I'm a newbie trader and I've been reading this forum (as well as anything I can get my hands on: books, mags, other forums and all sorts of stuff on the internet) about technical analysis and I thought I would put it all out there for feedback on my system.
I thought I was ready at the end of July to get in and start trading. My first problem was that I didn't have a proper and complete system. I would read something that seemed a great idea, then check out a bunch of charts from over the last year and the majority of times that particular idea/system/indicator would come up good. I'd get all excited and jump in (usually hasitly). Sometimes it worked, sometimes not. Then as I knew I still had alot more learning to do, I'd get the next trading book and go "wow - I should be doing that!!!" and I'd repeat the above recklessness. August obviously wasn't the best time to go long in stocks and I lost a fair bit wondering what I was doing wrong. I turned my outlook around and started shorting and made most of it back.
Basically without a proper system (just borrowing bits here and there) it was more like gambling than trading so about 3 weeks ago (yeah I know - I was stupid for quite a while before I realised) I sat down and planned out my system that I would use for at least the next 3 - 6 months and along the way refine it and hopefully start making consistently more successful trades than losers.
So here is my situation and plan - I hope you gurus out there can comment and suggest what improvements I can make:
I have $5000 in a Prime Macquarie Account (Spare cash that I can afford to lose). A Prime account is pretty much a CFD account with so called extra perks (shareownership, dividends etc). Like short term loans.
I am willing to risk more than I should according to the books (2% total equity)
I am trading those shares which have 5 or 10% margins (which are mainly blue chip or top ASX 200 type companies).
I will limit myself to a max of 4 or 5 at one time - each at $5000 worth of stocks (for a total at any one time of around $20000 to $25000)
I am planning to trade short term (couple of days to a couple of weeks) at the moment because of the craziness that is happening in the stockmarket at the moment (It looks crazy to me at the moment compared to if I look at charts from the first half of the year!) I would like to trade for longer time periods (up to 3 -4 months maybe) when the market picks a direction but I think it might be safer to trade shorter time periods with smaller (but hopefully regular) profits. Any feedback on that idea???
OK onto the trading plan:
* If the market (All Ords) is in an uptrend then I'll look to go Long. If its going down I'll look for shorts.
* On weekends I'll visually scan though my available stocks on a daily Metastock chart with the GMMA in the top window (to try to determine the character of the trend) looking for stocks that in the last couple of weeks/months have been trending in the direction I want to trade.
* As I find likely suspects I put them in an Excel spreadsheet I made up as a watchlist which contains Target cost (the most extreme price I'm willing to pay), Stop loss price, Target profit Price and a few columns with varying profit % (5,10,15,20etc)
* After each trading day I come home from work and download the EOD data and check each of the stocks in my list looking for those that are making a retracement into the area between the 10 and 30 day MA.
* I look for those making retracements to turn back to the intended trend (Pivot points I think?) and determine that the trend will continue using candlesticks and confirming candles the next day.
* I calculate a Stop Loss as approx 2 % above the high or 2 % below the low point. Then calculate the max price payable as 6 % above or below the stop. That way i 'should' only ever lose the 6% plus transaction fees (approx $300 + $20 per trade = $340)
* I filter down to the best trades by looking at the GMMA and past resistance and support to hopefully find the 4 or 5 trades that will go in the direction I am trading for.
* After I have entered my trades, here is where I come to a dilemma. Later if the market starts to settle in a direction (bullish or bearish) I plan to hold these trades for longer and get out when the trend is weakening or ending. But -
At the moment I am thinking it might be better to just take small profits near the price where the trend began its retracement in case the trend doesn't continue due to short term resistance/support at the point.
Therefore I am looking for retracements where I can snatch a quick %5 profit (minus transaction fees which nets to about $200 for a week or two involvement. With 4 to 5 trades at a time it should average to $800 - 1000 in the perfect world)
I have had a few where I was at the 5% then it turned around and instead of snatching $200 - 250 I ended up either breaking even or losing.
Ideally I would like to stay in for the entire run then when I see candlesticks reversing to start another retracement - get out to lock in profits - then possibly get back in when the candles indicate a continuation of the initial trend.
I am pretty sure this is swing trading, although I read varying definitions.
* Also as my capital increases to the next $1000 I plan to up each trade by $1000 (eg when I have $8000 I will be trading 4 or 5 stocks at $8000 each) which should compund my profits while not getting to carried away (if I fall below each $1000 I will reduce the next trades appropriately).
Thats the basics of the Plan anyway. I have looked at and tried all sorts of indicators and come full circle and decided that price (candlesticks) combined with a couple of simple indicators (GMMA and 10 & 30 day MA) will be what I use.
Cheers to you if you have spent the time reading this thread (thats 5 -10 mins of your life you'll never get back!!!) and I look for to any helpful criticisms (and some nasty ones as long as they are funny). If you have any ideas to help a new guy out then please speak up. I plan to use this system for the next few months accepting that my profits will be small but am using this as a learning process. I tried paper trading but wasn't "into" it enough and didn't apply it properly. By doing this (small profits/hopefully small losses) I will be giving my broker a nice pay packet (good for him/her) and learning to fine tune my trades by using real money as an incentive.
Later I'll post my trades so you can laugh or be in awe.
So what do you think? Good, bad or retarded trading plan?
Help me to help you to help me!!!
(Whoa - I need to catch a breath after all that.....)