Sunday, August 17, 2008

Trade Rules - Day Trade Strategies

A day trade strategy is one or more round trip trades around a specific direction. Either short or long. This strategy assumes trading against the S&P 500 via various methods but primarily futures.

Capital Exposure
A single trade as part of a day trade strategy may not exceed more then 0.5% of the total cash capital available.

Each new entry will always requite a 2 point stop. Once the position has been filled wait until the position has gained 1 point and then manually move the stop as a trailing stop until you hit your break even point. By the time the position has gained 3 points, your stop should be at break even.

Special Note: If the entry for the position is within 2 points of the high/low of the day keep the stop always 1/4 point away from the HOD/LOD until a minimum of 4 points have been gained. This consideration is still under review and I may remove this at a later point.

Maximum Attempts
A given strategy may only have a total of either 3 attempts, as in 3 full round trip trades or a total loss of 1% on available capital. Even if 3 attempts stop at break even giving you a 0% loss this strategy should not be continued.

Each re-attempt should only occur either 30 minutes after the last stop has been triggered OR once the market moves a minimum of 3 points (up or down) from your last stop. Whichever occurs first. This protects you from chasing a position when you feel the market is doing exactly as you thought it would move after you have been stopped out - many times this is an emotional attachment or disappointment due to a stop being triggered.

Special Note: After the fact it appears many times that the 4th attempt would have worked out in your favor of the original strategy. However that means that all previous 3 attempts were timed poorly. Additionally after 3 failed tries emotional aspects and chasing can come in very quickly and can mess with your head.

Position Additions
A position may be doubled in size after 5 points have been gained. However, stops for this must be kept at break even levels. Use proper patterns (such as the RSI retracement levels) to determine another entry. Again stops MUST be kept on break even for entire position.

The minimum gains for an exit is 4 points. Maximum gains are 10 points. It is possible to set this up as a continuation trade. If that is the case 50% profit will be taken at 10 points and the other 50% with a 5 point stop loss (meaning 5 points of gains on original entry). Worst case scenario this position will still net 7.5 points in gains.

Positions can only be opened after 9:45AM and no new position can be taken after 3:00PM. Any day trade may not be converted into a mid term trade and must be closed out at the end of the day.

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