Contents:
- Applying the Modified 10-Step Trading Plan
- Lessons Learned
- Action Plan for the BETA Account
The second day of our BETA Account testing provided a critical lesson: while executing tactical entries and exits is important, factoring in transaction costs (friction costs) is essential for realistic and sustainable trading. By aligning our experience with our Modified 10-Step Trading Plan, we can better manage costs, improve profitability, and reduce capital erosion. Here’s what happened and how we’re adapting.
Annotated 5-minute chart of URC showing tactical entries, exits, and stop-loss levels on January 16, 2025, with key lessons on transaction costs.
Applying the Modified 10-Step Trading Plan
Step 1: State
We began January 16, 2025, with 110 shares of URC in the portfolio and the potential to re-enter 100 additional shares. Following yesterday’s tactical exit at Php 70.00, our focus was on observing the market open for opportunities to rebuild the tactical position near key levels.
Step 2: Position and Location
The day opened with a gap-up and a strong green elephant bar, moving above Php 70.50 (key support level). The price quickly rose to Php 71.20, supported by increasing volume and a rising 20-MA. This positioning indicated bullish momentum, but resistance near Php 71.50 was already identified.
Step 3: Assess Power Bars
The green elephant bar at the open was followed by smaller green bars, showing strong initial momentum. However, as the price approached Php 71.50, the candlestick range began narrowing, and volume started to decline—signaling potential buyer fatigue.
Step 4: Entry
We executed tactical re-entries as follows:
- 20 shares at Php 70.85 after the first green bar.
- 80 shares at Php 71.20 during the continued rally.
While these entries aligned with the momentum, they were frequent and at relatively high levels, which compounded the impact of transaction costs.
Annotated 5-minute chart of URC showing tactical entries.
Step 5: Place and Monitor Stop Loss
We placed our stop-loss at Php 70.10 for all positions to minimize potential losses if the market reversed below the key support level of Php 70.50.
Step 6: Color Change
At approximately 10:30 AM, the price action began to show signs of weakness:
- Narrow-range red candlesticks formed near the Php 71.50 resistance.
- Volume decreased, indicating fading buying pressure.
- A clear color change from green to red signaled the end of the upward momentum.
Step 7: Profit Take (with Tactical Exits)
Following the color change, we executed a tactical exit of 100 shares at Php 71.50, locking in small gains from the rally. This exit aligned with our pre-identified resistance level but didn’t fully account for the impact of transaction costs.
Step 8: Re-entry
After the tactical exit, no further re-entries were made as the price showed weakening momentum. However, hindsight suggests avoiding the initial multiple re-entries at higher levels (Php 70.85 and Php 71.20) to minimize transaction costs and risk.
Step 9: Tactical Position Management
By mid-day, a sharp gap-down occurred, breaking below the 20-MA (Php 70.94) and the key support level (Php 70.50). Based on our plan, this should have triggered our stop-loss at Php 70.10, prompting an exit of the remaining 110 shares to preserve capital.
However, due to execution challenges, we were unable to exit at the planned stop-loss level and instead carried the 110 URC shares until the market close, exposing the position to further downside risk. This unexpected hold reinforced the importance of strict adherence to stop-loss execution and the need for proactive order placement to manage risk effectively. Moving forward, we will refine our execution strategy by:
- Using automatic stop-loss orders instead of manual execution to ensure timely exits.
- Monitoring price action more closely near key levels to avoid missed sell opportunities.
- Implementing a contingency plan for managing positions when rapid price movements occur.
This experience underscores the critical role of disciplined position management in preserving capital and maintaining the integrity of our Modified 10-Step Trading Plan.
Step 10: Counter-Trend Entries
Given the bearish reversal and high selling volume, no counter-trend entries were considered. The focus shifted to protecting capital and re-assessing the strategy.
Lessons Learned
Transaction Costs Are Real and Impactful:
- With a Php 1.00 break-even differential, small price movements are insufficient to generate net profits after fees.
- Frequent re-entries at tight price ranges compounded costs, leading to capital erosion.
Optimize Tactical Actions:
- Instead of multiple small re-entries (e.g., Php 70.85 and Php 71.20), consolidate trades into fewer, larger positions at key support levels.
Focus on Wider Price Differentials:
- Future tactical trades will only be executed if the potential price movement exceeds Php 2.00, ensuring profitability after costs.
Refine Profit-Taking and Re-Entry Strategies:
- Avoid re-entries near resistance levels (e.g., Php 71.50) unless clear signs of continued upward momentum are present.
Preserve Capital During Reversals:
- The stop-loss at Php 70.10 effectively limited losses, highlighting the importance of disciplined risk management.
Strict Stop-Loss Execution Is Essential
- Failure to execute the planned stop-loss at Php 70.10 resulted in unnecessary downside exposure, reinforcing the importance of following the trading plan without hesitation.
- Use automated stop-loss orders instead of manual execution to prevent missed exits during rapid price movements.
- Always have a contingency plan for market volatility to ensure capital protection, even if price action moves unexpectedly.
Action Plan for the BETA Account
Limit Trading Frequency:
- Cap the number of transactions to 4 per week to reduce friction costs and focus on high-quality setups.
Target Wider Price Differentials:
- Only execute trades where potential price movements exceed Php 2.00 per share to offset transaction costs.
Strategic Position Sizing:
- Consolidate tactical entries into fewer, larger positions at key levels (e.g., Php 70.00 or Php 69.80) to improve cost-efficiency.
Re-Entry Discipline:
- Re-enter positions only after confirmation signals (e.g., green candlesticks with strong volume at support levels).
Enhanced Stop-Loss Placement:
- Align stop-loss levels closer to key technical levels (e.g., Php 70.50 or Php 69.80) to minimize unnecessary exposure.
Disclaimer: This post is for informational purposes only and should not be considered financial advice. Always do your own research before making any trading decisions.
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