RandomTrail is a very simple strategy which has a very small focus on trade entry criteria (it picks stocks randomly for entry), but lots of focus on money management. Here are its rules:
1) Stock selection criteria:
market cap > $1 billion
last price > $10
daily volume (last trading day) > 1,000,000 shares
I will use thinkorswim trading platform to scan the markets and create a list of stocks, which I’ll export to an excel spreadsheet. With the help of excel's randbetween function I will choose the random stocks to trade.
2) Opening positions
Only long trades will be opened. I’ll open positions in the first 2 hours of the trading day. (I’ll use market orders.)
3) Stops and closing positions
Every trade will be closed when the 3*AverageTrueRange(14) trailing stop is hit. The stop will be trailed manually from the last highest close and it will never be moved lower. The 3*AverageTrueRange(14) constant will also be adjusted according to the volatility of the stock, but again the trailing stop value will never be moved lower.
(The idea of using a 3*ATR trailing stop comes from Van Tharp’s book “Trade Your Way to Financial Freedom”.)
4) Position-Sizing
Every trade will risk 1% of total equity. No leverage will be used. The initial risk of every trade will be called 1R
I’ll open only one position per week. This rule prevents me from opening too many trades in a crashing market.
5) Portfolio Heat
Portfolio heat will be a maximum of 5R. This means that I will keep my portfolio at a constant amount of risk or heat. If every position stops out on the same day, I will have a maximum loss of –5%.
The portfolio details can be found in my Google Docs RandomTrail Spreadsheet.
1) Stock selection criteria:
market cap > $1 billion
last price > $10
daily volume (last trading day) > 1,000,000 shares
I will use thinkorswim trading platform to scan the markets and create a list of stocks, which I’ll export to an excel spreadsheet. With the help of excel's randbetween function I will choose the random stocks to trade.
2) Opening positions
Only long trades will be opened. I’ll open positions in the first 2 hours of the trading day. (I’ll use market orders.)
3) Stops and closing positions
Every trade will be closed when the 3*AverageTrueRange(14) trailing stop is hit. The stop will be trailed manually from the last highest close and it will never be moved lower. The 3*AverageTrueRange(14) constant will also be adjusted according to the volatility of the stock, but again the trailing stop value will never be moved lower.
(The idea of using a 3*ATR trailing stop comes from Van Tharp’s book “Trade Your Way to Financial Freedom”.)
4) Position-Sizing
Every trade will risk 1% of total equity. No leverage will be used. The initial risk of every trade will be called 1R
I’ll open only one position per week. This rule prevents me from opening too many trades in a crashing market.
5) Portfolio Heat
Portfolio heat will be a maximum of 5R. This means that I will keep my portfolio at a constant amount of risk or heat. If every position stops out on the same day, I will have a maximum loss of –5%.
The portfolio details can be found in my Google Docs RandomTrail Spreadsheet.
