The Daily Market Forecast... Stop-n-Start

Friday’s Blog Results: The suggested long never triggered but the short @ 4412 ran for 19.75 points.

Quick Tip: Stop-n-start.

All trading strategies have drawdowns (a protracted losing streak). The challenge is trading through it. You can’t stop thinking that it may “never come back” or churn for an extended period. Then you get FOMO and think if you stop now it will roar back and you’ll miss the gain. Obviously, these thoughts are destructive. Don’t go there.

What you should do is have Stop-n-start rules to follow. These are rules that tell you when to stop trading the strategy and when, if ever, to start up again. This will take the emotion out of the process. Apply these rules to the performance of individual strategies, not your whole trading account.

Here’s an example of a rule set (see graphic above):

1. Track the equity curve of the strategy.
2. Measure the drawdowns and select the longest you can tolerate.
3. The next time the equity drops to there, stop trading.
4. Go back and measure the distance to a new equity high, or some percentage of the move
5. Start the strategy once it repairs to that level.

While nothing in this business is foolproof, this technique has some edge. You’ll miss the big down moves and the following up moves, but that’s breakeven and inefficient anyway. The big benefit comes when the strategy has stopped working and you weren’t still trading.

Today’s Best S&P Futures Turning Points:

Short Level: Sell 4497.50 stop 4503.25.  

Long Level: Buy 4409.25 stop 4404.25.  

Trade well,

Mike Siewruk

P.S. Does your trade plan need a tune-up? Watch the Ultimate Trade Plan mini-course (free). Click here.