Thanks Trent.
Discretionary system is a very O’Neil/Minervini breakout patterns kind of thing. You know, looking for cup and handles, stocks about to break through 52 week highs, some kind of volatility contraction on low volume, and then burst through a resistance level to new highs. Keep the position count low, like 5 positions at a time. Maybe 10 if market is down/sideways and I am trying to have less exposure per position.
I thought I would give this type of trading a try after going through my “rediscovery” process earlier this year. During the covid slowdown it was a good time to sit quietly in a corner/bathtub and read some books on trading, scrub up on my skills etc. A few of them I read during this period were Minervini’s and O’Niel’s books. I can see the merit in the way they do what they do, and in many regards it is a very simplistic approach and if there is one thing I have been realising more and more in this game is that simple wins the race.
The challenges I am facing at the moment is the stock identification/selection process. Amibroker is wonderful but Norgate Data carries no historical fundamental data and there is a portion of the process in identifying the breakout stocks that require the fundamental link. In this regard I have been subscribing to all manner of other platforms to try and see what they are like and if they will give me what I need in order to generate my trades I plan to place each day. I have been through a few different platforms now. I will probably use MarketSmith. It seems to have the best mix of simplistic yet complicated enough tools to help identify stocks in this style of trading. Whatever you do don’t ever waste your time subscribing to VectorVest. It is just complete garbage platform/software and the company are a mob of robbing bastards that only seek to line their own pockets, so much so that to cancel any kind of subscription you have to call them on the telephone and give them your life story. They are the masters of selling and trying to bomb your credit card with some kind of charge every month. I’ve tried probably four or five other platforms in last few months, nothing much to report on good or bad.
So that is the “identifying the stocks” side. On the trade/order management side I am creating a new custom API from scratch. I need something that is going to help me place the limit orders above the current closing price (after having identified them and the target prices in MarketSmith) and then respond to any fills with a combination closing order split across an initial stop loss, a percent trailing stop loss and a portion of the fill with a bracketed profit taker. I am no good at coding Python, so I am getting a third party to code that for me. I am guessing they will be finished in September, as it seems communicating with them and then performing revisions usually takes about ten days at a time. We are only on the third set of revisions at the moment and I can see it easily isn’t going to be finished within August. The API will also likely replace the Smart API I got from The Chartist. I need an API like this as I am no good at exiting positions at the right time. I am actually completely fine with hitting the go button on opening orders but closing out at the right time I am useless. If the API can respond to fills with a set of closing order types that I never have to think about ever again with a Good Till Cancelled validity and closing order types that are native to Interactive Brokers then effectively at the end of every trading day the API and TWS should be able to close and any fills would have had an associated closing order issued and the API will not need to detect or re-manage those orders again tomorrow. They should either stop out at a small loss on the first day or two or perhaps hold for longer terms/days/weeks/months into the future and then stop out themselves with some other level of profit.
I don’t know what the stats are going to look like for a system like this. I estimate my average stop loss will get stopped out on the losing trades around 6%. Hopefully the winning trades will see profits stopped out around 20%. I guess win rate is going to be no more than about 30 to 40%. So likely plenty of small losing trades and hopefully a handful of high profit winning trades. That will be something to get used to but like I have learned recently, just start small amounts, see if the system is working and only then will I scale up with more dollars. I’ll probably start with 50K USD allocated, 5 positions, 10K USD per position and see how I go.
So that is where I am headed. For now though, as you will have seen via the forum I am perfecting my MOC system. My idea is that once I think I have “mastered” the MOC world that is when I will move on to the discretionary long system. I am soon going to pass the 1000 trades on my MOC system and it all seems to be working in the right direction and the stats and real live trading playing out as expected. If the API development takes until October to start test trading the discretionary long system that is probably fine by me.
