How I Trade

I've mentioned I have several different systems I trade. I also mentioned The Trading Digest as helping me not only with those systems, but also in allocating funds across to them. Yes, I do mention their site a lot. You should visit it.

I have six systems I currently trade. By system, I don't necessarily mean entirely mechanical, but some are. I'll list them here in order of capital allocation:

Option Spreads
Dip Buyer
Trend Following
Another Dip Buyer
Discretionary Options
Intraday Futures system

Currently, I'll allocate about 40% of my capital to the Option Spreads. I usually don't tie up anywhere close to this during a given month, so I'll also use that for any discretionary trades. 50% gets spread across the dip buyers and trend following. That leaves 10% for futures.

The option spread strategy is not mechanical. I don't think I can make it that way. Since the volume of trades is relatively low, I don't think I will spend a lot of energy trying to mechanize it. I primarily trade the RUT and occasionally the IWM if I need a little more granularity in my adjustments.

The Dip Buyers and Trend Following are entirely mechanical. I'm just an order taker for those. I will adjust my allocation to each as I see fit depending on the market conditions.

The Discresionary system is just that, discretionary. This is where I take the occasional speculative bet. I'll usually use options for this and it's usually a straight call or put or a vertical spread. Nothing more fancy than that.

Lastly, I have my Futures system. This one is not entirely mechanical, but I am striving to make it so. It's a little trickier to code because there are more variables (like different TICK readings, Advancing / Declining volume, sector ETFs, etc.). I only trade futures intraday because I don't want to comb through a zillion stocks and I can use a relatively small amount of capital. The capital I use is generally what's left over from the other systems. If I'm loaded up on my other systems, I'm not trading any futures. However, if things are relatively slow on the others, I'll add that capital to my futures capital and maybe trade a little bigger.

So, that's how I trade in a nutshell. The reason I trade multiple systems is because each has it's inherent strengths and weaknesses. The dip buyers do well in higher volatility markets regardless of trend, but not as well in strongly trending markets. The trend following model obviously does well when things are trending. They kind of complement each other.

I know this wasn't the most coherent ramble. I'll try to detail these a little more in future posts.