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4 Steps Trading System

 

 

4 Steps Trading System

Users Manual

Complete 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.


Inputs

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) format.

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 targeted exits

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 2.

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 3.

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 this feature.

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.

Break_Even_After_Target_1_On1_Off0: This 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 this feature.

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.


Tick Charts

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 unprofitable trades.

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
712.830.5062
jclayburg@iowatelecom.net
www.clayburg.com