Trader's Governor V2 Manual 01-01-06 A02 - Alexander Elder · explanation of the setup of the Trader's Governor and its companion program the Trader's Organizer v4, please see the

TheTrader’sGovernorVersion 2.0

Planning and risk management for disciplined traders

Thank you for purchasing Trader’s Governor. It was developed in 2004 by Dr. Alexander Elder, theauthor of COME INTO MY TRADING ROOM, and Mike McMahon, a programmer.

This disk is designed for use with Excel. You must have Microsoft Excel2000 or newer to usethis disk.

This Manual and CD are Copyright © 2004, 2005, 2006 Financial TradingInc. and Mike McMahon. All rights reserved. Violators will be prosecuted.

For Technical Support e-mail [email protected] include the Trader’s Governor version number, your operating system &Excel version in addition to problem description and your name and contactinformation. Please see Appendix C for details.

Governor 2.0 / Organizer 4.0 -- Release 01/01/2006

Trader’s Governor v2.0 2 www.elder.com

TableofContents

1. Welcome..................................................................................................................................... 4

2. Trader's Governor Setup and Initialization............................................................................ 5

2.1. Enabling Macros in Excel ................................................................................................... 5

2.2. Startup Messages and Displays for the Trader's Governor................................................ 5

2.2.1. Excel Macro Security Warning .......................................................................................................... 5

2.2.2. Splash Screen................................................................................................................................... 7

2.2.3. Excel Query Refresh message.......................................................................................................... 7

2.3. BACKUPS! BACKUPS! BACKUPS! ............................................................................... 8

3. Record Keeping, Money Management and Trade Planning .............................................. 10

3.1. Record Keeping ................................................................................................................ 11

3.2. Money Management Rules............................................................................................... 11

3.3. Stops - Theoretical and Real Risks .................................................................................. 11

4. The Trader's Governor – A Bird’s Eye View ........................................................................ 13

4.1. The Trader's Governor Sheets ......................................................................................... 13

4.2. A Word about Colors and a Warning about Making Changes.......................................... 13

4.3. Starting Up the Trader's Governor.................................................................................... 14

5. The PLANNER Sheet .............................................................................................................. 15

5.1. The Planner Header.......................................................................................................... 16

5.1.1. The “PERCENTAGE & STOPLIGHT” Table ................................................................................... 16

5.1.2. The “BUTTERFLY” Controls ........................................................................................................... 18

5.1.3. The Portfolio Summary ................................................................................................................... 18

5.1.4. The Data Table Selection Buttons................................................................................................... 19

5.1.5. Update Account/Position Data ........................................................................................................ 19

5.2. The Accounts Review Table ............................................................................................. 19

5.3. The Bullish Review Table ................................................................................................. 20

5.3.1. Entering a Potential Trade into the Bullish Review Table................................................................ 21

5.3.2. The Cost/Risk Distribution Table..................................................................................................... 22

5.4. The Bearish Review Table................................................................................................ 22

5.5. The Positions Review Table ............................................................................................. 23

5.5.1. The Action Code Column in the Position Review Table.................................................................. 24

5.5.2. The Last Price Column in Position Review Table............................................................................ 24

5.5.3. The Position Review Chart.............................................................................................................. 24

Trader’s Governor www.elder.com3

6. The SUMMARY Sheet ............................................................................................................. 26

6.1. Portfolio Summary – Net Profits View............................................................................... 27

6.2. Portfolio Summary – Account Value View ........................................................................ 28

6.3. Portfolio Summary – Cash Balance View......................................................................... 29

6.4. Portfolio Summary – Cash Flow View .............................................................................. 30

7. The EXPENSES Sheet ............................................................................................................ 31

8. The ACCOUNTS Sheet ........................................................................................................... 33

9. The WEB INPUT Sheet – Updating Prices from the Internet ............................................. 35

9.1. Step 1 – The Web Input Macro......................................................................................... 36

9.2. Step 2 – The Trade Update Macro ................................................................................... 37

9.3. Web Query Initialization Problems.................................................................................... 39

Appendix A – Table of Figures........................................................................................................ 40

Appendix B – Reporting Problems and Making Suggestions..................................................... 42


TheTrader’sGovernorVersion2.0

Planning and risk management for disciplined traders

1. Welcome

Welcome to the Trader’s Governor Version 1.0. It will help you plan trades and manage risk together with itscompanion product, the Trader's Organizer v4, included on the same CD. Both the Organizer and the Governorare Excel workbooks with multiple spreadsheets, charts, and macro programming.

This is the logic of the package:* You input all your numbers into Trader’s Organizer (TO). That’s where you enter all your trades, commissionsand slippage, cash withdrawals and additions.* You do all your trade planning in Trader’s Governor (Gov). That’s where you set risk parameters and discoverwhich of several stocks are better candidates for buying or shorting. Here you also find how many shares you areallowed to trade.

A single Gov will work with up to nine (9) trading accounts, allowing you to measure and manage risk acrossmultiple your accounts as a whole. All you need to do is make a copy of the TO for each account and then linkthem to a single Gov, as described below.

The Gov collects and summarizes the data from each account and provides an equity and risk profile for the entiregroup of up to 9 accounts. It helps you plan future trades by calculating the available risk and allowing you toallocate that risk to potential trades.

The concept of ‘available risk’ is central to understanding the Governor:

There are two key rules of money management. The 2% Rule states that you may never risk more than 2% ofyour equity on any given trade. The 6% Rule states that you may never risk more than 6% of your equity on allyour trades. You may modify both rules by adjusting the numbers down but never up. ‘Available risk’ refers tohow much money you may risk on all your long or short trades, after applying your modified 2% and 6% filters.

For example, if your trading capital is $100,000, you may risk no more than $2,000 on any single trade and$6,000 on all your positions combined. If you want to buy a $20 stock and place a stop-loss order at $18, you’llrisk $2 per share. In that case the 2% Rule will allow you to buy a maximum of 1,000 shares and your availablerisk for that month will be reduced from $6,000 to $4,000. This is a simple example, but the level of complexitycan skyrocket if you decide to risk not 2% but, say, 0.75%, then adjust your stops, then take some profits orlosses. Trading multiple accounts complicates the matter further. You may acquire several large trades in oneaccount which seem to violate the 2% Rule, while in fact other accounts may have plenty of available risk andyour capital as a whole is well within permitted risk level.

