Trade System Alpha

The Trade System Alpha is my first formalized trading system. And yes, it’s not for sale.

I hold the belief that a trade system should be unique to the trader. Ideally, nobody should know about how it works in a meaningful way except for the trader.

My Trade System Alpha is designed for day trading setups. It uses the 5-minute to enter and exit trades. Here are the list of technical indicators used:

1. Heikin Ashi candlesticks. Used in conjunction with a moving average to trigger entries and exits.

2. Moving Average. Type and length confidential, but as stated above, it triggers entries and exits.

3. Donchian Price Channel. Length and displacement confidential. It’s main purpose is situational awareness.

4. RSI. Length confidential. Situational awareness as to the oversold/overbought condition.

5. Trendicator. Proprietary and confidential indicator. Confirms entries by indicating the current trend, and its strength. It may be difficult to gather from the picture above, but the Trendicator has four states: Green and above, Red and below, Yellow and above, and Yellow and below.

This system should be considered mostly discretionary since it isn’t in the market all the time, only when I choose to put a trade on. And though the entries are pretty clear cut, I take discretion in taking a trade.

The stop loss is set at a market-defined location where the chances of my trade working out start decreasing. I will also exit a trade before it hits my stop loss if it’s not setting up as expected. Again, kinda discretionary.

Trade System Alpha is my attempt to reduce random trading. It’s not a rules-based system in the true sense, but it is a framework that has a positive expectancy.

Once you set up your own trading system, you’ll find that losses are simply the cost of doing business and have nothing to do with you being right or wrong. In a twisted way, you can look forward to losses because you know your odds increase on the next trade being a winner. We can get into the statistical validity of that being the case if you’re not always trading, but let’s leave that for another time.

Good luck setting up your own trade system. And don’t get caught up in the phrase ‘trade system’ like I often do with certain phrases. You get the idea. Call it a system or criteria or whatever. As long as it’s not random dart throwing.


2 Responses to “Trade System Alpha”

  1. Mark Wolfinger Says:

    “Once you set up your own trading system, you’ll find that losses are simply the cost of doing business and have nothing to do with you being right or wrong.”Right on. The cost of doing business. This holds true even for traders (ok, they are more like short-term investors) who don’t rely on technical analysis.Mark

  2. Milkman Says:

    What’s nice about putting on option positions is that you define your risk by creating a spread (or by going long options which I do not recommend). Options trading is better suited to statistical analysis vs a technical trading system like Trade System Alpha

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