Post #49: My trading system flowchart

Lately, I am making an effort to make my trading as systematic as possible.  My goal is to set definite trading rules that will eliminate any second-guessing and emotions in my executions. Below is an overview of what I am currently doing.  I decided to show it in a flowchart form.

The very first step is to asses the general market's trend. This is where I will decide whether the market situation is favorable or not. It is also where I decide if how much of my capital will be put into position and how much will stay liquid. For example, in a down-trending market I might want to be only 25% in position and stay 75% in liquid cash.

Stock selection is where I decide what criteria will be factored in before a stock enter my watch-list. I am using both technical and fundamental factors. For example, I like stocks that are showing tight volatility ranges with increasing volumes. Fundamental factors includes P/E ratios, float % and many others.

Specific entry criteria is where I intend to enter a position. One example is a good upside breakout of a tight ranging stock with above average volume. I am looking for various set ups and I'm using a specific entry point strategy to avoid confusion in my execution.

Risk management is where I set up entry stops, position sizing, trailing stops and my risk tolerance. This is where I also scale my position up to avoid getting hurt in whipsaws. I believe this is one of the most important process that traders should focus.

Selling is where I set specific rules on when to sell my positions. Example of this is when the price hit my trailing stop or when the price is showing some topping signs.

Last, but also the most important part of my system, is the feedback and trading review part.This is where I review my trades to see if there's any part of the system that needs to be revised for improvement. No system is perfect, that's why constant feedback is important.

That's how simple my system will be. Although revision is expected, I will try to always keep it as simple as i intended it to be. There is no need for an over-complicated system, but at the same time you also need specific rules and system if you want to be successful in this endeavor. Otherwise, your trading will be driven by your emotions and it will become just some random buy and sell transactions without any clear justification.

Post #48: PSEi still on a downtrend

When PSEi 7500 broke down, I closed all my positions and went all cash. Looking back, there are a lot of instances when the market tried to tell me that it really did peaked. When the index went below sma 200, I should've listened. The message became louder when the death cross (sma 50 went below 200 sma) showed itself. I still traded, though smaller in positions, but in the end took some losses. The urge to trade is really hard to resist.

Now, I am currently just watching some stocks and the market, as well as trying to work on improving my system by making some refinements. I really don't mind playing those occasional bounce plays, but it really is not worth it anymore in my opinion.

I even moved some of my cash to other investment vehicles. There are more other ways to make cash work for us aside from equities; it could be real estate, micro-financing or even building real businesses. Money is just a game and the world is your playground.

What keeps me busy right now is working on my system. I'm trying to create a fully systematic trading plan that will help me act fast without any second thoughts. I am focusing more on my entries, position sizing and exit strategy. No system is perfect, that is why I am continually working on mine.

I will wait patiently until the market tells me it's time to get back in the game again. I'm playing the long game, no rush to get in. After all, I am not in the market to get excitement. I'll let the PSEi and the stocks on my watch-list tell me when it's time to rock in roll again.

I will be closely watching the sma 50 and sma 200 of the PSEi.