Good money management is the key to trading discipline, essential for your success. The Governor provides youwith a tool that until now has never been in the hands of private traders. This is our contribution to individualtraders in their battle against chaos and losing.


2. Trader's Governor Setup and Initialization

This section explains the Trader's Governor startup and first-time initialization. For a complete and detailedexplanation of the setup of the Trader's Governor and its companion program the Trader's Organizer v4, pleasesee the Getting Started Guide for the Trader's Governor/Trader's Organizer v4.

2.1. Enabling Macros in ExcelTo use the macros and programming functions in the Trader's Governor you must make sure that the SecurityLevel of your Excel is set properly, enabling macros when the Trader's Governor is loaded. Follow these steps toset up the Excel security level:

Run the Excel application by clicking on the program icon, usually found in the My Programslist. You should get an Excel window with an empty workbook.

In Excel, click on the Tools menu and select Macro from the menu list. When the Macrosublist pops up to the right, select Security.

From the Security window, click on the Security Level tab, and you will see the choices ofHigh, Medium or Low security levels.

Select a Medium security level. This means that you will be asked to enable macros each timeyou load the Trader’s Organizer. The Organizer will work properly with either a “Medium” or“Low” setting but will not work properly with a “High” security setting.

Choose Medium and click OK to close the Security window and exit the Excel application.

NOTE: The Trader’s Organizer uses Excel macros, and macros should be expected and enabledwhen the spreadsheet is loaded. The Medium Security Level alerts you that macros are present andallows you to disable them before loading another spreadsheet.

2.2. Startup Messages and Displays for the Trader's GovernorYou’ll see the following startup messages each time you start the Governor. They are shown below andexplained in detail in the following sections.

2.2.1. Excel Macro Security WarningThis security warning will appear if you have set your Excel Macro security level as described in the previousSection 2.1 Enabling Macros in Excel . It means that the Excel workbook you’re loading contains macros. Forthe Trader's Governor you should always click on the Enable Macros button.


Figure 2-1 - Excel alert that the workbook being loaded contains macros.

2.2.1.1. Special instructions for GERMAN-language Excel softwareThere is one function which you must replace manually because Excel does not do it automatically. Theinstructions that follow are in German. English language users please skip this chapter and go to the next one.

Klicken Sie in der Menüleiste auf "Bearbeiten" und auf "Ersetzen".

In dem Fenster "Suchen und Ersetzen" ist folgendes auszufüllen:

Suchen nach: NETWORKDAYS

Ersetzen durch: NETTOARBEITSTAGE

Suchen: Arbeitsmappe (nicht "Blatt")

Klicken Sie auf den Knopf "Alle ersetzen".

Es werden 50 Ersetzungen vorgenommen.


2.2.2. Splash ScreenThe Trader's Governor on startup displays a splash screen for about 5 seconds. It identifies the program anddisplays the version number, release date, and copyright information. It looks as follows:

Figure 2-2 – Trader's Governor Splash Screen

You can redisplay the Splash Screen at any time by typing the Display Version command (Control-Shift-V). Thisis useful when you need to determine the version of your Trader's Governor.

2.2.3. Excel Query Refresh messageExcel also displays a Query Refresh message similar to the macro alert, in order to notify you there are queries inthe program to access external data. The Gov uses this feature of Excel to download stock prices from theinternet for an automatic pricing of your open positions. In order for this to work properly, you must click on the“Enable automatic refresh” button. An example of the Query refresh message is shown below:


Figure 2-3 - Excel Query refresh message

2.3. BACKUPS! BACKUPS! BACKUPS!Your continued use of the Trader's Governor and the Trader's Organizer v4 represents a significant investment oftime and effort. You could quickly lose all your work and be wiped out due to a computer crash or a disk failure– unless you have a backup. We urge you to make backups on a regularly scheduled basis andmore frequently after periods of significant data entry.

Making frequent copies of your files helps overcome such problems as hard drive errors, data corruption, andaccidental erasures. The following suggestions provide adequate protection against computer, software, andmedia failures.

1. Make Frequent Copies of Working Files

When you use the Governor and enter changes, you should save a separate copy of the file onyour hard drive. You can do this by choosing a “SAVE AS” from the file menu in Excel. It isa good idea to include today’s date in the file name and store all backups in a Backups folder.

Should you save a copy every time you use the Trader's Governor? Not necessarily, but askyourself – “If my current file was damaged or corrupted and I had to go back to the previouscopy, would I be able to reenter the changes that I made since then? Based on the frequencyand number of changes, some traders may need to make a copy only once a week, whileothers might need more than one copy per day.

2. Store Multiple Removable Copies of Working files

Copies of the working file should be stored on removable media, such as floppy disks, CDs (ifyou have a CD burner or writer), or on newer devices such as a USB storage key or “jumpdrive.” This allows you to remove copies of your files to a different location, away from thecomputer and protect against failure of the entire hard drive or your computer system. Imagineliving through a fire or a major theft – you would want to have a copy at a different location. Itis a good idea to have multiple removable copies that can be rotated, using the oldest copy forthe current backup.


NOTE: If there is data or program corruption due to a programming error on our part, itwill be repaired at no charge and, if requested, every effort will be made to recover yourdata. If there is any data corruption caused by the user, we will still make data recoveryservices available but only for a fee.


3. Record Keeping, Money Management and Trade Planning

Good money management is essential for success in trading. You may have a brilliant trading system, but if yourmoney management is poor, a single bad loss or a string of moderate losses will kick you out of the game. On theother hand, if a trader has a mediocre system but tight money management, he has a good chance of survival andeventual success. As long as he keeps losses under control and learns from them, he will be able to plug up theholes in his system and start making money.

Trader's Governor is a complete money management system which performs the following functions:

1. It forces you to observe the 2% Rule, limiting the size of a loss on any given trade.

2. It forces you to observe the 6% Rule, which makes you stop trading for the rest of the month ifyour total losses for the month had reached that level.

Trader's Governor allows you to set you risk to less than 2% and 6%. We strongly caution you against violatingthe 2% and The 6% Rules. If you want to risk more, you’ll need to contact our programmer to reset your copy.

3. Trader's Governor allows you perform money management tasks for a single account or a groupof accounts.

For example, you may have two retirement accounts, where your risk tolerance is lower, and three tradingaccounts, where your risk tolerance is higher, but still within the 2% and 6% Rules. You can set up two groups ofaccounts for custom-tailored money management.

