Trading The Trade 4 Cash System

The Trade 4 Cash system is designed to hold a portfolio of 10 stocks. In other words, each trade is sized to use 1/10th of the current account equity. This broad diversification helps to ensure adequate risk management, and to reduce overall equity drawdowns.

This is an actively-traded system - one that is affected greatly by commission costs. Since commission costs do affect net profits, I feel that total round-trip commission costs (buy + sell) should be 1% or less of the total trade size. For example, with a fixed $10 per trade commission fee, the total round-trip commission costs are $20. To ensure that total commissions are 1% or less of the trade size, the minimum trade size in this case should be $2,000. Thus for a total portfolio of 10 stocks, the total account size should to be a minimum of $20,000.

Low price-per-share commission fees, in lieu of fixed fees, are very effective with this system. The Trade 4 Cash Performance Charts assume a 1 cent per share commission fee. The average share price per trade for this system is roughly $11.60, so the "commission effect" of a 1 cent per share fee is less than 0.1%.

Buying Stocks

The buy side of Trade 4 Cash is very simple, and has one basic rule: Don't chase a stock higher! Each buy signal comes with a Buy Limit price. This is the maximum price that the system is willing to pay for a stock, and it is only willing to buy the stock on the day of the signal. So if the stock opens higher, and does not come down to the Buy Limit price anytime during the day, the trade is scrapped.

I have found that the easiest, most emotion-free way of setting my buy order is to enter a Limit Order at the Buy Limit price before the open, "Good for Day". I often get filled below this limit price, and if the order does not get filled during the day, my broker cancels my order at the end of the day. The other part of the buy signal is the Sell Target rice. Once a stock is purchased, the system wants to sell it at the Sell Target price or higher. This target price is calculated from each stock's level of volatility, as well as the overall market conditions. In other words, the Sell Target is 'custom-fitted' for each stock purchased. As soon as the stock is purchased, I immediately set a sell limit order at the Sell Target price, "Good til Cancelled."

Selling Stocks

Once purchased, a stock is sold by the system if it meets one of three criteria:

• 1. It reaches the predetermined Sell Target.
• 2. It triggers a sell signal using a combination of short-term technical indicators.
• 3. It has been held for a period of 1 month.