Identify the Universe

Rank all potential markets by a smoothed rate of change
Smoothed ROC = Average of [ ROC(Close, 2-day), ROC(Close, 5-day), ROC(Close, 7-day) ]
For stocks
Use the IBD50 and rank the stocks within this group by the smoothed ROC.
Also look at 52-week new highs and new lows, and all-time new highs and new lows
Look to buy the strongest markets and sell the weakest markets, with the hope that they will continue to trend.
Look for a Trend Breakout

Breakout long
Buy the X day high and sell the Y day low (e.g. for the turtles, X = 20, Y = 10)
MACD (not the histogram) must be above zero and increasing.
Breakout short
Short the X day low and cover the Y day high.
MACD must be below zero and decreasing.
Risk Management Rules

Risk per trade
Risk no more than 0.75% to 1.25% of your core equity in one trade (equity of all closed positions and cash positions, excluding open trade equity)
Risk per sector
No more than 5% of total account size in any sector.
Open trade risk
The more open trade risk, the more potential for increased drawdowns. Your biggest drawdowns will probably be after one of your biggest run ups.
Total open trade equity / Core equity <= 20%
Margin to equity
Higher the margin to equity, the more positions and more risk
Margin / equity <= 15%
Dollar risk per contract
No more than $2,500 risk per contract regardless of account size
Markets in each direction
No more than 10 markets on the long side; and
No more than 10 markets on the short side
For stocks
Don’t short a stock below $20
Don’t buy a stock under $10
Look to go long S&P 500 when it is above 200-day EMA
Look to go short S&P 500 when it is below 200-day EMA
Apply Stops

Initial stop
Long: Y-period low
Short: Y-period high
Trailing stop
39-period ATR trailing stop

The following is an excerpt from an article in Naval Institute magazine – there’s a lesson not only for navigating a ship, but for traders too.

——-

Shortly after dark, the lookout on the wing of the bridge reported, “Light, bearing on the starboard bow.”

“Is it steady or moving astern?” the captain called out.

Lookout replied, “Steady, captain,” which meant we were on a dangerous collision course with that ship.

The captain then called to the signal man, “Signal that ship: We are on a collision course, advise you change course 20 degrees.”

Back came a signal, “Advisable for you to change course 20 degrees.”

The captain said, “Send, I’m a captain, change course 20 degrees.”

“I’m a seaman second class,” came the reply. “You had better change course 20 degrees.”

By that time, the captain was furious. He spat out, “Send, I’m a battleship. Change course 20 degrees.”

Back came the flashing light, “I’m a lighthouse.”

• Fear doesn’t feel good nor does anger, but that feeling that you made a mistake — sometimes a very serious one — and there isn’t anything you can do about it, is worse. You are powerless to change the past, and feeling powerless leads to feeling depressed.
• Getting over regret is harder than recovering from other feelings. It tends to nag at us.. “if, only if”. You dream of being in the alternative situation and have to relive the reversion back to reality.
• Missing entries blasts the fear of regret-o-meter.