4. Trader's Governor makes you clearly express your degree of bullishness or bearishness bychoosing settings for its ‘traffic lights’

If your total risk is limited to 6% of equity, what share of that will you allocate to long or short trades? You maychoose to allocate the entire 6% to long trades, or 4% to longs and 2% to shorts, or perhaps only 3% to longs and1% to shorts – but it forces you to be explicit as to what percentage you’ll commit.

5. Trader's Governor shows you a risk/reward ratio for every potential trade:

Set the traffic light and review a page that shows reward-to-risk ratios for all your existing and potential positions.Once you choose your trades on the basis of that relationship, the Gov will give you the maximum number ofshares you may buy or sell short, based on your risk tolerance.

6. Trader's Governor keeps track of your equity and draws an equity curve.

It also tracks a host of other important numbers – your open risk, expenses, slippage and commissions, qualityratings for every trade as well as every entry and exit, and a host of other factors.

7. Trader's Governor will help you keep better records by allowing you to attach a note to therecord of every entry and exit.

Even as you read this, we are working on the next generation of Trader's Governor which will allow you to attachnot only notes but also charts to every entry and exit. At that point you will have complete record-keepingsystem, as well a money management system for serious traders.

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3.1. Record KeepingGood records are essential for your success. Even the best trading system is bound to have its flaws, but goodrecords allow you to find and correct them. A trader who keeps detailed records makes a huge leap in his or herdevelopment. With money management ensuring your survival while you learn, you are on your way towardsbecoming a successful trader.

3.2. Money Management RulesA market can destroy a trader with a ‘shark bite’, a single disastrous loss that effectively takes one out of thegame. It can also kill like a pack of piranhas, with a series of bites – none of which is lethal alone but togetherthey strip an account to the bone. Two money management rules are designed to protect you from the sharks andthe piranhas.

The 2% Rule - Limit your loss on any trade to 2% of equity in your trading account.

Suppose you’re trading a $50,000 account. You want to buy XYZ stock, currently trading at $20. Your profittarget is $26, with a stop at $18. How many shares of XYZ you are allowed to buy?

2% of $50,000 is $1,000 – that is the maximum risk you may accept. Buying at $20 and putting a stop at $18means you’ll risk $2 per share. Dividing $1,000, the maximum acceptable risk, by the $2, your risk per share,gives you 500 shares. This is the maximum number, in theory. In practice, it has to be lower because you mustpay commissions and be prepared for slippage. So, 400 rather than 500 shares represent the upper limit for thistrade.

The 6% Rule - whenever the value of your account dips 6% below its closing value at the end ofthe previous month, stop trading for the rest of this month.

When the piranhas start biting, get out of the water; do not let them nibble you to death. Do not put on any newpositions when the risk on all your open trades adds to 6% of your account value. Stop trading when yourcumulative loss for the month reaches 6% of your account. For example, if you risk 2% per trade, you may nothave more than three positions at once. If you risk only 1% of your account equity, you may open 6 positionsbefore maxing out at the 6% limit.

In the beginning of each month you have to recalibrate your permitted risks, so that no more than 2% of your newtotal equity level is exposed in any given trade and no more than 6% in all trades combined. Whenever you dowell and the value of your account rises by the end of the month, the 2% and the 6% Rules allow you to trade abigger size the following month. If you do poorly and the size of your account shrinks, these rules will have youreduce your trading size the next month. The Gov allows you to vary the risk limits on a monthly basis, whilenever exceeding the maximum 2% and 6% limits. You can lower those percentages and reduce risks but neverincrease them.

3.3. Stops - Theoretical and Real RisksMost risk calculations are based on measuring the distance from your entry point and/or current price to your stoplevel. How valid is this measurement of risk? Experienced traders know that a stock can gap across its stoplevel, exposing a trader to a larger loss than planned.


Such gaps are unlikely to occur in normal, quiet markets, but they can occur when the crowd panics. Panicscannot be predicted, but there are several lines of defense against their damage. First, good technical analysisshould help you trade in the right direction. Second, you may want to risk less than 2% in any given trade.Nothing offers total certainty in trading, but stops still offer the best protection.


4. The Trader's Governor – A Bird’s Eye View

Your Trader's Governor uses several spreadsheets and charts to help select trades and manage risk. They can becalled up using the tabs at the bottom of the Excel window, as shown below:

Figure 4-1 The Trader's Governor is comprised of six spreadsheet pages

4.1. The Trader's Governor SheetsThe Governor Excel workbook is comprised of the following sheets and charts:

Tab Name Description

1 Planner The Planner sheet is the center of the Gov. This is whereyou review your equity, manage your risks, and plan newtrades

2 Summary The Summary sheet collects the data form of all youraccounts and provides both a month-to-date and a year-to-date summary of your equity and balances

3 Expenses The Expenses sheet allows you to record trading relatedexpenses paid by either personal check or personal creditcards. These expenses, along with those recorded in theaccount files, are deducted from trading profits to provide amore accurate picture of your net trading profits.

4 Accounts The Accounts sheet allows you to define the list of activeaccounts to be tracked and managed by this Trader'sGovernor. The path, account filenames, and accountnames are entered and updated here.

5 Web Input The Web Input Sheet allows you to update prices of openpositions from the Internet

4.2. A Word about Colors and a Warning about Making Changes

The Trader's Governor uses several thousand lines of macro programming to simplify data entry and to validateyour entries. It was designed for the maximum ease of use and ensuring the integrity of your data.

The constant validation and ease of use create a ‘double edged sword’ – you pay for the simplicity and theconvenience by giving up much of the flexibility to make your own changes in program design. Some changesseem obviously safe, while others appear risky.


To help you stay out of trouble we have used colors on the data entry sheets (Planner, and SetUp) to show whichcells you may and may not change: yellow is OK, while light blue is absolutely not OK.

Figure 4-2 Colors used to denote which cells can and cannot be changed.

You should never change cells whose background is light blue. They either contain formulas, custom functioncalls, or are calculated by macros. There are no exceptions to this rule – “do not change any light blue cell!”

Changes to the light yellow cells are allowed, but should be done with discretion because the program does notcheck those changes for errors. Erroneous entries could lead to calculation errors, throwing your records intodisarray. Please be extra careful entering data in light-yellow cells.

