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Slow And Steady - Trading System

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Disclaimer: The sole purpose of this document is to introduce you to a sample trading rules and money management system. The rules defined here are not a trading advice. Consider this as a sample system for learning purposes. After reviewing, feel free to create your own system based on your risk tolerance, trading style and capital available. We do not guarantee any success by following this system as success depends on a lot of other factors as well. Money Management is only one aspect of trading.

Set up an excel sheet or log your trades in to manage this system. Practice not to place any trades without reviewing your logs. It is all about cultivating a good mind set. Feel free to modify this system to suit your personality, trading style and initial capital available. Use this as a template. But once you finalize a system that you are going to follow, follow that strictly. Do not change the system as soon as you are hit with a losing or winning streak. Try the system all the way through regardless of winning or losing streak. You can initially try the system using fake money ( paper trades) and see how it works out. Paper trading will also help you tweak the system by reviewing the logs.

Setup two accounts. "Capital Account" and "'Profit_Account'". Initially when you start, all your money will be in "Capital Account" and "'Profit_Account'" will have a balance of $0. We have different set of rules for these accounts as capital account needs to be handled different than a 'Profit_Account'.

Rules for Capital Account

Rule #1. Do not invest more than 2% to 4% of the balance in a single trade.

Rule #2. No more than 2 active open positions at any given point of time. No matter how good you think a setup is, if you already have 2 active open positions, do not open a new 3rd position.

Rule #3. Do not ever buy all in in one go. Buy in 2 lots. For example, if you are planning to invest $400 in a call option, invest $150 first (1st lot) and when the position goes against you, get in using the remaining money and buy the 2nd lot. Basically we are trying to bring the average cost down. The 2nd lot purchase can be in the same direction of 1st lor or it can be in the opposite direction. It really depends on where the price is on the chart. And also, the 2nd lot purchase does not have to be for the same strike and expiry used for the 1st lot. We call the 1st lot as "Starter Lot" and 2nd lot as "Accumulation Lot". As a rule, never accumulate more than once on a losing position.

Rule #4. When you close/exit an open position, do not use the proceeds to trade the same day. Wait a minimum of 2 trading days before you enter the next trade using the proceeds

Rule #5. Please accept that you cannot win every trade. There will be losses. When you have a streak of losses, do no try to INVEST BIG with the hope that you can recover all the losses in one single trade. Doing this is the first step to your account getting wiped out. Please try to follow the process regardless of whether you are in a winning streak or a losing streak. Minor tweaks are okay.

Rule #6. Focus only on 3-5 Symbols. And trade just them and do not venture into new symbols irrespective of how good they look. They all look good only until you get in. So all that matters is following a process. Just because there are not good oppurtunities in your selected sysmbols, do not change them. Wait until you get a setup in your basket of selected symbols and stick with them.

Rule #7. Do not buy options that expire within 5 days. If the stock goes in opposite direction, time decay will wipe out your investment.

Rule #8. In options, new oppurtunities keep coming quickly. So when you miss something, or when you think you are little late, it is better to ignore and patiently wait for the wait for the next one. Those who learn the art of waiting will be very successful. Think of it is as "money not lost" is "money gained".

Rule #9. When you make a profit and if the capital account balance is more than your "initial investment level", withdraw 20% of the profit as your reward for hard work. Retain 40% in the capital account, and move 40% to "'Profit_Account'". Consider the updated balance in your capital account as the new dollar amount used as "Initial investment level".

Rules for 'Profit_Account'

Rule #1. If you have funds available in the 'Profit_Account', and if your capital account balance is fell below the "initial investment level", move the required funds required to bring the capital account balance to the "Investment Level" from the 'Profit_Account'.

Rule #2. Do not place any trades in 'Profit_Account' until the balance in the 'Profit_Account' reaches 3% of your balance in the capital account.

Rule #3. Do not invest in options that expire within 5 days

Rule #4. You may want to enter your trades in 2 lots as we did for our capital account. But this rule is not mandatory for trades made from 'Profit_Account'.

Rule #5. Only 1 active open position at given point of time.

Rule #6. After closing the 1st trade, regard less of what the balance is, you will move 20% of the balance to the capital account and invest the 80% in the 2nd trade.

Rule #7. After 2 trades, regard less of the overall balance is, you will move the entire balance in the 'Profit_Account' to capital account.

Rule #8. Repeat the steps, all over again. '

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