December 12, 2013
Today was a paper trading day on the S&P, the SPXS to be precise, as it is the 3x Bear S&P ETF that I am paper trading. What a day for a BO-3 trader!
I did my full analysis last night and actually decided that since the action wasn’t very c-wave-like, perhaps we were seeing an x-wave and would get a triple-three into a b-wave of an irregular Flat. My alternate was that we would go down and complete the c-wave as the end of a normal Flat. Even though it was the alternate count that came to pass, I was able to trade each of the BO-3s on the way down, on paper. Actually, the first entry was at 3:50 pm, yesterday, which made me a bit nervous since the S&P has a tendency to gap at the open. [Note I say it was a down day, but I’m always trading the up side since I trade 3x Bull/Bear ETFs, that’s why what follows sounds like an up day, as a trader of a Bear ETF, it was an up day!
That trade worked out beautifully, I exited on a close below the Filter on a trend-line break on a larger time frame. Then, I went back in about an hour later and sold at a very small gain which made me aware that I needed to change my trade plan. Finally, there was a trade just before 3 pm which I exited almost at top tick near the close on a special exit rule that I have developed during my simulations. The rule is based on the Blue Bungee and I have yet to see it fail to give at least a small sell-off.
My biggest problems have caused me to do yet another rewrite of my trade plan. The first problem was how to manage the trade before it gets moving in the desired direction. I was still using the close below the Filter on CAO divergence as an exit, even if the position had not yet got it’s wings. I’ve modified that. I’ll trail the Stop below the Wave on the lower time frame but there is no exit rule except for the Stop until I get what I call the 3-Green-Candle Rule which is also where I will move to the higher time frame. The question of when to move to the higher time frame was the other thing that wasn’t clear in my trade plan. I didn’t have a mechanism for when to make the shift. My new version does.
The 3-Green-Candle Rule just states that if the current candle closes at a new high above the Filter since the entry and there are at least two other green candle bodies that have cleared the Filter since entry, the 3-Green-Candle Rule fires. That lets me move to a higher time frame, keep a standing stop at the lower time frame Wave bottom until the higher time frame Wave catches up. It also allows me to start using my exit rules. That keeps me from micro-managing the trade when it is still in its infancy. The Standing Stop is typically between the Filter and the Wave on the higher time frame, so it is a good place to keep a physical stop until the larger time-frame Wave catches up.
My results were astonishing. I made $1,687.43 gross paper profits and never had more than $100 at risk for the entire day, notwithstanding the entry made before the previous day’s close which could have gapped against me. I caught 1.38 of the 1.29 point move for the day. The problem with the dollar numbers are that the tiny size of the stop was enabling to place way too big a position! So, I had to make another adjustment to my trade plan that limits both % risk and total position size as a % of my portfolio. That will limit my gains but it is far more conservative and I won’t balk when I have to put on a trade, feeling that the trade is too big.
Given that I had to make so many changes to my trading plan, I feel it is best to paper trade until I don’t need any more adjustments before I move to a demo account.
I feel really good about today. I saw the BO-3s and I traded them according to plan. I can’t ask for much more than that! The profits were a great byproduct.