The Trading Plan (revised and condensed)
3 signal strategy
Each signal accounts for 1/3 of the total position size
We enter each portion as each signal triggers individually
1. Price above rising 20 WMA, on a weekly closing basis (1/3 position)
2. RS trend breakout (1/3 position)
3. Active Pattern (1/3 position)
A position is exited in 1/3 increments as signals invalidate or achieve price targets
So when the 20 WMA fails, we exit 1/3 of the position. When the RS trend fails, we exit another 1/3. Also if the pattern invalidates you would sell that 1/3 position also.
-Profit Taking Opportunities
The other circumstance when to sell is based on profit targets of the pattern in play and/or a +13% extension above the 20 WMA. We would then sell that signal’s 1/3 position and continue with the remainder of the holding.
If you sell 1/3 on the 13% extension you then buy back the 1/3 position on a pullback to the 20 WMA.
When new patterns setup, you can enter and trade the new pattern as a new signal.
Figure out how many holdings you can reasonably hold when they are all in full 3/3 positions based on your account capital. I like around 7 full holdings potential. You would divide your account balance by 7 and that will give you the full size for each position if all 3 signals triggered together. Then divide that full position size by 3 and that gives you your 1/3 position size for entry and exits. We then manage each position based on those position sizes and adjust as signals trigger/fail.
**I am trying to set up a rather automatic trading system that reduces risk, allows us to be positioned based on the current strength of the stock, not just based on one arbitrary stop level. This allows us flexibility to stay with positions that may be signaling indecision (say the 20 WMA is failing, but the RS is still holding with a pattern target above), we wouldn’t need to exit the entire holding, we would simply adjust our allocation to the actual strength in the holding at that particular time; in this particular case we would hold a 2/3 position (-1/3 for failing 20 WMA, but +1/3 for RS trend and +1/3 for the pattern).
I believe this will allow us to be shaken out less, have more flexibility when we buy and how much, and also provide an absolute signal for entry and exit. There will be no wishy-washy exits like, “well the RS is failing, but the 20 WMA is holding…what do we do? Sell the entire position? No. in that case we would just hold portion for the 20 WMA and sell the portion for the RS trend. Simple, takes risk changes into consideration without getting too antsy about when and how much to exit, and makes it so any one signal isn’t the end of the position. We simply flow from strong to weak as signals trigger and invalidate.