Starting Up

When you begin trading your account for the first time, you must re­solve some "start-up" issues. Let us assume you are using a mechanical system, and trading 20 markets. The first question is how to put on trades to match existing positions of your trading system. For example, the last signal in deutsche mark may be a buy signal that occurred 15 days ago. Now, should you put on the long position, or wait for a new signal? You may not want to wait for the next signal if your system trades infrequently. Another reason to put on the trade immediately is to cap­ture the remainder of the current move. There are several ways to re­solve this issue. (1) You can trade just one contract instead of multiple contracts. If you usually trade ten contracts, you can initiate your posi­tion with just one or two contracts to enter the position cautiously. (2) You can scale into the position. For example, you would buy ten con­tracts gradually over the next 5 days. (3) You can wait for the last day of the month and put on the entire position on the close. The benefit of putting on the position on the last trading day of the month is that then

248 A System for Trading

the month-to-month equity changes will accurately reflect the actual system results.

You must also decide where to place your initial stop on a start-up trade. You can go with the usual initial stop at 1 or 2 percent of account equity. Your other option is to set it slightly wider than usual, but trade a proportionately smaller number of shares.