4.3. Starting Up the Trader's Governor

Once you have set up and initialized your Trader's Governor, you will see the following series of pop-up windowseach time you start:

1. The Macro Alert message from Excel (see section 2.2.1 Excel Macro ).

2. The Trader's Governor Splash screen (see section 2.2.2 Splash Screen).

3. The Excel Query Refresh message (see section 2.2.3 Excel Query Refresh message).

After the Trader's Governor has loaded you should be positioned on the Planner sheet. Now you are ready tobegin!


5. The PLANNER Sheet

The Planner Sheet is at the center of the Trader's Governor. This is where you perform the majority of youractions and activities. First, let us quickly review the entire Planner sheet:

Figure 5-1 A Bird's Eye View of the Planner Sheet

The Planner Sheet consists of a split window whose top section contains several small tables and navigationbuttons, while the bottom section contains four major data tables.

The top section of the sheet contains the Trader's Governor “percentage and stoplights” table, the “butterfly”controls, some data table selection buttons, and a portfolio risk and equity summary. These will be discussed indetail in the following sections.

The first table in the lower section is the ACCOUNTS TABLE which shows the equity and risk for each accountindividually as well as for the portfolio as a whole. The account numbers in the first column of the Accountstable are actually macro buttons. Clicking on the account number button will load the associated TO v4 accountfile into Excel.


Going further down, the next table in this section is the BULLISH REVIEW TABLE. Use it to enter newpotential long trades in order to evaluate them and assign them to various accounts. The Bullish Review Tableuses the “Green” color to identify bullish or long trades. You reach this table by clicking on a green button“Bullish Review”

The next table is the BEARISH REVIEW TABLE which is similar to the Bullish Review Table but used forplanning short trades. It uses “Red” to denote bearish or short trades. You reach this table by clicking on a redbutton “Bearish Review”

Note: the Trader's Governor distinguishes between a “potential” and a “planned” trade. Apotential trade is one that, based upon your technical analysis, has merit or “potential” thatwarrants further consideration. After entering the potential trade data, some trades will be seen asmore attractive due to their reward-risk ratio, expected gain, etc. You can then activate the“better” trades, marking them as planned trades. The final risk and cost calculations are only donefor planned trades.

The last table in the lower section is the POSITIONS REVIEW TABLE. It includes all open positions from eachof the TO v4 Account files. This Table allows you to plan and manage open positions across the entire portfolio– positions can be marked for full or partial exit, stop prices can be adjusted, etc. You reach this table by clickingon a light blue button “Position Review”

Each section will be explained in detail below.

5.1. The Planner HeaderThe header block of the Planner Sheet is at the heart of the Governor. It contains several tools for setting risklevels, calling up the data tables, and a summary of the portfolio equity and risk information.

Figure 5-2 Header Section of the Governor Planner Sheet

5.1.1. The “PERCENTAGE & STOPLIGHT” TableThe first section in the Planner Sheet header is the “Percentage & Stoplight” table. By clicking on the CHANGEbutton near the upper left corner of the screen you call up two “stoplights” and change their settings to reflectyour degree of bullishness and bearishness. The maximum permitted risk is 6% of the total portfolio value, butyou can choose a lower number. The Percentage & Stoplight table is shown below:


Figure 5-3 The Planner "Percentage & Stoplight" Table

Below the two percentage boxes are the long and short trading risk numbers. There are totals for the maximumrisk allowed by each stoplight, the amount of risk from currently open positions, the available risk for new trades,and the risk that is currently planned from the Bullish and Bearish Review Tables.

Use the “Change” button in the upper left corner of the table to set the two stoplights. Clicking on that button willbring up the following stoplight selection form:

Figure 5-4 Stoplight Selection Form

Click on the form to choose what percentage of your permitted equity risk to allocate to bullish or bearish trades.The Stoplight Selection form will make sure that the sum of the Bullish and Bearish selections does not exceedthe maximum allowable risk set by the Governor (default 6%). Once validated, the new Stoplight values andtheir color show up in the Planner Stoplight Table and the Gov will recalculate risk values.

The top right corner of the Percentage & Stoplight Table shows the current date while the bottom right cornershows the total unused risk.


5.1.2. The “BUTTERFLY” ControlsTo the immediate right of the Percentage & Stoplight Table are the “butterfly” controls for setting the levels ofrisk per trade. There are separate controls for longs and shorts. The Butterfly controls, named for theirappearance, are shown below:

Figure 5-5 "Butterfly" Controls

These controls apply only to the “activated” trades in the Bullish and Bearish Review Tables. On the left are thecontrols for the Long Trades, labeled green. The controls for Short Trades are labeled red, on the right side.Below the green box is the risk per trade factor (1.25% is shown as an example) that will apply to long trades.The dollar risk of all activated trades in the Bullish Review Table is totaled and then multiplied by the butterflyfactor to calculate the total planned risk (in dollars) for bullish trades. This total bullish risk amount isautomatically entered into the Stoplight Table under the “Bull/Long” column as “Planned” risk. The same is donefor the short trades using the Bearish Review Table and the butterfly factor for the short trades.

NOTE: The cells at the bottom of the butterfly controls that are colored purple and labeled “PurpleMeans Violation” as a reminder that when a cell background turns purple it shows that a limit hasbeen violated. This convention is used extensively throughout the Planner to visually alert you.

The buttons on the left and right sides of the butterfly are used to bump the Risk per Trade values up and down by0.05% per click. The minimum value is 0.05% and the default maximum value is 2.00%. Each time one the riskfactors changes, all associated values in the Bullish/Bearish Review Tables and the Stoplight Table areautomatically recalculated.

5.1.3. The Portfolio SummaryOn the right side of the Planner Header Section is the Portfolio Summary. It shows the year-to-date and month-to-date values of the cash balance (equity available for new trades) and the account value (the value upon whichrisk is calculated). It also shows the gross profit/loss and net (after expenses) profit/loss, as well as the maximumand current risk figures in both percent and dollars. The Portfolio Summary appears as follows:

Figure 5-6 The Portfolio Summary


5.1.4. The Data Table Selection ButtonsBelow the butterfly controls are the data table selection buttons:

Figure 5-7 The Data Table Selection Buttons

These buttons call up their associated tables. There is also a Delete Row button for clearing a selected single rowin the Bullish or Bearish Review Tables.

To the right is a button for creating the Action Log which details, for each account, the new trades to be placedand the changes to be made on open positions.

