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Constructing a Trade for Maximum Profit

Constructing a Trade for Maximum Profit

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Published by Peter L. Brandt
How to construct a futures market trade to yield a 10% return on total capital
How to construct a futures market trade to yield a 10% return on total capital

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Categories:Types, Research
Published by: Peter L. Brandt on Apr 04, 2013
Copyright:Attribution Non-commercial

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12/06/2014

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Factor LLC
2 North Cascade Avenue ● Suite 720 ● Colorado Springs, CO 80903
 Email: Factorco@gmail.com
1
 April 3, 2013Identifying, constructing and executing an asymmetrical tradeOn Twitter today I promised to share the chart of a pending trade I currently wake up thinking about eachmorning (about 3:00 AM). So, here goes.First, some background on my trading philosophy is in order.There are trades
and then there are trades. In my mind, not all trades are created equal. In fact, Imaintain a matrix of the signals I will take. The matrix lists just some of the following information:
Pattern
 –
weekly
Pattern - daily
Length of patterns
A
launching
or 
ignition
pattern with the larger pattern
Trend
 –
daily (using a moving average as a proxy)
Trend
 –
weekly
Any other technical factorsFrom this information I ballpark the risk I will take on a trade. I have capital segregated for futures and forextrading. I will risk between ½ of 1% and 1.2% of capital on a trade, although under extremely rarecircumstances I might risk up to 2% of my trading capital. About 5 to 15 times per year I get the highest category trade set up. These are set ups generallycharacterized by:1. A 12+ weekly daily chart pattern with a horizontal boundary line2. A breakout confirmed by the daily moving average3. Confirmation by other technical factors
 –
COT data, spread behavior, against conventional wisdomOnce I identify such a candidate market my mind becomes focused on how I can construct a trade that willproduce a return of 5% to 10% or more on my entire trading capital. I never calculate risk or reward againstmargin used for the trade itself, the value of the underlying commodity contract, % of price change or thelike. Risk and payout are always measured against total trading capital. In other words, per $1M of tradingcapital I am willing to risk $10,000 on a high quality trade, hoping for a gain of $50k to $100k. As a general rule, on a 1% risk trade I will assume a position of one futures contract (or 100,000 primary inforex) per $100,000 of capital, or 10 contracts per $1M. But depending on how the trade develops I mayonly be able to put on 5 or contracts per $1M. I try to stay alert and anticipate how I might establish aposition of 15 contracts for the same 1% risk. This is where timing becomes so important.I see a 10% gainer coming in the Australian Dollar futures (or the AUDUSD spot forex). Here is the set up.On a weekly chart the Aussie is forming a massive and clearly defined 2-year symmetrical triangle on theweekly chart. Please know that I don
t care if this is a continuation or reversal pattern
 –
I just want to be inon the trade.The solid boundary lines define the orthodox highs and lows of the pattern. The dashed lines define theweekly closing prices. I draw both types of lines in on major patterns.
 
Factor LLC
2 North Cascade Avenue ● Suite 720 ● Colorado Springs, CO 80903
 Email: Factorco@gmail.com
2Of extreme interest to me is the 8-month rectangle that is forming in the late stages of the thetriangle. I far prefer horizontal bounary lines (rectangles) in contrast to diagonal boundary lines(triangles).My experience is towait for a breakout.Earlier in my carrer Iwould always try toget pre-positioned.This led to beingwhiplashed within apattern, only to begun shy when thefinal and decisivebreakout took place.The daily chart moreclearly shows therectangle. This is thepattern I will key off of. But I am in noimmediate hurry.

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