4 Steps Trading System
4 Steps Trading
System Inputs Video
The 4 StepsTrading
System was designed principally for use as a day trading
/ swing trading system for stock index futures and spot
currency exchange (forex) markets.
The significant array of inputs in the
system allows the user to create a specifically designed
trading strategy that will fit well with most individual
personal trading styles.
Entry Inputs: Due to the complexity of
the trade generation formula
( using Momentum, MACD, RSI and Stochastic ) there are
no user selectable entry parameters available for the
Four Steps Strategy. These parameters are embedded in
the strategy for each item being traded.
All input times must be entered in 24 hour (military)
Start Time: The time after which trading
signals may be generated each day. This input sets the
starting time for generation of new trades only. Exits,
including stop outs and specific target exits, will be
executed at any time independent of start or end times.
End Time: No new trades will be generated
after End Time. For example, using the first two inputs,
setting the start time to 830 and the end time at 1430
restricts new trade generation to the time period between
8:30 am and 2:30 pm.
End Time also sets the time at which all
trades will be closed out for the day. Setting this value
at a time less that 2400 will result in the strategy being
used as a day trading strategy. Setting this input to
a value greater than 2400 will create a swing trading
strategy. See ‘Tick Charts and Timing’ below for additional
information if tick charts are being used.
These two inputs set the starting time
and ending time for generation of new trades only. Exits,
including stop outs and specific target exits, will be
executed at any time independent of the start or end times
set by these inputs.
Initial Position: The number of contracts (futures), lots
(Forex) or shares (equities) that will be opened upon
the initiation of each new position.
The system has built in targets that can
be used to partially exit positions at three separate
points. The next 6 inputs set the parameters for these
Target_1_Contracts: The number of positions
to be exited when the market reaches the target1 objective.
Target1$: The dollar profit target level
for target 1. The designated number of contracts, lots
or shares will be exited at the entry price plus the target1
value for a long position or the entry price minus the
target1 level for a short position.
Target2: The profit target level for target
Target_2_Contracts: The number of contracts,
lots or shares to exit at the target 2 level.Target3:
The profit target level for target 3.
Target3: The profit target level for target
Target_3_Contracts: The number of contracts,
lots or shares to exit at the target 3 level.
Target1_Trail$: This exit input sets the
dollar amount of a trailing stop that is activated when
target1 is reached. Setting this input to zero disables
Initial_Per_Contract_Stop$: Sets the initial
per contract stop in dollars. Setting this input to zero
disables this feature.
New_Stop_After_Target1$: Sets the new stop
for all remaining contracts after target 1 is reached.
This effectively can bump up the stop to a lower stop
out level after achieving target 1. Setting this input
to zero disables this feature.
This system offers the opportunity to set
daily profit objectives, known as the ‘equity out’ feature
since you are taken out of the market when a given equity
level is achieved. When a given net profit level is reached
a trailing stop is placed such that the current profit
for the day minus a trailing amount will be the minimum
profit to be realized for the day. The next two inputs
set the parameters for this feature.
Equity_Floor$: The amount of profit during
the session that must be reached to engage the trailing
stop on the amount of profit for the day. Setting this
input to zero disables this feature.
Equity_Trail$: The trailing stop for the
amount of profit for the day. Setting this input to zero
disables this feature.
For example, if Equity_Floor$ = 1250 and
Equity_Trail$= 250 settings are used the following would
occur. When the total net profit for the system during
the current 24 hour period reaches $1250.00 a $250.00
trailing stop is automatically placed and maintained $250.00
below the highest equity achieved for the day. This effectively
places the minimum profit for the day at $1000.00. However,
if the system goes to a higher value net gain the minimum
profit for the day goes to the highest equity for the
day minus $250.00.
When the system exits as a result of the
equity out sequence detailed above there will be no more
trades generated for the remainder of the session.
The system also offers the option of moving
the stop loss to breakeven after the target 1 exit has
been reached. The next two inputs set the parameters for
the breakeven exit.
input enables or disables the target breakeven feature.
If it is set to 1 the feature is enabled. Set it to 0
to disable this feature.
Fade_Breakeven$: The amount of profit to
add to the breakeven stop. For example, one could enter
an amount necessary to recover any transaction costs encountered
for the trade here to assure these costs are covered if
the breakeven stop is executed.
Day_Loss$_Per_Contract: When the total
loss of all trades for any given day reaches the $ value
of this input all positions are closed and all trading
stops if the losses become greater than the 'day_loss'
input. This activates on a 24 hour basis meaning that
if the system is stopped out on a day loss situation it
will not take trades until the next calendar day occurs.
This may effect the way in which some of you use the system
when trading overnight. Setting this input to zero disables
Entries_Per_Day: This input sets the maximum
entries per day for the strategy. Use this input to limit
the number of trades per day.
By using tick charts, time is effectively
removed from trade generation calculations. Since tick
chart bars are created each time the designated number
of price changes have occurred the actual market is represented
on the graph uninfluenced by an artificial time parameter.
Timed (5 minute, hourly, etc.) charts form their price
bars at the conclusion of a designated time value. During
quiet market periods many bars can be formed from little
or no price activity. Since the system analyzes the market
on a bar by bar basis these inconsequential bars can improperly
influence trade generation resulting in multiple consecutive
Tick Charts and Timing
Although time is effectively removed from
trade generation equations by using tick charts, it is
still possible to effectively constrain the system using
start times and end times. Users are to be cautioned that
setting the end time in close proximity to the end of
the actual market could result in trades not being properly
exited at the end of the session as desired. Recall that
each bar is completed as the required number of price
changes have occurred. Since the program executes commands
only upon the closing of a bar the situation can arise
whereby the bar on which the trade is to be closed may
not completely form at the end of the session resulting
the command to close the trade not being generated. Users
are encouraged to closely monitor the setting of the end
time bar during system testing to assure that trades are
being properly exited at the end of the session if it
is your desire to do so.
Tick Charts and Testing Results
System users frequently compare historical
or real time trading results with the developer or other
system users. Keep in mind that tick chart bars are formed
when the designated number of price changes has been received
by the host computer running the system and that trade
generation is dependent on specific bar formations that
occur during the session. Also consider that each computer
running the system may have varying calculation capacity
due to processor availability, the amount of RAM in the
machine, the number of charts open and other processes
that could be operating simultaneously. Also, it is likely
that each computer will have data connections that are
of varying speeds attributable to all the factors that
impact internet efficiency.
The result of these situations is that
each computer running the system on the same chart will
be doing so with varying chart patterns and therefore
slightly different trading results. Significant research
confirms the existence of these differences and has not
been successful in discovering a solution. Users are encouraged
minimize the time and effort required to compare trades
as the usefulness of any information gained from this
task is highly likely to arise from situations beyond
the control of the system or the trader.
Questions, Comments, Support Requests:
Dr. John F. Clayburg