Posted 2/13/2014 9:36 AM (#5657) Subject: A Dozen Deliberations
Location: USA: GA, Lawrenceville
Recently RyanO asked Trading Lab participants to share their requests as to what methods should be taught in the Lab's future. I suspect that he is mostly interested in focusing on the use of plugins and discretionary execution guidelines. But I took the opportunity (once again) to try to "nudge" the N themes and thinking down a different path - let's call it the "high road" :-)
There are a variety of methods I use, mostly unrelated to plugins so I'm not sure it would help to describe them (and would take a long time ;-)
However there are a few absolutely vital rules that I follow which are widely agreed to as being keys to successful trading (ie "long term survival"). They have to do with Risk Control and Money Management - maybe call it "highly deliberative size and exit control with market-responsive diversification and hedging". That's as nutshell-y as I can put it I suppose.
Y'all have never asked me to teach that stuff, so I won't presume to now. However, I would hope that in your "real" trading, you employ carefully developed rules and market-responsive guidelines to trade and portfolio management. The typical OTU methodology snapshots don't seem to allow time to teach or develop these concepts - but since they are so critical to longterm success (and peace of mind on the journey), my suggestion is that you try to find a way to present YOUR methods of dealing with these things, presented as a consistent practice across all your Trading Lab courses.
That training ought to explain and consistently illustrate:
1. How and why should I adjust my Dollars per Share Risk as a function of the Price of the stock (ie $5 to $500)?
2. How and why should I adjust my Dollars per Share Risk as a function of the Bar to Bar Volatility of the stock (ie ATR as a percent of Price)?
3. How and why should I adjust the Number of Shares that I buy in relation to the #1 & #2 Risk that I am taking?
4. How and why should I adjust the Number of Shares that I buy in relation to the Group and overall Market Volatility?
5. How and why should I adjust the Number of Shares that I buy in relation to the Group and overall Market Trend direction and speed?
6. How and why should I manage my overall portfolio dollars at Risk (not equity but sum of all price vs stop times shares amounts) in relation to overall exposed equity?
7. How, why, and how much should I attempt to keep my portfolio positions Diversified regarding Sector/Industry/Group rotation?
8. How, why, and how much should I attempt to keep my portfolio positions Hedged (balanced) in response to Group and Market conditions?
9. What method should I use to find stocks that have exhibited good Reward vs Risk characteristics in the recent past?
10. What Reward vs Risk expectations and filters should I manage my trade selection process around?
11. When and why should I sit out, or at least dramatically cut back on any trading at all?
12. How and why should all of those rules be modified as my account size changes (ie 25k to 100k to 500k to 2m? … you have customers in all those ranges …
That I supposed might be called the "Dozen Deliberations" which I think should be a crucial and core rules that are implemented for all trading of whatever sort. The answers to the questions can, will and should vary over time - that's largely the point - but they should be rules figured out ahead of time, and considered as bedrock essentials.
So, amongst those twelve, y'all must have at least a half-dozen or more that you regularly employ (probably via spreadsheets since OT doesn't offer canned tools for managing much of this). I think it would be extremely beneficial to provide training by explanation and consistent example as to how these are conceived and implemented.
Posted 2/13/2014 9:47 AM (#5658 - in reply to #5657) Subject: A Dozen Deliberations
Location: USA: GA, Lawrenceville
By the way - once the VidSite finally is resurrected so that I can get video training distribution rolling again (hopefully SOON), an important part of the training I'll be giving will deal with these Deliberations, and provide tools and methods to mechanize them. It's importance can't be overstated. Stay tuned!