5.1.5. Update Account/Position DataJust below the Percentage & Stoplight Table is a macro button labeled “Update Account/Position Data.” Clickingit causes the Governor to extract the current Account Data and the Positions Data from each active account andstore it in the Governor’s internal tables. It is used to update the the Planner Sheet and the Summary sheet.

Figure 5-8 The Update Account/Position Data Button

5.2. The Accounts Review TableThe Accounts Review Table provides up-to-date equity and risk information for each account and for the entireportfolio. It shows each account number and name along with the beginning Account Value for the currentmonth, the risk calculations and the cost and risks of new trades, summarizing long and short trades.

The Accounts Review Table is shown below:


Figure 5-9 The Accounts Review Table

The Account number in the first column is a macro button. When you click it, it loads the specified TO v4account file into Excel. This allows you to change and update an account and have those changes instantlyreflected in the Governor. The Cash Balance represents the available equity for new trades, calculated bydeducting the cost of open positions from the Account Value.

If the costs or risks of new trades exceed the current limits for the account, the background color changes topurple to alert you to this violation.

NOTE: If the new trade costs exceed the available cash balance, then a “cash only” account will nothave enough equity to place the trades. An account that lets you trade on margin might still be able toaccommodate the new trade costs.

If a new trade in the Bullish or Bearish Review Table is not assigned to an account, its costs and risks are totaledand reported on the last account line labeled, “No Acct.” The bottom line of the table contains the PortfolioTotals for each column.

5.3. The Bullish Review TableThe Bullish Review Table is a tool for planning new long trades. They can be activated and assigned to variousaccounts. The size of the table allows you to enter up to 20 potential bullish trades. The cells with the yellowbackground identify the columns in which you may enter the trade data. The cells with the blue backgroundindicate calculated results and should never be touched.

An example of the Bullish Review Table is shown below:


Figure 5-10 The Bullish Review Table

The row of column labels is followed by seven (7) sort buttons. Each of them allows you to sort all entries by thefield under whose name the button is located. They allow you to view all potential trades from different angles,as you choose which trade(s) to take.

NOTE: The Ticker column is an exception to the yellow/blue color scheme. You may enter tickers init as if it were yellow. It is colored green simply as a visual indicator of the Bullish Review table.

The totals in the Trade Cost and Trade Risk columns show the total cost and total risk for the activated trades.Those numbers are replicated in the Percentage & Stoplight Table and are affected by the butterfly controls.

Between the two groups of sort buttons is a long button labeled “Clear All Long Trades.” Use it to clear allentries from the Bullish Review Table. If you want to clear a single row, select its Ticker symbol and click on the“Delete Row” button in the header, or type Control-Shift-D.

Whenever the Gov detects an error or a violation, it changes the color of the text or the background to purple. Inthe above example the text of the channel high/low values turns purple, signaling that the values were reversed inthe columns.

5.3.1. Entering a Potential Trade into the Bullish Review Table

This is the process for entering a new potential long or bullish trade into the Bullish Review Table:

1. After your research identifies a potential new trade enter its Ticker Symbol in Column A, thePlanned Entry Price in Column D, its Channel High/Low values in Columns E&F, and the StopPrice in Column G. In addition, you may enter a Planned Target in Column H.

2. The Gov will calculate and display the “A” Target Value in Column I. An “A” trade is a tradethat captures 30% or more of the channel height, based on the concept from Come into MyTrading Room, pages 98-99. The Gov will also show the Risk Per Share in Column J and theMaximum Number of Shares you are allowed to buy in Column K. The total cost in Column Nand the total trade risk in Column O are based on the maximum allowed trade size.

3. Enter “Planned Target” in Column H. You can use the “A” Target or some other value.


4. After you enter the Planned Target, the Gov calculates and displays the Reward to Risk Ratio inColumn M and the Expected Gain in dollars in Column P.

5. If you leave the “Planned Shares” (Column L) blank, then the calculations for the trade will bebased on the maximum allowable size in column K. You can enter a size less than themaximum in the Planned Shares column which will then be used as the basis for the tradecalculations.

6. Column Q, “Comments” is available for entering text notes relating to the trade.

7. You can assign the trade to a specific account by entering the account number (1-9) in ColumnB. If leave it blank, the trade will be grouped with others not assigned to an account.

8. Use column C “Trade Activate?” to include any trade in the group of “planned trades” (seeNOTE under section 5 – The Planner Sheet). A trade is activated by any “non-blank” entry. Ifyou use the ABC Scanning method proposed by Dr. Elder (CIMTR, pages 255-256), you couldmark your “A” and “B” trades with their respective letters and use the sort button to sort the listwith the “A” trades appearing at the top.

5.3.2. The Cost/Risk Distribution TableThe Cost/Risk Distribution Table is immediately to the right of the Bullish Review Table. It totals costs and risksfor all activated trades for each account. This data is replicated in the Accounts Review Table. Activated tradeswhich have not been assigned to an account are totaled in the last or “unspecified” row, labeled “Unspec.”

The Bullish Cost/Risk Distribution Table is shown below:

Figure 5-11 The Bullish Cost & Risk Distribution Table

5.4. The Bearish Review TableThe Bearish Review Table functions exactly like the Bullish Review Table with the obvious difference that itworks with Short or Bearish trades.

The Bearish Review Table is shown below:


Figure 5-12 The Planner Bearish Review Table

The Cost/Risk Distribution Table is located to the immediate right side of the Bearish Review Table. It totals thecosts and risks of activated trades for each account. This data is also replicated in the Accounts Review Table.Activated trades which have not been assigned to any account are totaled in the last or “unspecified” row labeled“Unspec.”

The Bearish Cost/Risk Distribution Table is shown below:

Figure 5-13 The Bearish Cost-Risk Distribution Table

5.5. The Positions Review TableThe last table on the Planner sheet is the Positions Review Table which displays information on all open positionsin all accounts in the portfolio. The Positions Review Table is shown below:


Figure 5-14 The Positions Review Table on the Planner Sheet

The Positions Review Table has space for up to 50 open positions—only a portion of the table is shown above.

5.5.1. The Action Code Column in the Position Review TableHere you can enter any text regarding your proposed actions for an open position. For example, you may write:

“Exit”

“Partial Exit – 500 shares”

“Move Stop to 14.50” (highlighted in cell above)

“Shoot this puppy”

etc.What you write here will be included in the Action Log as a part of the instructions.

