Trading Competition

Today I’ll be taking part in an inter-university trading competition focusing on US markets. In this first-ever post on here, I’ll break down my thoughts and approaches to this competition.

Trading in such a short time scale is entirely new to me since my regular trades usually last at least a few hours and above. There are three main things on my mind going into this. Firstly there is the fact that very few of my trades will be part of trading a large market trend. Most of my trades will be against algo trading systems, so it’s essential to keep in mind how they typically approach trading. Lastly, technical analysis and short term market momentum will be my primary source of trades. For me, this means I have to adjust my methods since I typically use these for timing entries and not for my whole trade, so the approach will have to be quite different.

The tools that I will have access to during the hour will be the following. Firstly a computer with Bloomberg terminal on it, which I will have split into three parts. The first one will be news with Bloomberg TV playing for some background noise while I focus. There is also the small possibility that they say something interesting that gives me a trade idea. The next section will be the current stock I’m looking at with some basic information. In the third and final section, I’ll try to have candle charts of every open position I have. Next will be my laptop with an iPad serving as a secondary screen. The tablet will have the trading interface open. My laptop will then have the chart with indicators of my choosing. The last thing will be my phone with a list of stocks I’ve picked beforehand with expectations that their volume is high enough to be nicely tradable on such a short time scale.

My focus will be primarily on large-cap stocks with high volume. This is for two reasons. Firstly I don’t know how the system plans to do its paper trading. If the system follows volume, it could be restrictive with larger trades. The more important thing, though, is that they are more likely to have retail investors reacting to the news. This, in combination with how quants trade could provide me enough price action even on these small time scales.

It is essential to understand that I will not be trading the news itself. My focus will be on taking advantage of the price movement which the news cause. I’ll always have a stop loss to save me from an overreaction to the news. However, the price will still follow basic rules of technical analysis as it forms the 4 hour and daily candles that I would usually trade.

My main tools of technical analysis won’t be the standard combination of RSI, MACD and Bollinger bands which many retail investors gravitate towards. This is because I don’t use them for my normal trading, so I am not as familiar with them. Therefore it would be risky to try to learn this on the fly. Instead, I will use three simple moving averages primarily as support and resistance lines. Then I’ll use Parabolic SAR as my primary trading strategy since I have seen it work very well with high volume stocks even on short time frames. Lastly, an indicator I’ve found to be excellent at catching short term market moves is TD sequential. I use it quite often to time my entries and sometimes to exit my positions manually, so I want to see how it stands up in these time frames.

Of course, beyond indicators to help me pick trades that make sense, I’ll still use the more traditional techniques. I’ll add a small amount of horizontal support and resistance lines from higher time frames. Candle shapes will be an integral part of where I set my stop loss. On top of that, both will help me decide what trades to take and which aren’t worth the exposure.

The last thing that needs to be clarified is how I will manage my risk. Since this is a competition, I’m willing to take on more risk than I would typically in order to have a chance to have a notable change in the value of the account. I’ll split the account into 20 lots. Most trades will be one lot each, with the possibility of 2 lots if I’m very confident in the trade and have a tight stop loss. I was lead to believe that leverage will be accessible on these accounts. Ordinarily, I wouldn’t go beyond 1:4, but here I’ll use up to 1:8 for longs and 1:4 for shorts. If it is possible, I will also take advantage of leveraging an open position. I’ll only do this once my stop loss can be set at break-even or even profitable point and only if I deem it necessary.


DISCLAIMER

The information contained on this website and the resources available for download through this website are not intended as, and shall not be understood or construed as, financial advice. I’m not an attorney, accountant or financial advisor, nor am I holding myself out to be, and the information contained on this website is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.

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