Implementing the Mechanical Trading Plan
Posted: Fri May 19, 2023 4:45 pm
Hello!
After my last post I've been thinking a lot about a mechanical trading plan and trying to wrap my head around how this journey will go.
I understand the basic idea of start simple and iterating over and had no problem with that, but as things got more complicated, I found myself getting more disorganized.
I've done a good amount of programming with trading, when I first started learning trading and a bit more once I discovered PATs.
The easy part is setting up rules around the setup itself for the most part. Analyzing the signal bar, checking for congestion, what side the EMA is on, etc.
The more difficult part is watching trades being marked where it does follow the rules, but the context is all wrong.
The context is very difficult to program, you can try to write rules around the hard EMA, but you still need to factor in the other layers of PA, otherwise the context isn't good enough to be consistently profitable.
Part of the lectures has made it easier to make a binary decision. Still not programmable from what I've seen so far (at least not without a ton of work, which isn't the road I want to go down at this point and time) but enough to be more of a binary decision from the chart reading.
So combining that with the easier to determine "setup rules" we should be able to create a mechanical trading plan.
When does this get messy? Well, the market is layered, so it's very hard to just say trend or range all the time. BUT, we don't need to recognize the different combination of layers with different rules for each. We just need to recognize that there are multiple patterns in play (Like a strong trend developing in a larger downtrend that's still in play)
and then either be more strict with rules, or even easier, don't take trades and wait for the other patterns to play out more.
Starting with strong trends on strong trend days seems like a good start. Strong trends and strong trend days need to be defined. But once you have that, you have the context needed and can work on the details, which should be easier.
The difficult part is filtering so many days to find these trades, it's hard to have a good feedback loop when you want to alter your trading plan or even compare a good number of trades to Mack.
But, if you can do that, you should have a pretty good win rate. You may need to add a couple additional rules, but once ~90% are matching Mack you can then tweak the rules/add more setups.
On a strong trend day, you should be able to loosen some of the rules a bit, but there needs to be conditions to it. Maybe you can make an exception for congestion, or a weaker signal bar in a strong uptrend on a strong uptrend day.
Also testing this out on sim to make sure you're not neglecting the momentum part of the plan.
If the above was set for trades coming off the KEP, you can then look into trades after a break of hard EMA/trend channel and looking for a new extreme. Starting with the strict rules and loosening them up if applicable once tested.
Once you have that, you can look to advance a bit more. Maybe a strong trend on a range day.
Start with trades off the KEP and like above, once that's in a good spot move on to trades looking to retest extremes.
So you can start with the more strict rules from before and then think about how the range will effect things. How do you factor that into your plan? And basically rinse and repeat.
At that point, it's a repeatable process to create a personalized trading plan
The best way for me to understand things is concrete examples so I wanted to write all this out. (I know there's more to it than what I posted above, like creating a visual playbook.) I figured it would be good to post it, either for feedback or helping others understand a bit more.
After my last post I've been thinking a lot about a mechanical trading plan and trying to wrap my head around how this journey will go.
I understand the basic idea of start simple and iterating over and had no problem with that, but as things got more complicated, I found myself getting more disorganized.
I've done a good amount of programming with trading, when I first started learning trading and a bit more once I discovered PATs.
The easy part is setting up rules around the setup itself for the most part. Analyzing the signal bar, checking for congestion, what side the EMA is on, etc.
The more difficult part is watching trades being marked where it does follow the rules, but the context is all wrong.
The context is very difficult to program, you can try to write rules around the hard EMA, but you still need to factor in the other layers of PA, otherwise the context isn't good enough to be consistently profitable.
Part of the lectures has made it easier to make a binary decision. Still not programmable from what I've seen so far (at least not without a ton of work, which isn't the road I want to go down at this point and time) but enough to be more of a binary decision from the chart reading.
So combining that with the easier to determine "setup rules" we should be able to create a mechanical trading plan.
When does this get messy? Well, the market is layered, so it's very hard to just say trend or range all the time. BUT, we don't need to recognize the different combination of layers with different rules for each. We just need to recognize that there are multiple patterns in play (Like a strong trend developing in a larger downtrend that's still in play)
and then either be more strict with rules, or even easier, don't take trades and wait for the other patterns to play out more.
Starting with strong trends on strong trend days seems like a good start. Strong trends and strong trend days need to be defined. But once you have that, you have the context needed and can work on the details, which should be easier.
The difficult part is filtering so many days to find these trades, it's hard to have a good feedback loop when you want to alter your trading plan or even compare a good number of trades to Mack.
But, if you can do that, you should have a pretty good win rate. You may need to add a couple additional rules, but once ~90% are matching Mack you can then tweak the rules/add more setups.
On a strong trend day, you should be able to loosen some of the rules a bit, but there needs to be conditions to it. Maybe you can make an exception for congestion, or a weaker signal bar in a strong uptrend on a strong uptrend day.
Also testing this out on sim to make sure you're not neglecting the momentum part of the plan.
If the above was set for trades coming off the KEP, you can then look into trades after a break of hard EMA/trend channel and looking for a new extreme. Starting with the strict rules and loosening them up if applicable once tested.
Once you have that, you can look to advance a bit more. Maybe a strong trend on a range day.
Start with trades off the KEP and like above, once that's in a good spot move on to trades looking to retest extremes.
So you can start with the more strict rules from before and then think about how the range will effect things. How do you factor that into your plan? And basically rinse and repeat.
At that point, it's a repeatable process to create a personalized trading plan
The best way for me to understand things is concrete examples so I wanted to write all this out. (I know there's more to it than what I posted above, like creating a visual playbook.) I figured it would be good to post it, either for feedback or helping others understand a bit more.