5.5.2. The Last Price Column in Position Review TableThe last price is required for calculating the Open Gain/Loss and plotting the Position Review Chart described inthe next section. You can enter this price manually or use the automatic Web Query function (described inSection 9) to update from the Internet.

5.5.3. The Position Review ChartThe Position Review Chart offers you a quick review of each trade by plotting its gain or loss as a percentage ofthe channel. The bars are normalized relative to the trade with the largest gain or largest loss.

The intent is to offer a quick glance at whether each trade is gaining or losing and by how much. In the upper leftcorner of the chart is a button called “Position Review” which will re-position the window so that the PositionsReview Table and the Planner Header sections will be visible.

The Position Review Chart is shown below:



6. The SUMMARY Sheet

The Governor Summary Sheet has two long tables of equity information. The first table is the “blue” Month-to-Date table which contains the current month’s equity numbers for each account. The second table is the “green”Year-to-Date table which contains the same information but on a year-to-date basis.

The format of these two tables is the same as the Equity Sheet in every TO v4 Account file. The principaldifference is that the Gov Summary Sheet lists the data by account and the TO Equity Sheet lists it by month.

Along the top left side of the sheet are macro buttons that provide selective views of both tables byhiding/unhiding columns. The buttons are labeled to indicate the kind of summaries they provide:

1. Unhide ALL Show all available data columns on the Summary Sheet.

2. Net Profits Show trading profits, expenses, and net profits after expenses.

3. Acct Value Show the beginning/ending account values with changes for each account.

4. Cash Balance Show the beginning/ending cash balances of each account.

5. Cash Flow Show the income/expense items relating to cash flow.

Below is an overview of the Trader's Governor Summary Sheet.

Figure 6-1 Summary Sheet Overview

The Summary sheet tables are divided into two major sections. The first part, on the left, begins with thebeginning cash balances and beginning account values, followed by the associated debits and credits and thenending balances in the right-hand columns. The first part of the tables is shown below:


Figure 6-2 Part 1 of the Summary Sheet Tables

The second part of the Summary Sheet Tables contains calculated values for net change and percentage change asrelated to cash balance, account value, profits, etc. It appear as follows:

Figure 6-3 Part 2 of the Summary Sheet Tables

6.1. Portfolio Summary – Net Profits ViewClicking on the yellow “Net Profits” button on the Summary Sheet shows you the trading profits, tradingexpenses and net trading profits for each account and for the total portfolio. It also shows profits as a percentageof Equity as well as Expenses as a percentage of profits.

The Net Profits View is shown below:


Figure 6-4 The "Net Profits" View of the Summary Data

6.2. Portfolio Summary – Account Value ViewClicking on the next (green) button brings up the Account Value display. It shows the beginning account value,the debits and credits, the P/L on open positions, and the ending account value. It also shows the net change ($)and the net percent change (%).

The account value view is shown below:


Figure 6-5 The "Account Value" View of the Summary Data

6.3. Portfolio Summary – Cash Balance ViewClicking the blue “Cash Balance” button brings up the Cash Balance view. It is similar to the Account Valueview, but focuses on cash balance instead of account value.

The Cash Balance View is shown below:

Figure 6-6 The "Cash Balance" View of the Summary Data


6.4. Portfolio Summary – Cash Flow ViewThe last of the Summary Sheet buttons brings up the Cash Flow View. It shows the details of all the credits anddebits that impact the cash flow.

The Cash Flow View is shown below:

Figure 6-7 The "Cash Flow" View of the Summary Data


7. The EXPENSES Sheet

Trading-related expenses include such items as books, software and hardware, data services, subscriptions, andadvisory services. Most people use a personal checking account or personal credit cards to pay for their trading-related expenses. You must be aware of what percentage of your trading profits goes to trading expenses. TheGovernor and the Organizer work together to help you track expenses and provide a more accurate picture of yourperformance. You need to know how much income you generate from trading after expenses.

* Regardless of whether expenses are related to trading or not, if they are paid from a brokerage/trading account,you must track them to accurately maintain the trading account balances.* Because the net trading profit (after expenses) provides a more accurate measure of trading performance, it isimportant to track all trading-related expenses regardless of how they are paid.

The Expenses sheet of the TO v4 tracks both trading and non-trading expenses paid from the account. TheGovernor tracks only those trading-related expenses that are paid from outside of all your trading accounts.Together the TO and the Gov maintain accurate balances. The following table shows how they do it:

EXPENSES TRADING RELATED NON-TRADING RELATED

PAID FROMTRADINGACCOUNTS

Tracked by Organizer Expenses sheetfor each account.

Used for measuring tradingperformance and managing theaccount balances.

Tracked by Organizer Expenses sheetfor each account.

Used for managing the accountbalances only.

PAID FROMOUTSIDETRADINGACCOUNTS

Tracked by Governor Expenses Sheet.

Combined with trading expenses forindividual accounts to measure tradingperformance.

These expenses are not tracked.

As shown above, the Gov Expenses Sheet tracks trading-related expenses paid outside of the trading accounts.Many traders use their personal checking accounts or credit cards to pay for trading-related expenses, butrecording them in the Gov gives you a more accurate profile of your trading income or losses.

To track trading-related expenses on the Gov Expenses sheet follow these steps:

1. Enter expenses into “Expense Item Details”. An entry consists of the date, description, andan amount. Entries do not have to be in any particular order and can be entered on any line inthe table. You can use any level of detail or any subtotal grouping you wish.

2. Run the “Compute Totals” macro. Push that macro button to make the program examine,validate, and add each expense entry to the total for the appropriate month. A valid entry musthave a valid date and amount. If either one has a bad value (i.e. an incorrect date, wrong year, anon-numeric amount, etc.) the macro will display “**ERR**” in the “Error List” column.

3. Correct any errors. If you see an expense entry marked “**ERR**”, make the appropriatecorrection and re-run the “Compute Totals” macro.


The following is an overview of the Expense Sheet:

Figure 7-1 - Expense Sheet Overview

The Trading Related Expense Details section on the right provides space for up to 400 expense item entriesconsisting of date, description and amount. An error column is provided to mark the entries which the programcannot validate. On the left side, starting at the top, below the sheet title is the “Compute Expense Totals” macrobutton and the date and time stamp of your previous totals calculation. Below are the Expense Totals by monthand the Compute Totals Summary table.

After making your expense entries execute the “Compute Totals” macro by clicking on the button with the samename. Note that there is no keystroke equivalent for this macro. You must click on the macro button, and it isonly available on the Expenses Sheet.

