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Think you're ready to dive into a new trade set-up?

Jumping into a new trade set-up with both feet?

While reviewing a trader’s Personal Trade Tracker this week, we noticed that he was trading “something new he thought would work well”. His thinking was based on what he had been observing in the markets over the summer.

We applauded this trader for trying something new! As Day Traders, we need multiple set-ups that work in different market environments. However, this trader made one fatal flaw while starting to trade his new set-up:


Full position size. Meaning he was using the exact same share size he uses for some of our proven A+ Set-Ups.

Jumping in with both feet is NEVER a good idea, especially in the market environment we’ve seen recently. He may have seen this set-up working all of July and August, but what’s to say it’s going to work in September? I’ve noticed a recent change in the markets. Haven’t you?

Luckily this trader was smart enough to reach out after just a couple of days so they didn’t lose too much money.

Jumping into a trade you think “might work” is never a good idea. Day Trading is a process. You need a plan for every trade.

Here’s the plan we put in place for his new strategy:

1: Write down a list of parameters for the new trade set-up. Explain in detail what the set-up is all about and how you plan on trading it – entries, exits, stops, which stocks qualify, etc.

2: Paper trade the new set-up for a week or two. Write down and track on paper every trade you see that meets the parameters of your new set-up. Analyze these trades and honestly ask yourself if you would have entered them in the first place. Also ask if would you have possibly been shaken out at any point? Remember, paper trading is different than actually trading since there is no emotion involved! Track the win rate %.

3: If your win rate % is decent after paper trading for a week or two, then start to trade them with small share size. However, if the win rate % is not decent, you really need to re-evaluate the set-up, your parameters for the set-up and decide if it’s still worth pursuing. Continue to only paper trade until you figure that out.

4: Start to trade them SMALL, very small. You just want to get your feet wet. Have ZERO expectations of making $$$ with the small share size. You’re just learning the process here. Getting the parameters of the set-up nailed down. You’re also checking your emotions when you’re in these trades. Make sure you are putting all of these trades into your Personal Trade Tracker to help you track them in detail.

5: After a week or two, if your win rate % has GONE UP, continue to trade them and slowly increase your share size.

6: Continue to monitor your win rate % and gradually increase until you get to “full size” based on your risk parameters.

If this happens, you could have an A+ Set-Up on your hands!

This is how I approach EVERY new trade Set-Up I’m testing. This is also the same approach I use when I start to see a known set-up working again in a changing market environment. Currently, I’m back-testing and doing this with my "200Day Scan". We didn’t see too many of these set-up over the summer since the market was is such a tight range. Now with a little more volatility coming back, this scan has been active once again. The win rate % is looking good but the entries are still sloppy thanks to the market chop. I’m also doing this for something called the “2nd Mouse” Play…

So, many of you are asking: “What’s a decent win rate %?”

My answer: It really depends on how well you manage your risk AND how well you can hold onto a winning trade. I have a couple of set-ups that only work 40-50% of the time. Since I manage my downside, I’m always protecting my entries (Thank you GSP) and I always scale out of every winning trade; these set-ups are still very profitable. If you’re not good at managing your downside and/or staying in a trade, you’ll probably struggle to be consistently profitable with anything less than a 65% win rate – and that’s being generous. Managing the downside (aka keeping your losses small) is crucial.

I plan on writing about the win rate % versus your risk management in greater detail in the future.

Next time you’re thinking about jumping in with both feet, I hope you remember reading this.

Questions? Reach out!

Thanks for reading! Wayne

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