple Stochastics and MACD buy signals
// to inialize long trades.
// Money-, Risk and Positionmanagment is more important for
// successful trading than having only good entries and exits.
// Therefore, I combined these signals with strict trade-,
// money-management and positionsizing rules.
// These trades are usually of very STnature ( 1 - 20 days ) because
// I used ST Volatility for Money-, Risk-, and positionsizing-managem.
// Feel free to alter these settings to your preferred trading-style
// The exploration can also be customized in terms of Account size,
// personal risk preferences and triggers for STO Indicator.
// STO and MACD can be replaced by your favourite trading-system
// However, the volatility based Moneymanagement and
// positionsizing rules could add a new dimension to your
// trading system.
// Standard account size 10 K ( see column6 )
// Standard risk is 2% of account size for any trade ( see column6)
// Entries, Stops, Profittargets ( PT) & Positionsizes are calculated
on // ST Volatility ( ATR ).
// Entries should give a reasonable entry price within the projected
// trading range for the following day.
// Although I had to use Close as basis for the calculations rather
than
// Median Price ( as I did in MetaStock ), it shourk work well.
// Stops are designed to keep the trade out of the daily noise.
// Risk and Reward are managed by positionsize, adjusted to the
// stocks ST volatility.
// Stops should only be trailed in the direction of the trade using
the
// SF Stop Indicator
// Proft-targets are valid as from day of Trade-Entry. With the help
of
// SF Entry,Stop PT indicor, one could "trail" also the PT.
// My advice is, to take some money of the table, once the initial
target
// as of trade entry has been hit.
// I recommend strongly, to keep the risk per position at 2% of the
// account-size. If you are more agressive, think about taking
// additional trades rather than increasing the risk / trade.
// I'll experiment with using Adaptive MA's instead of Ema's and post
// the result later as an update.
// Backtesting : Unfortunately, the complete system cannot be
// back-tested in AB, because I can't input the algorithms as
// Systemsettings.
// Author :Stefan - Georg Fuchs
// www.tradeshark.de
// sgfuchs@xxxx
lookback = 14;
buyrange = 20;
sellrange = 80;
stochKworkaround = STOCH(14);
stochDworkaround = EMA( STOCH(14), 3);
BUY = STOCH(14) < buyrange AND CROSS(stochKworkaround,
stochDworkaround) or cross( macd(), signal() );
Filter = STOCH(14) < buyrange AND CROSS(stochKworkaround,
stochDworkaround) or cross( macd(), signal() );
numcolumns=11;
column0 =STOCH(14) < buyrange AND CROSS(stochKworkaround,
stochDworkaround);
column0name = "STOBuy";
column0format = 1;
Column1 = cross( macd(), signal() );
column1name = "MACD Buy";
column1format = 1;
column2 = close;
column2name = "Close";
Column2format = 1.2;
column3 = ema(CLOSE,5)+(ema(ATR(1),10)/4);
column3name = "EntrLong";
column3format = 1.2;
column4 = ema(CLOSE,5)-(ema(ATR(1),10)*1.50);
column4name = "StopLong";
column4format = 1.2;
column5 = (ema(close,5)+(ema(ATR(1),10)*2.5));
column5name = "PT";
column5format = 1.2;
column6 = ((10000)*2/100)/(ema(CLOSE,5)+ (ema(ATR(1),10)/4)-(ema
(CLOSE,5)-(ema(ATR(1),10)*1.50)));
column6name = "Max Pos";
column6format = 1;
column7 = (ema(CLOSE,5)+(ema(ATR(1),10)/4)) - (ema(CLOSE,5)-(ema(ATR
(1),10)*1.50));
column7name = "Risk";
column7format = 1.2;
column8 = (ema(close,5)+(ema(ATR(1),10)*2.5)) - (ema(CLOSE,5)+(ema
(ATR(1),10)/4));
column8name = "Reward";
column8format = 1.2;
Here's the formula for charting the "Entry, Stop & PT indicators"
maxgraph = 5;
graph0 = close;
graph0style=64;
graph0color=2;
graph1 = ema(CLOSE,5)-(ema(ATR(1),10)*1.50);
graph2 = ema(close,5)+(ema(ATR(1),10)*2.5);
graph2style = 1;
graph2color=3;
graph3 = ema(CLOSE,5)+(ema(ATR(1),10)/4);
graph3style = 1;
graph3colour =5;
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