NOTE: The Compute Totals macro must be run every time after entering expenses for them to bereflected in the monthly totals and the account balances on the Summary Sheet.


8. The ACCOUNTS Sheet

The Accounts Sheet is used for including up to nine (9) TO v4 account files in the Governor. It shows thePortfolio name and the folder path for each account (where its files are located), the filename, the account name,and the last validation date.

The Accounts Sheet is shown below:

Figure 8-1 The Accounts Sheet

All account names must include their Governor Account number (“TOv4-nnn AcctXX “, where XX is theaccount number and nnn is the number of trades per month [030/120/250] ) and their Account name (24characters maximum), created by you. This naming convention allows the Governor to locate and identify theTO v4 account files.

There are five functions you can use on the Accounts Sheet to manage the account files linked to this Governor.They are:

1. “Set Path” or “Set Account Files Path”

This function allows you to select the folder in which the account files will be located. Prior tousing this function, locate the folder on your hard drive and make sure it contains the masterTrader's Governor and Trader's Organizer v4 files from the CD you have purchased. Thisfunction stores the folder path for each account and does a validation check on the folder.

2. “Add New Account File”

This function allows you to add a new TO v4 “uninitialized” file to the folder and link it to theAccounts Data Tables. This function allows you to select/enter the account number, theaccount name, and monthly trading size (30, 120, 250 per month). It then looks for theappropriate master file and copies it with a new account name. The new file requiresinitialization by loading it into Excel and completing the TO v4 first time initialization process.See the Getting Started Guide for an explanation of how to add accounts to the Governor.


3. “Remove Account File”

This function removes the links (the filename and account name) from the Accounts DataTable, so the account is no longer managed by Governor. NOTE: The account file is NOTdeleted – only the link removed from the Accounts Sheet. This allows you to re-link the filelater.

4. “Re-Link Account File”

The Re-Link function allows you to select an account file and re-link it to the current AccountsData Table. This function is useful when upgrading to a new version of Trader's Governor byquickly allowing the new program to connect to existing files. You will be given the option toeither accept or change the Account Name for the selected file. Changing the Account Namewill also change the name of the file when linked to the Governor Accounts Data Table.

5. “Validate”

This function checks each entry in the Accounts Data Table and verifies the existence of eachfile in the folder path. The date of the latest successful validations is stamped and stored in theAccounts Data Table.

For complete details on how to use these functions to set up the Governor and the TO v4 account files for the firsttime, please see the Getting Started Guide.


9. The WEB INPUTSheet – Updating Prices from the Internet

The Governor allows you to automatically update the prices of all your open trades using a pre-built web queryfrom Microsoft.

NOTE: The Microsoft Web Query works only for purchasable US stock market symbols and only forthe current year. Market indexes, futures and options are not supported by this function.

This function does not support non-US stocks. We often receive requests to add foreign stocks, but depend onMicrosoft for our updates. When Mr. Gates adds foreign stocks, you will see them updated here. Until that timeyou’ll have to update them manually.

Before updating prices in the Positions Review Table, you should ensure that the position data in the Trader'sGovernor has been freshly loaded from the account files (by clicking the Update Accounts/Position Data buttonon the Planner Sheet).

This is the procedure for updating prices from the Internet:

1. Run the first macro – the Web Data Input macro (Control-Shift-W).

It scans the Positions Table to create a list of ticker symbols for all open trades.

NOTE: The Microsoft Web Query requires an active Internet connection. If you use a dial-upconnection, you must dial before initiating the Web Input Macro. If you use a high-speedbroadband connection, such as cable or DSL, or a network connection that is always on, youshould be able to initiate the Web Data Input Macro at any time.

2. The Web Data Input macro will return the Web Input List – look it over to see whether there areany unrecognized ticker symbols, correct any mistakes and enter any trades you may havemissed. If you make any changes, go back and repeat Step 1.

3. Run the second macro – the Web Trade Update macro (Control-Shift-U).

It takes the freshly obtained data from the Web Input List, validates it, and puts it into the “Last Price”cell for each trade in the Positions Review Table. Validation errors are shown in the “Trade UpdateErrors” column.

4. Look over the Trade Update Error list to see whether you need to make any corrections. If youhad to make them, go back to Step 1 and repeat the process. Otherwise, your update iscompleted.

NOTE: A quirk of Microsoft Web Query is that it sometimes does not work properly when you run itfor the first time, but works fine if you repeat it for the second time.

An overview of the Web Input sheet is shown below:


Figure 9-1 - Overview of the Web Input Sheet

The Web Input sheet helps you manage the two-step process for updating prices from the Internet. The sheetconsists of the title and date header, the Web Input Results summary, the Web Input List, and the Trade UpdateErrors list.

9.1. Step 1 – The Web Input MacroFirst, you must update your Today’s Trades sheet to make sure you are working with the latest current trades.Then you can run the Web Data Input macro. Type “Control-Shift-W” or click on the “Web Input” button next tothe “Step 1” message. The Web Input macro verifies the trade year, since the web query process works only forthe current year. It then looks for open trades from the first month through the current month.

The Web Input List stores the ticker symbol and location code for each open trade. It adds the ticker to the list forthe Microsoft Web Query function. Once the Web Input macro is completed, it displays a message similar to theone below:

Figure 9-2 - Step 1 Web Input Macro Scan Completion Message

The message notifies you of the total number of trades found in the Positions Review Table. Then, if you have anactive Internet connection, you can proceed to Step 2. If you do not have an active Internet connection, click“Cancel” to abort the Web Query and activate your Internet connection before repeating Step 1.


If there are no trades in the Positions Review Table, the following message is displayed and the Web Input Macrowill not perform the Web Query:

Figure 9-3 - "No Open Trades" message by Web Input

The Web Input List, shown below, displays the results after the Web Data Input macro has been run. Its WebInput Results summary at the top shows the count of open trades and the date/time of the last web query. The WebInput List stores the ticker symbol and location code for each open trade. The Trade Update Errors section iscleared by Step 1 and filled again if needed during Step 2.

Figure 9-4 - The Web Input List Block Following Step 1 Completion

The above Web Input List block shows a total of 4 trades found in the Positions Review Table.

The Trader's Organizer uses only the “Last” value from the table to update prices. If the query is run after markethours, the “Last” value reflects the close for the day. If the query is run during market hours, the “Last” valuereflects current prices with a 20 minute delay.

