David admits there are better looking traders. Vince starts out with the seven components for a successful trading plan. Technical and fundamental indicators are the first things to decide on. David uses price patterns to identify candidates to trade. Technical analysis is 70% weighted in decision process. Sector relationship is important also. Macro economics does not play much of a role trading domestic equities. (mp3)
David cautions that each model not be based on low probability events. Model has to be based on facts. Vince cautions about the dangers of not having a money management component. David uses blocks of equity to reduce the risk to the total portfolio. News can drop a stock 50%. Dirty word for the year "wise" trader. David uses a risk/reward ratio of 2:1 (mp3)
David admits that after 24 consecutive losses he needed to accept draw downs. After several losses, you have to reduce position size. If you have a positive expectancy model, you must take every trade. After a winning run, increase your position size. This is based on the Kelley Rule. Vince makes the point that psychology is a major factor in your trading plan. First big test for a trader is being able to operate in an environment of uncertainty. (mp3)
David gives his spin on hardware and software. Vince admits he may go overboard on the computational hardware and software. David feels Windows 7 will allow you to use all the RAM in your computer. Add RAM first, then more processors, then more storage. Current $400 – $700 laptops are adequate. Dedicate computer to trading. Manage process load. Always do custom install and avoid the extra junk they want to load. All these considerations are essential to your trading plan. Simple plans are easier to ensure consistency. Make a journal – You can't manage what you don't measure! (mp3)