Wednesday, July 16, 2008

Trading Ground Rules

I've got 10 short-term positions on right now, otherwise known as "swing trades." Five of the ten are winners, five are losers. The average net profit for all ten positions is +28%. In other words, adding up all the wins and losses, my average trade is ahead by 28%. These trades generally last a few days to a few weeks.

Usually, as trades come off, new ones get put on. I can have as many as 20-25 trades on at any one time, or as few as zero. Batting .500 only works when the amount won per trade is higher the amount loss per trade. So when going into a trade, I always look for risk:reward parameters. My potential gain must be 3X my potential loss (based on charting principles) for me to take the trade. This rule applies whether I am trading stocks or options.

These are my Swing trade rules and Swing trades are for all intents and purposes, the only trades I post here. Yes, sometimes a Swing trade turns into a Buy & Hold trade, but almost by definition, only after achieving significant gains. (And sometimes my Day-trades turn into Swing trades, but since I don't post my Day-trades, they aren't going to appear here.)

That, in a nutshell is how this works for me. In your own trading, if you were asked how it works for you, do you have an answer? My guess is that if you are successful in your trading, you do, and if you are not successful in your trading, you don't. If the latter applies, you are only a few basic ground rules, etched in your daily discipline, away from turning things around.



shyamt said...

Can you suggest any good books for learning Charting principles and for trading in general.
thank you,

met61 said...

Allan,this was a great post.My winning trades are less than 50%,but I have grown my trading account because I cut losses quickly and let profits run.
On average,how close is your stop (%) on your swing trades?

AllAllan said...

Shyam: I am working on a Blog that will describe and link to some resources that I use or have used, that should be helpful;

Ron: For Swing trades, I prefer to use a chart-based stop, where my premise is invalidated by price action; but in no case will I tolerate a loss in excess of 10%.

Anonymous said...

One book is "Technical Analysis of The Futures Markets"

By John J. Murphy.

Professor John Kercheval
Washington, DC

Anonymous said...

Thanks Allan and Prof John.

Anonymous said...


I've just noticed some links for a place called "Market Club" on your blog.

I've never heard of this group. Do you rec. them? Do you use them in your own trading?

They want to charge $$ for their service, do you know the rate?

Can you tell us how much you make from their service versus the rate they charge so we an get an idea of its overall value?


Mark from Sandy Utah

AllAllan said...

Mark: Yes, I use Market Club, it is my primary scan for break-outs each night, it is where first found the DUG break-out. Not sure what they are charging now, will have to look it up, but on just the DUG trade I've probably made enough to pay them for a decade. I'm going to write them up, maybe in a day or two to explain how i use the service. Since they are advertising on my site, I should explain their set-up and why I like it.


Anonymous said...

I appreciate the info and am learning much from you. Do you ever share your Buy/Hold trades on this Blog?


Allan said...

Larry, have you heard about NNVC?

Anonymous said...

I bought some based on this Blog and the good DrF

beactive said...

I like your posts and certain stocks which I have traded well. Today I re-bought NNVC at $1.34 looking it to hit $1.78.