RE: Trading plan

----- Original Message ----
From: David Halsey <david@coronariversidehomes.com>
To: david.m.halsey@gmail.com
Cc: crystaldoerges@yahoo.com
Sent: Tuesday, May 6, 2008 5:28:55 PM
Subject: Trading plan

Why am I trading
I am trading because of my passion for the finacial markets and my
long lived aspiration of becoming a profitable full time trader. Being
a student of the markets I have gained an appreciation for some of the
things that are critical for success as a trader. Proper mindset,
strict money management, and trading with a predifined plan are some
of the critical issues to focus on when trading the markets.
The most important will be to establish and maintain a traders
mindset. The ability to internalize and master the psychological
aspects of trading is one of the most crucial skills that determines
success. I I must be careful not to over analyze the market, and must
realize that trading is 90 percent mental. In general, proper attitude
will produce better overall results than analysis or technique.

What markets will I trade?
Main contract mini sized dow YM
Hedging contract mini sized sp 500 ES

Why this market? Trading strategies
The mini sized dow will be used for the following intraday setups.
1. Gap fades
2. Pivot plays
3. 5 minute squeeze plays using the painted MACD histogram.
The mini sized dow has a better spread than the sp ans nasdaq futures,
which gives the begining trader more room (levels) to allow trades to
work out. Additionally, it is easier to track all 30 dow stocks for
advancing and declining issues that make up the dow versus the 500
that exist in the sp 500.

General account rules
Withdraw 100 percent of any trading profits at the end of each week
and place them in a savings acoount
Never add money to the trading account

Trading strategies
Three strategies will be used for intraday trading of the YM contract.
I will use only one strategy at a time.
* Gap fades
* Pivot trades
* 5 minute squeeze trades
Each trading day will be broken down into two, 2 hour trading sessions.
* 6:30-8:30am pacific
* 11:00-1:00pm pacific
All trades must only be initiated during these two timeframes with the
following exceptions
* management of existing trade that is still on from the morning.
* five minute squeeze using a MACD histogram

Gap fades
The gap fade will be the first trade of the day using a split chart
using a 144 tick charts on both. One will will use 24 hours of data
and the other will be trading hours only. I do this so I can see and
measure the gap.
Gap trade guidelines
1. Take only those gaps that occur between R1 and S2 pivot levels.
Exceptions to this rule can be made if price opens near another
significant level that has a high probability of providing
support/resistance.
2. YM gaps should be as least 20 points and not more than 60 points.
If it doesn't meet the critera pass on the trade.
3. Never risk more than 1.5 percent of total trading capital per trade.
4. Around 6:20am, evaluate premarket volume in key institutional
stocks to gauge the power of the gap. Specifically, MXIM, NVLS, KLAC,
and AMAT, write them down on the daily market worksheet.
Volume guidelines
* light- less then 30,000 shares
* moderate- 30,000 to 80,000 shares
* heavy- 80,000 + shares
Only take full positions on the gaps that are less then 30,000 shares
in the pre-market. These trades have the highest possability of
filling the same day. Moderate and heavy volume days should be treated
with care.
1. Pre-market volume takes precedence, if a gap occurs with premarket
volume over 80,000 shares and doesn't fill, look for the first
buy/sell signal in the direction of the gap. This may be a pullback to
a pivot or a squeeze play after a consolidation of the mornings gap.
2. When the daily pivot preceeds the prior days close, look to lock in
any gap trade profits at the daily pivot level. More often times then
not it will consolidate and bounce.
3. Record unfilled gaps and keep their price level handy on post it
notes, the market will often fill open gaps in 10 to 15 days.
4. Stay in the trade until the gap fills or the stop is hit
5. For light volume days the target is a complete gap fill, on
moderate volume target will be a half gap fill.
Avoid gaps plays on the following days.
* options expiration fridays
* rollover thurs. And the day after that.
* first trading day of the new month.
* if after a narrow range day, the next days gap is larger the the
previous days range
* gaps where the opening prices are outside the previous days session
high or low.