Before proceeding to Step 2, take the opportunity to make any corrections. If the web query indicates an invalidsymbol and/or shows “???” for the values, it means the ticker symbol was not recognized. You will have tocorrect it in the TO v4 Account file, re-load the account, and re-run the Web Data Input macro.

9.2. Step 2 – The Trade Update MacroStep 2 runs the Trade Update macro to complete the Internet price update. It checks the results from Step 1 anddisplays the following message:


Figure 9-5 - Trade Update Response Message

This gives you the number of open trades and the time and date of the latest data. Click “Yes” to continue. Themacro validates the Web Input List line by line. If there are no errors, it puts an “OK” message in the ErrorDescription column and updates the current price. An error message means the price was not updated.

The Trade Update Messages are described in the following table:

MESSAGE EXPLANATION ACTION CAUSE(S)

1 “OK – dd/mm/yy” No errors detected Last price from theInternet is saved inLast Price cell for thetrade.

n/a

2 ”Bad TickerSymbol”

The ticker symbolwas not recognizedby the web queryfunction.

No action – price notupdated.

(1) Ticker is blank (2) Tickernot recognized by Query (3)Ticker no longer traded

3 ”Stop violated byprice??”

The updated pricefrom the Internethas violated the stopyou had set for thetrade.

Internet price saved inCurrent Price for thetrade (NOTE: youshould record an exitafter the stop was hit!)

You forgot to update stopprice or didn’t place stoporders as indicated.

Below is a sample that shows how the Web Input sheet might appear after completing the Trade Data Update.

Figure 9-6 - Sample Trade Data Update Results

In the above example you can see that the last prices of trades 2, 3 and 4 were updated on October 27, 2004 at


9:38AM. Trade #1 (CSCO – Line 1) was updated with the current price of $18.38. From the Positions ReviewTable entry below, we see that this long trade had a stop price of $20.00 – thus the trade should have beenstopped out and no longer open. There could be several reasons for this – however, the Web Query only providesan alert of the condition.

Figure 9-7 This open position was updated but the trade should have been stopped out

9.3. Web Query Initialization ProblemsThe Microsoft Web Query function is an external feature to the Governor and sometimes does not work correctly.If this occurs, re-run the Step 1 and Step 2 macros, which usually clears up the problem. The following note onthe Web Input page alerts you to this:

Figure 9-8 - Note regarding an intermittent web query initialization problem


AppendixA –Table of Figures

Figure 2-1 - Excel alert that the workbook being loaded contains macros. .............................. 6

Figure 2-2 – Trader's Governor Splash Screen ........................................................................ 7

Figure 2-3 - Excel Query refresh message ............................................................................... 8

Figure 4-1 The Trader's Governor is comprised of six spreadsheet pages............................ 13

Figure 4-2 Colors used to denote which cells can and can not be changed. ......................... 14

Figure 5-1 A Bird's Eye View of the Planner Sheet................................................................ 15

Figure 5-2 Header Section of the Governor Planner Sheet .................................................... 16

Figure 5-3 The Planner "Stoplight" Table................................................................................ 17

Figure 5-4 Stoplight Selection Form........................................................................................ 17

Figure 5-6 "Butterfly" Controls................................................................................................. 18

Figure 5-7 The Portfolio Summary.......................................................................................... 18

Figure 5-8 The Data Table Selection Buttons ......................................................................... 19

Figure 5-9 The Update Account/Position Data Button ............................................................ 19

Figure 5-10 The Accounts Review Table ................................................................................ 20

Figure 5-11 The Bullish Review Table .................................................................................... 21

Figure 5-12 The Bullish Cost & Risk Distribution Table .......................................................... 22

Figure 5-13 The Planner Bearish Review Table ..................................................................... 23

Figure 5-14 The Bearish Cost-Risk Distribution Table............................................................ 23

Figure 5-15 The Positions Review Table on the Planner Sheet ............................................. 24

Figure 6-1 Summary Sheet Overview ..................................................................................... 26

Figure 6-2 Part 1 of the Summary Sheet Tables..................................................................... 27

Figure 6-3 Part 2 of the Summary Sheet Tables..................................................................... 27

Figure 6-4 The "Net Profits" View of the Summary Data ........................................................ 28

Figure 6-5 The "Account Value" View of the Summary Data .................................................. 29

Figure 6-6 The "Cash Balance" View of the Summary Data................................................... 29

Figure 6-7 The "Cash Flow" View of the Summary Data ........................................................ 30

Figure 7-1 - Expense Sheet Overview .................................................................................... 32


Figure 8-1 The Accounts Sheet............................................................................................... 33

Figure 9-1 - Overview of the Web Input Sheet ........................................................................ 36

Figure 9-2 - Step 1 Web Input Macro Scan Completion Message.......................................... 36

Figure 9-3 - "No Open Trades" message by Web Input.......................................................... 37

Figure 9-4 - The Web Input List Block Following Step 1 Completion...................................... 37

Figure 9-5 - Trade Update Response Message...................................................................... 38

Figure 9-6 - Sample Trade Data Update Results.................................................................... 38

Figure 9-7 This open position was updated but the trade should have been stopped out .... 39

Figure 9-8 - Note regarding an intermittent web query initialization problem ......................... 39


Appendix B– Reporting Problems and Making Suggestions

If you encounter errors in the Trader's Governor, if the program functions incorrectly, or if you wish to suggest animprovement, please follow this procedure:

1. Provide the following information:

The version number and the release date of your Trader's Governor. This is shown onthe Splash screen at startup.

Description of the problem/suggestion. If you are reporting a problem, include any errormessages and the actions taken at the time of the problem.

Operating System (Windows 95/98/NT/2000/XP) and Excel version (Excel 2000/2002).

Your name and contact information.

Please provide all information requested. This allows us to quickly identify problems or fixes ofwhich we are already aware. Insufficient information will likely delay the response to yourrequest.

2. Submit your problem report by one of the following methods:

E-MAIL: [email protected]

FAX: (240) 331-0538

NOTE: this information is only for technical support for the Trader's Governor. For all other matters, pleasecontact Financial Trading Inc. at [email protected]

Documents

Trader's Governor V2 Manual 01-01-06 A02 - Alexander Elder · explanation of the setup of the Trader's Governor and its companion program the Trader's Organizer v4, please see the