Trading strategies that I use & the trading rules that govern them

Trading strategies that I use & the trading rules that govern them

I) Market neutral trading in sectors and market making in “children” stocks

Currently my most productive strategy I have a list of stocks regularly trade and am very

familiar withFollow the sector ETF, S & P 500, 10 year bondsTrade these “children” securities in each sector with

either long or short bias dictated by market and sector trends

Hedge positions 50% or more (this changes with my opinion of the direction of the market, and other securities within that sector)

II) Day TradingWorks best in high volume high volatility like 2008I go “Dime Hunting”Watch “children” & stocks on the move and in the news

(Banks, Fannie Mae, Tyco, Enron, Internet Bubble) Ratio pair day trading

Trade highest correlated pairs with most predictable ranges on range bound days using 5 minute – 60 minute e-Signal charts

Tape Reading Watch for internalization, sub penny activity, and black

pool trades on the tape for “tells” for short term trades.

III) Ratio Based Pair TradingSeek highly correlated pairs in e-Signal using day

charts. Swing trade positions.Rob Friesen and PairTrader.com

Darren’s ratioAccounts for 10 to 20% of my profitsFavorite trade set ups

Range bound pairs at range high or low with not trend and regular price action

Trending pairs: Trade from a position of strength, add to winners, exit losers. (also can be used when trend trading futures, ETF’s, currencies, and other securities)

Range bound pair with brief trend: Wait for move to end then enter the trade using recent high or low as a stop loss point.

IV) Special Edge TradingThen and Now

ThenFractions ECN and Exchange arb. Early 2000’sNYSE price improvement strategies early/mid

2000’sOpen Book trading (leaning on large bids and

offers for short term day trading)Stocks lag futures (follow moves in e-minis

buying and selling “children” stocks)

NowTape based day trading

Look for these “tells”: heavy sub penny internalization action and dark pool action selling or buying

OO’s & MOC’s (see Don)Stat. arb. charting and programming

availabilityBack test programsAutomation Proprietary edges

Trading Rules and Principles that govern my trades and trading strategies

1)The only constant thing in trading is change.

Either adapt to itOvercome itOr get run over by it

“The dogs bark and the caravan moves on” Ancient Proverb

2) Be the Casino

Approach trading like a casino approaches gambling

Keep the odds in your favorCoin flip examplePlay the odds

3) Look for the highest probability of profit over the highest profit potential

You win more baseball games with singles than home runs.

4)Don’t be a one trick pony

Always stay on the lookout for new ideas and strategies

5. Don’t lose money

When a strategy begins to lose money I quickly decrease my trading size.

The strategy is now dormant.When a strategy is dormant don’t worry

about how much you are making. The goal is to make it profitable again at which point increase your size.

6) Increase your trading size when making money.

When your strategy is consistent start to increase your position size and focus more time finding ways to expand the working strategy.

7) Focus on what you are good at

Howard Gardner’s multiple intelligences.Would you ask Einstein to compose a

symphony or Mozart to teach the theory of relativity.

8) When in doubt get out!

Doubt most likely means things are not going as planned or things have changed.

Doubt will cloud your decision makingYou can always get back in when things line

up in your favor.

9)My Trend Trading Rule

When trading the trend play with your offense not your defense

Add to winning positions and cut losersDon’t pick tops

Admit mistakes quickly and often

Don’t be stubbornBeing wrong is part of a winning strategy Have you reached your wrong quota this

month?

11) Always plan for the worse case scenario.

This applies to trading and managing your

trading capital.

12)Don’t step in front of a speeding train.

Wait until the train stops and turns around before you climb on board.

13) Keep it simple

The Harvard MBA and the master programmer that had the unfortunate job of trading.

14)Separate your emotions from your trading