Short-term goals: to develop and implement a swing trading
Intermediate-term goals: to become profitable via swing trading
Long-term goals: to generate a consistent yearly income via
Instruments and Resources
Which markets will I trade?
I will trade the US stock markets (NYSE,
NASDAQ) during the day session (M-F,
because I enjoy my evenings and
Which financial instruments will I trade?
I will not trade the shares of just any
stock, but only those with a price greater than $10 and with
good liquidity (ie
those with an average daily trading volume greater than 10
million shares), and having a market cap greater than $10
Which timeframes will I trade?
Generally speaking, I
will let the longer range charts determine the trend, then use
shorter term charts for timing entry and exit points. My chart
analysis will ideally begin with the monthly chart (roughly
spanning 20-years), and then turn to the weekly (5-year),
daily (5-7mth) and intra-day charts.
More specifically, most of my time will be spent on the daily
charts. Weekly charts will then be briefly examined to gain a
broader perspective. Finally, hourly (15-20day) and five
minute charts (1-2days ) will be occasionally consulted to
time entry and exit points. The daily (and hourly charts) will
be used to monitor my open positions.
Who will be my broker?
will be my broker. Their trading platform is web-based and
comes in two versions, an older version and the newer TradeKing
. While the latter is fully functional, it is still
in development. For now, I will use the older version to
mitigate the risk that any functionality rolled-out in the
future for the newer version could adversely effect its order
Where will I get market data?
I will primarily use my broker to execute
trades. Most of my research and market data collection will be
I will use finviz.com
as my stock screener and TradingView.com
for their graphing utilities. For backtesting, I will use
sites such as PastStat.com
develop an alternative methodology. For general market data, I
will use CNBC.com
pre-market and after hours quotes for specific stocks, I will
For intra-day stock price quotes, I will
rely on TradingView for their streaming
real-time data from BATS
as a backup), as well as TradeKing's Streaming
. Once I qualify (by meeting a minimum account
balance and frequency of trades), I will use official stock
market data provided by TradeKing's Quotestream
which includes access to level 2 quotes.
What other resources will I use?
I will continually refer back to my own
testing documentation, looking for ways to improve my trading.
I will use two laptop computers, both
connected to the internet. One will be dedicated to placing
orders with my broker, and one will be used for research.
Using two computers ensures a backup in case one goes down. If
my broker's trading platform or my internet connection goes
down, I can phone in orders.
I will also use sites such as Investopedia.com
for my ongoing trading education, as well as read classic
works on stock market theory by author-traders such as John
I will also watch up to a half-hour of
TV-cable business news during the weekday evenings.
and Money Management
Am I risk-averse or a risk taker?
I am generally risk-averse, as it is my
nature to preserve my money. Although in the heat of the
moment I sometimes throw caution to the wind. To minimize this
risk, I will strictly adhere to my risk management strategies
on all trades, and will attempt to diversify my stock holdings
across different sectors and industries whenever possible.
What risk thresholds will I maintain?
I will not risk more than 2% on any one
trade, with a maximum exposure on all open positions of 6% in
I will also have a monthly loss limit of
6%. If hit, any remaining open positions will be closed and I
will cease trading for the rest of the month. During the time,
I will regroup and reassess my trading
My maximum exposure to any one sector will
not exceed 3 times my maximum exposure to any one stock, or
Total exposure to the market will be kept
below 70% of my trading account (ie
my risk capital). I will commit no more than 20% of my risk
capital to any one stock.
This means that with a $10,000 trading
account, no more than $200 (2%) could be risked on any one
trade. For example, 100 shares at $20 = $2000 (20%); stop is
at most $2 out, at $18; at maximum, I could simultaneously
hold 3 similar trades: 6%, $600, $6000 (60%).
Once I have proven, consistent
profitability and increase my trading account, I will lower
these % rules (eg
instead of 2%, it will be 1% or 0.25%).
What should the reward-risk ratio be?
In order for a trade to be attractive, I
will require the reward-risk ratio to be at least 2:1 (eg
risk $200 in order to gain $400).
What is my trading expectancy?
Since this measure multiplies my average
win by the probability of winning (less my average loss
multiplied by the probability of losing), I need not strictly
concern myself with how often my trades win, or with how large
those wins are. While these statistics are interesting and I
will certainly make note of them, taken alone they reveal
little of the overall viability of my trading system. Why?
Because it is their combination that is of crucial importance.
Therefore, I will only trade if the
expectancy – the average amount I can expect to win (or lose)
per trade – of my trading system is greater than zero.
When will I stop using my trading system, and what happens
if I do?
I will not trade at all if I do not see any
tradable stocks exactly as specified in my trading system.
I will stop trading for the remainder of
the day if I lose 2% of my trading account. I will resume
trading the following day.
I will stop trading and close any remaining
open positions for the rest of the month if I sustain a 6%
loss in any one month. I will resume trading the following
month. But if the second month is like the first, I will
abandon my system entirely and start anew. I will also abandon
my system and start anew if my trading account is drawn down
by 6% or more from its most recent closing high.
In the unhappy event of a large drawdown on
my initial trading account of $10,000, I will credit it with
additional funds. While this is money that, if lost, my
standard of living would remain unaffected, it is NOT money I
'can afford to lose.' If it was, I would take more risks than
I am comfortable with and treat my money as a plaything. It is
not a plaything. It was hard-earned and represents much effort
on my part. It should therefore be treated with respect and
utilized with utmost caution. For if I did lose it all, the
psychological aftermath would be devastating. However, I would
need to seriously consider whether to credit my account after
a second drawdown. In any case, I will not begin trading again
until I identify the cause of the drawdown, and reassess and
retest my trading system to ensure that it meets my goals.
In the happy event that my trading account
exceeds the amount needed to trade my system (ie
I have profits), I will leave the surplus in the account. If
this surplus is large, I will initially withdraw it until I
have a proven record of being a well disciplined trader with
sound risk and money management skills. Once this is the case,
I will use the surplus to increase my position sizes, thereby
compounding my trading account.
What happens in the event I am cut-off from my broker?
In the event that my broker's trading
platform or entire site goes down, I will contact their trade
desk by phone. Since I will use stop-losses, it is unlikely I
will need to close out a position. But I may still want to
enter a new position.
If my broker becomes unreachable by phone
as well, I will begin looking for a new broker immediately.
Because I will use two laptops, if one
malfunctions the other can be used to enter trades. Since my
internet connection becomes sporadic when my laptops return
from sleep mode, the solution is to never put them to sleep
during trading hours.
In the unlikely event that cell phone
reception is lost on top of the internet connection, I will
use the pay phone down the street.