Frequently Asked Questions

Q1: Can you give me some idea about your trading system so I can assess whether or not it may suit my trading?

A: This is mainly a technical analysis based Position Trading System which last anything from a week to a maximum of 2 months.



Q2: What markets do you trade - stocks, bonds, commodities?

A: I personally use this system to trade stocks, index futures, precious metals as well as both soft and hard commodities.



Q3: How often do you trade - many times a day? week? etc.

A: Trades are entered and exited often from a weekly frequency to monthly.



Q4: How long on average do trades last?

A: The trades can last from weeks to a maximum of 2 months and normally lasted a month. However, in conditions where the market consolidates for a prolong period, the holding period can be reduced to 2 weeks.



Q5: How many positions are being opened at any one time?

A: I would recommend not more than 5 positions to be opened at any one time, with an optimum of 3 positions. As it would become difficult to focus on when you have too many positions being opened that are of high positive correlations.



Q6: Does your system give clear, easy to understand entry signals, exit signals, stop loss points and a system for moving stops?

A: Yes, the Trading System provides clearly illustrated setup conditions, entry signals, exit signals as well as stop losses and trailing profit stops.

More Indepth Questions

Q1: What period do you use when determining the ATR?

A: I use 14 bars or 14 trading days to determine the ATR. However, since the timeframe of the system is 1 month, anything between 10 days to a month is good enough.



Q2: Is there a max amount of equity you allow for any one position?

Example,
ATR => 0.5, stock price 20 . total equity $100,000.
2% volatily is 2000.
2000/0.5 is 4000 shares at $20 is $80,000

which would seem too much to risk especially if you are holding the stock overnight when it could gap.

A: Yes, like I said, the maximum number of positions is 5 to be comfortable with. Therefore, the maximum amount of equity is actually 20%.



Q3.1: The pyramiding system is not clearly defined and seems discretionary?

A: Right, it is more of a discretionary nature which is why I did not define it clearly.



Q3.2: How much does a stock need to rise before I start adding more positions etc.?

A: You can generally use this rule of thumb to add more positions, though I do not follow this guide strictly myself:
- Add each portion of the total positions after the price move 0.5 ATR in your favour.
- The Trailing Stops will be adjusted to the average price of the positions added.



Q3.3: Also from reading about the pyramiding it seems that I would need to be watching the market all during trading hours?

A: Yes, you are required to watch the market during Entry days until all your positions are added. It is only for at most 2 days or so that you will have to watch more intensely during trading hours. After Entry, you can then relax and monitor the End Of Day data after market hours. But of course, remember to set your Stops.



Q3.4: How does your system work if you don't pyramid?

A: The system will continue to work just as well as it was tested to be having a 71.9% win-rate without the pyramiding system which will improve your trading results tremendously.



Q4: Setup criteria include the market index eg SP-500 being above its 200d MA in order to go long, does this imply that in an bullish uptrending year no long positions would have been taken?

A: The 200d MA is only a general guideline for risk considerations. You can still go short even when this condition is not met although the risk can be higher most of the time. It really depends on how steep the slope of the trend is.
Eg. if the trend is trending upwards steeply (or sharply), it is decidedly not to go short at all.



Q5.1: When you have found suitable buy/long or short candidate how exactly do you place the order -buy at market open the next day? buy if stock goes above high of previous day?

A: I will usually have a candidate list that is more than 5 (max 10) counters. When the market opens, I will use the elimination method to eliminate counters that are more difficult to trade like gaps or when it falls much lower than the Low of the previous day at market open.



Q5.2: How do you deal with gaps? still enter or wait if gap is big?
If market/stock opens weak/down next day do you still buy.

A: I will still enter gaps that are in the favourable direction. I will still buy if the market/stock opens weak as long as it did not fall more than 1.5 ATR lower than previous day's Low. If it climbs back up during the day, I will still buy.



Q5.3: When do you decide how many shares to buy?
Is it just before you place the order?

Example,
previous close $10, ATR 1 so stop at 8.5. $100,000 in equity and 2% volatility stop
so buy 2000/1.5 = 1333 shares.
What if stock opens at 10.5 - still buy 1333 shares or now buy 2000/2 = 1000 shares as stop is now 2 (10.5-8.5)?

A: I usually decide the total shares to buy divided into 3 positions of positions before the market opens (the previous night) using the spreadsheet provided. I will still stick to the planned number of shares 1333 based on previous close as there will not be much time for you to calculate on entry. all preparations should be made beforehand.


Overall Q5 Answer: The idea behind the system is that it is attempting to find the cycle/phase exhaustion points.
This means that when we go long, the market would have more or less exhausted its selling at that point.
Therefore, you should aim to buy as much as possible to be closer to the Low of the day and sell closer to the High of the day.

As a general rule, upon the guiding market index (like Dow in your case), opens weak, you should not buy at the Open and should wait for the momentum of the falling to pause or reversed before buying.
The quality of the day's price that you captured or entered is very much dependent on your tape reading skills.
However, the system will still work even if you get did not get a good price intraday.



Q6: I would appreciate it if you could send me any data you have on past trades so that I can get a better feel for how exactly the system trades
and also that I can analyse the data to see how I can best trade the system given any personal constraints I may have.

A: You can find the data and get some ideas on the actual applications of the NBC Trading System in these eNewsletter archives that I have on another web site of mine for the Singapore Stock Market,




Q7: I understand that some of these questions cannot be answered definitively as all trading has to be subjective to some degree on the exact market conditions at that time.

A: Thank you for your understanding.
It is true that not all questions can be answered with total clarity.
However, I will answer them as clearly and definitively as possible to the best of my knowledge with totally no secrets being withheld.

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