Some Trade and Risk Management Tools

As some of you know, I've won several awards for custom indicators, when I find a need for something, I try to create it, I usually end up with something unintended, but useful nonetheless.

These are all coded for either TeleChart , TC-2000 or StockFinder.

First for those who are interested in tweaking their risk management, I created this indicator as I have found the most difficult part in determining risk management before entering a trade is the unpredictable opening gap. You can have a stop that doesn't risk more than 1 or 2% of total portfolio value and still have a position that is 15% or more of your portfolio. I usually limit trade size to no more than 15% of portfolio value in large part because of the unpredictability of unforeseen gaps which can tear right through your otherwise, sound risk management plan.

This set of custom indicators will tell you what the maximum gap (up or down) in any particular stock has been over the last year. PCLN is the example and as you can see, $54.26 is the largest gap in PCLN over the last year. I'm not saying you have to use $54.26 as your risk to determine position size, but you might consider it as part of a formula in determining risk.

The other indicators below can be applied to any market average's components as a whole, in this example I'm using the Dow-30, but you can choose any watchlist you like, custom watchlists included. Say you trade biotechs and want the average gap of that industry group, just create the watchlist and this layout will do the rest, giving you the maximum gap, the minimum gap and the median gap. For the Dow, over the last year the median gap has been $3.10, with the top gap at $8.69 and the botom 1% at $.84.

For trade management, instead of using arbitrary stops, my Custom Trend Channel will measure the average volatility of a stock and apply a formula using standard deviations, when a stock moves out of the standard deviation or the channel, you know something significant has changed and this almost always leads to a change in trend. The channel self adjusts to each stock's volatility and even the volatility adjusts as the trend develops, it has the added bonus of giving you an objective stop that locks in gains by the bar, whether used on a daily basis, a long term investing basis or for intraday trade.

I'm using AAPL as an example.

 This is a tighter stop on a daily basis, but from the green entry when the channel starts trending up, it caught 53% of the trend out of a total 60%. I also have an average true range indicator that can be set to any time period, this is set at 14 bars. There are many uses for these, I'd have to write an entire post on each one to cover them all, but I'm sure you can think of some uses I haven't even thought of.

 For someone who takes a more hands off long term approach, this wider 5 day version has held the AAPL uptrend since 2009 with only 2 stop outs, it's wide enough to allow for significant consolidations and pullbacks while at the same time locking in gains every day. The most recent stop I believe is the final signal for AAPL.

If you are a swing on day trader, it works just as well, so long as there is a trend. AAPL was held in the channel with only 1 stop out in a lateral area in which you probably don't want your money at rik any way.

I'll try to write a user manual like the 3C ones that are linked to the right of the site so you can see the many ways you can benefit from objective stops based on the stocks trading character.

If you have any of the 3 platforms mentioned above and want to try these indicators, just email me, I have plenty of other ones as well, including the X-over screen (seen in the UNG analysis today) to avoid false crossovers and determine the most likely pullback areas for new trends.