My Trading System


I’ve been testing and using aspects of the system I’m about to show you for awhile now. Some of you have seen parts of this system here at Trade Guild or maybe on the Worden Report. This past week I submitted the entire system (the same as I’ll show you) to TeleChart’s Worden Report. On May23rd the stop channel and position sizing-risk management aspect were published and I was knighted. It may sound silly, but it actually is a bit of an honor. When you are knighted, you have the option of joining the group in which they…well I don’t know exactly what goes on there as I haven’t taken the time to participate, but you also receive a nice bottle of champagne. Friday, Don featured my second submission in the Worden Report and I’ll get my second bottle of bubbly soon. While I don’t use this system exclusively, it does represent my view towards trading and my goals.

I’ll quickly sum up my goals in trading. I’m looking for trends, I don’t need to buy bottoms and sell tops and as you’ll see in the videos, my system makes that impossible. I’m looking for the meat of the move and I’ll leave the risk of bottoms and the volatility of tops to someone else. I also am not too interested in 10% gains, I’m looking for the big moves that happen maybe a few times a year, but when they do, the gains are extraordinary. As a general rule, stocks don’t trend well, certainly not in comparison to futures. So to capture these rare moves, I need to swing at a lot of pitches until I find one that connects on the sweet spot. That means taking a lot of small losses and risking a lot of small profits. Obviously money management rules are a big part of my trading. For the most part, I won’t risk more than 1 or 2% of my portfolio value on any one trade. To do this-identify your risk amount, for a $10,000 portfolio, 2% risk =$200. There are other ways to apply the 2% rule, but for my goals this is how I use it. Next identify your entry and your stop loss level. The difference between them is your risk. For an entry of $10 and a stop of $9.50, you have .50 risk per share and thus you can buy 400 shares ($200(2%risk)/.50=400). As I alluded to earlier, there is another way to apply the 2% rule and that is you determine the number of open positions you want at any one time then and spread that 2% risk out between them. For example, you have the same 10k portfolio and you want to only risk 2%, if you planned on having 4 open positions, then each one would be allotted $50 risk money. The same $10 entry/9.50 stop position would allow you to buy 100 shares ($50/.50=100). This approach is very conservative and is a great system if you are a new trader or have hit a bad patch of trades and need to buckle down and get back on track. The way I use it allows for bigger positions and greater rewards, but at the same time you can put yourself out of business pretty quick if you have too many trades on. I strive to have 4 positions at anyone time open. Realistically this puts me at 8% risk at any given time. The more positions, the greater the risk and the lower the potential reward of any one trade. I also strive to have diversification in my portfolio-I don’t want to be long 4 oil companies. I also like to have a balance of longs and shorts-if the market is bullish, I want to be 75% long 25% short. Right now I’m long diagnostic substances, biotech, semiconductors and short Steel/Iron. I’m a bit overexposed to the drug sector, but I have a tighter position risk there as well.

So, there’s a rough idea of how I approach the market. It isn’t for everyone and I don’t claim that it is the best way. You need to find your own best way for your goals, time and talents. The way I trade you need patience, you have to be able to sit out significant draw down in your portfolio, you need to be able to accept that you won’t be able to buy the bottom or sell the top, you need discipline to follow your rules the same way everytime and you need to accept and be okay with exiting a trade that goes up big the next day. Often when the latter occurs, we set out to redefine our system and that is not a good thing to do. That is a tough one, walking away and then seeing the trade do what you had missed out on, in trading that happens all the time and you need to accept it and move on. So that is enough on that, here’s the videos, enjoy-