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Systematic ASX Power Setups – Frequently Asked Questions

The Systematic Power Setups are designed for self directed traders looking for short
term trading opportunities based upon a tested strategy. This strategy is a common
‘breakout’ method that attempts to identify new trends as they start.

This is a compilation of common questions and is designed to offer you a better


understanding of how this trading strategy operates.

When are the patterns updated?


All ASX analysis is completed after the market closes each evening. An email will be
sent when completed, usually about 9pm Eastern time.

How many trades are there each night?


This will vary depending on market conditions. In strong bullish situations we will
see a myriad of opportunities whereas is in bearish times we’ll see a lot less.

I don’t have enough capital to take all the trades?


We understand that there are quite possibly too many trades to take at certain times.
Our recommendation is to use the “% Risk” where best results will tend to come from
stocks exhibiting a lower score. Also using leverage can allow more trades to be taken
but you need to fully understand the risks associated with using leverage.

Do I need software?
No.

Why don’t you show the specific charts of each setup?


Because this is a systematic approach the look of the chart of no importance to the
trade. We follow a rigorous set of rules based on mathematical algorithms, not chart
patterns.

What data provider do you use?


We use and recommend Norgate at www.premiumdata.net

How do you find the setups?


The trading system being used here is programmed into Amibroker.

How do I enter a trade?


An entry is made when prices penetrate the trigger on an intra day basis. We do not
wait for a close beyond the trigger price.

Do I have to watch and wait for this to happen?


No. Most brokers offer a ‘stop entry’ order facility which will allow you to enter the
trade without watching the intra day price action.
My broker doesn’t offer that facility?
Change brokers. WATCH ORDER PLACEMENT EXAMPLE

What brokers do you use?


We use three brokers; Interactive Brokers, MF Global and Macquarie. Many brokers
offer different services. Take the time to do your research and ring the brokers for a
list of their services and charges.

My commissions are too high for short term trading?


You should consider your goals and whether this type of trading is appropriate for
you. If you think it is, then its best to change brokers and find one that offers the
lowest rate. If not you may wish to consider the Growth Portfolio that has lower
trading costs.

If I miss an entry should I try again even though the price is higher?
No. If you miss a trade we recommend you simply wait for a new trade setup.

Can I enter and exit at different levels than you suggest?


Of course, but you are not adhering to the system signals and therefore will not show
results aligned with the historic parameters.

Where do I place my protective stop?


At the Initial Stop Price level

I missed placing my protective stop. What should I do?


Exit the position at the next best price.

Can I use a CFD provider for the trades?


Yes. However, you will need to take into account your level of experience with regard
to leveraged products as well as any additional expenses involved using CFD’s.

Can I trade the Power Setups using options?


We do not recommend the use of options for a number of reasons. Firstly many of the
Power Setups do not have options attached. Secondly, the nuances of option pricing
dictate that results could differ considerably.

Why are there no profit targets?


This is a classic trend following strategy that does not attempt to forecast future price
movements. Our goal is to follow the market and react to its twists and turns. This
way we will ride extended trends when they show and exit losing positions quickly.

How many trades should I take?


Simulated testing has been done basis 20 positions. Ideally you should attempt to
replicate this as best as possible but we also understand that position management can
become complex. Some broker platforms (such as Interactive Brokers) make trade
management easier than others. However, it is also strongly recommended that risk is
kept to an absolute minimum when taking many positions.

I can’t take all trades, so how many should I take?


Ideally 10 with no more than 1% risk per trade.

As a new trader, which trades should I take?


A pure trend follower does not distinguish between one trade and the next. They all
represent the same risk/reward opportunity. However trades that have the lowest “%
Risk Filter” will offer bigger risk adjusted returns over the long run.

How much capital should I start with?


Our philosophy is ‘more is better’. The major drag on an account is commissions. If
your account is too small then this drag can be detrimental to your success. Trading
with a larger account allows more positions and less risk allocated to each.

How much risk should I use?


You should not use more than 1% per trade, but we operate at 0.5% to 1% ourselves.
This allows us to make more trades yet trade at a more comfortable level. Trading
longevity is the cornerstone of success. The more you risk, the greater the chances of
failure.

What do you mean by 1%?


It’s vitally important to equalise all trades so their impact, especially losses, will
always be the same on the account. We do not discriminate between one trade and the
next. The only way to do this is calculating the loss as a percentage of the account
balance. The technical term for this is Fixed Fractional Position Sizing. Read more
about Position Sizing

How much of my account can I expect to lose?


Losses are inevitable with trading and there is no solution. One must accept losses as
part of the journey; however, the degree of losses, known as Maximum Drawdown
(maxDD), can be defined to some extent. The core rule is that the more you risk, the
larger the losses could become. To calculate for maxDD one needs the winning
percentage of the system being traded and the risk taken per trade.

In the table below the vertical column designates the win rate of the system being
traded. The horizontal row is the theoretical maxDD that a user is comfortable with.
The output values are the maximum risk per trade that should be used to remain
below the maxDD level.
Maximum Drawdown
10% 15% 20% 25% 30% 40% 50%
30% 0.35 0.54 0.74 0.95 1.18 1.69 2.28
W 35% 0.42 0.65 0.89 1.14 1.42 2.02 2.73
I 40% 0.50 0.77 1.06 1.36 1.68 2.40 3.25
N 45% 0.58 0.90 1.23 1.59 1.96 2.80 3.78
% 50% 0.66 1.01 1.38 1.78 2.20 3.14 4.24
55% 0.75 1.15 1.58 2.03 2.52 3.58 4.83
60% 0.87 1.35 1.84 2.37 2.93 4.17 5.61

The Systematic Power Setups are expected to fluctuate around the 40% to 45% win
rate; therefore you should choose a risk per trade level that is aligned with your
maxDD tolerance.

I would like a higher winning percentage?


We all would, but the truth of the matter is that a higher winning percentage is
diametrically opposed to the win/loss ratio. With this we can actually prove that
higher profitability is achieved from a higher win/loss ratio and not the higher
winning percentage. A higher winning percentage may make you feel like a better
trader but it doesn’t necessarily equate to making more profits.

I have taken 5 trades and have had 5 losses?


Losing streaks are also inevitable with trading, regardless of how good the system is.
Even if a system has a 90% winning percentage, you can still suffer 5 losing trades in
a row which in turn suggests you still need to keep risk to a minimum on each
individual trade.

The following table shows probable streaks based on 50,000 trade iterations.

Win % Probable
Streak

30% 30
35% 25
40% 21
45% 18
50% 16
60% 12
70% 9
80% 7
90% 5
Why don’t you post your performance record?
At times it will be impossible to take all trades and therefore it’s not possible to offer
an accurate track record.
Despite this, we have included robust Monte Carlo simulation testing back to 1997 to
give you some insight of what the system is and is not capable of doing. Past
performance can never be an absolute accurate guide to the future, but this is as close
as we can come.

Should I trade the Discretionary Signals or the Systematic Signals?


Each person is different when it comes to their trading psychology. Some can
associate well with simple chart patterns and like to understand what and why they are
making the trades. Others feel it more important to have a set plan to be followed and
one that has been rigorously backtested to ensure that a positive expectancy will be
had over the longer term.

Can I trade both?


Of course but we advise not to get too over extended in one direction (namely the buy
side) in case the market reverses sharply.

How do you calculate the Daily Trend and Momentum Filters?


These are not disclosed but they are based on a two moving averages, a Relative
Strength measure and two time frame components.