Pivot level trades
Floor traders have been using these calculations for years. Markets
often turn in and around these level intraday. Daily floor pivot
levels will be a second strategy used for intraday trading of the YM
market. Pivots are leading price indicators that help anticipate
market turns/points of consolidation and can be valuable entry points
for both trending and choppy days or buy/sell pull backs to pivots on
strong days. Daily pivots will use 24 hours of data.
1. Use a 144 tick chart for pivot strategy.
2. Consider using the pivot as the first trade of the day if an
opening gap is a run away gap and does not fill because of strong
buy/sell interest. On these days, look for price to pull back to a
pivot or support resistance level where an entry can be made before
the market resumes in the direction of the opening gap.
3. Look to fade the first move to a daily pivot and stay in the trade
until the histogram gives me a signal of a reversal.
4. If the market opens above the daily pivot, look for short entries
for a move down to test the pivot and vice versa. If the pivot isn't
tested in the morning session. Look for it to test in the afternoon.
5. Use market internals to decide what action to take at pivots. If
the trin is falling and most stocks on the dow are green, focus on
buying pull backs to pivots ignoring all sell signals to pivots.
6. Daily pivot levels R2/S2 will contain the market 90 percent of the time.
7. If a histogram squeeze happens in conjuction with a pivot play,
stay in the trade until momentum runs out.

Five minute painted histogram squeeze
I have this indicator set up so it will paint the up and down bars. It
shows when a trend is gaining or lossing momentum. This is the only
allowable trade to take during the 8:30am-11:00am doldrums
1. Focus on signals in the 5 minute time frame.
2. Green bars are long signals, red bars are short signals.
3. Once a bar goes from red to green or green to red after a obvious
trend it signifies a heads up that the trend Is changing. The macd
cross over is a confirmation. If I don't get it in 5 minutes exit the
trade.
4 set an initial stop of 20 points
5. Scale out of a position after a 10 point profit
6. For the rest of the contracts stay in the trade until momentum runs
out on the histogram

Psychology
Psychology palys a very important role in trading. If a trader has
firm beliefs and expectations that are not met, the trader feels pain
and views the market in a threatening way. Once this occurs a trader
is doomed to fail unless they can recognise what is wrong and develop
a winning attitude.
* every moment is unique, the trade either works or it doesn't.
* anything can happen, have an unshakeable belief in uncertainty.
* markets are neutral, the market doesn't generate happy or painful
information. No threat exists
* losses are ok, taking losses is part of a successful traders jobs.
* accept risk, acknowledge the risks and take responsibility for each trade.
* monitor emotions, be aware if you are sabotaging your success by
over trading or not following you rules.
* rigid rules, flexable expectations.

Journal
Keep one and review ever one in detail. Why you entered it and if you
followed your rules. Winning the wrong way is still wrong, be aware of
it. Congratulate yourself on losses well taken too..

General trading rules
* do not hold intraday positions over night.
* be keen to where the market is going and has been. Try not to buy
highs or sell lows late in the day.
* trades are not to be changed once entered. I will deefine my profit
target and stop before entering the trade. I will let the trade paly
out to see waht happens.
* do not rush a trade unless parameters are defined before the trade
is placed. There will always be another oppurtunity there is no reason
to chase the market.
* trade on the path of least resistance, analyze the 5,15,60 minutes
charts to confirm the markets short term trend.
* focus on trading effectively and not on profit and loss.
* do not trade from 8:30-11:00am pacific
* at 7:00am switch to a 5 minutes chart to avoid impluse buys. Only
look at the 144 tick chart if we are coming up on a pvot or support
resistance.
* do not enter trades in the last half an hour.

What to track
* Market internals,
* put/call ratios,
* volume
* breadth of the major markets.
* advancing vs declining stocks on the dow.
This should be done intraday and data should be logged on the daily
market worksheet evey half hour.