Rule Additions and trading experience for the week 5th May to11th May 2009

Finally I am back to blogging again. What i am doing today is based on my experience over the last 2 weeks, i decided to add new rules to my trading. Here they are:

1. Even before i take any trade, I will calculate the amount of loss i will incur if at all i am hit by a SL.
2. I will say it out loud to myself that "I know that i will be incurring Rs: xxxx loss if i take up this trade. I am aware of it and i am risking this amount for a potential profit of Rs: xxxx.
3. If at all i place a limit order to enter a trade, i will immediately place my SL order, even if the entry is not hit.
4. I will use my NHNL indicator to measure weather the market is in a trend mode or in a trading range mode. I will take trades only in trend mode. If NHNL is <>= 10, the maket are in trading mode.

This is the end of my rules. Now my observations about my trading.

1. I am still booking small profits and letting my losses Run.
2. Had i stick to my SL, my profits would have been double of what i earned this week. I am now realizing why its so important to strictly follow SL, It make a lot of difference to your trading success and profits.
3. I observed a new behavoiur in stocks.. which makes me better understand how MACD works. Tomorrow before markets open, i am going to build my own custom indicator and observe it for a week. If this observation is correct, it would help me in designing a trading plan using MA's.

Here is the explination about it:

I was observing if i could find a relible BO pattern in stocks having MA contraction. What i found was, if the contraction happens because of a sharp correction opposite to primary move.. those sort of contractions are very likely to BO in the direction of primary move.

So this is what i want to do. I will build an indicator which measures the difference between my short term MA and medium term MA.
Long when:
when both these averages are above the long term MA.
The indicator is in the same trend as the stock (i.e. the stock must be in an uptrend and the oscillator should be above zero, once in a while touching the zero line. The height of the indicator during successive peaks should be almost same or the peaks should keep on increasing.)
When i find a stock with this properties.. its a strong trending stock, ideal to go long when the indicator approaches zero.

SL can be when the indicator makes a new low during the trend.
TGT can be when indicator reached the top or when there is a divergence.

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Waiting for an excited day trading for the next week...... here are some more things i want to do...
1. Do chart study of all the sample charts i have created. See if you can find any new observations.
2. build NHNL indicator for last year and study it to decide trend period and trading period.