Bulls & Bears Pty Ltd - Drop Master
HOME EDUCATION ABOUT US TERMS & CONDITIONS FSG CONTACT US LOGIN CLICK TO JOIN
You are here: Home > About-our-Reports > Drop-Master > Drop-Master-Daily-Report-Explained

DropMaster REPORT:

THE DROPMASTER TRADING SYSTEM:

DropMaster is the second Bulls & Bears trading system offered to traders in the form of daily signals. DropMaster is a Mean Reversion Long System which scans the ASX 200 Stocks using proprietary algorithms to determine stocks which are technically strong, but show temporary short term price stress. Signals are generated & posted after market close each trading day. From these signals traders may place orders before the next ASX market open (good for entry on the next trading day only). DropMaster is designed to trade CFD's on on-line trading platforms but the signals may also be used to trade stock or options. The system is designed to make the most efficient use of available capital by taking only quality trades. A maximum of 6 trades should be open at a time, but up to 3 trades are permitted in any individual stock. This would mean that, if you had 3 trades open for FMG for example, you could only take 3 more trades in any stock (& no more positions in FMG).

Not all signals result in trades, as further price falls are usually needed to reach the specified entry price for each stock. This reduces the risk of trading losses. Once an order becomes a trade, the position is held until it either reaches a Target, a Stop or reaches the 7 trading day time-limit. This reduces the chance of down-side exposure & maximises usage of capital which may be used in other trades (DropMaster signals generate around 70% winning trades when traded as suggested)

How to Trade: Sample Signals:

Signals for the next Trading Day: In this case we are looking at signals generated on the 6th of May, for Order Placement on the 7th of May 2010.

The above Table shows a typical set of signals for LIMIT BUY orders to be placed with an on-line broker for the next day of trading. (this is the type of order you would usually place on your trading platform - see below for further information).  

Along with the table, a sample order placement is shown, making reference to the first signal in the table, ie.



As previously mentioned, athough the orders are placed, they may not become actual trades, as further stock price falls are usually required for our signals to be triggered. On the previous day (6 May) however, 2 signals were triggered. In this case the report provides a second table showing what to do next!



Once an Order becomes a Trade it needs to be monitored. This is achieved by checking with your on-line platform to see which orders were triggered & at what price.

NOTES:
If you had previously been trading, you would have been in ILU & FMG trades on the 6th of May already!

Question: So what to do about the signals for the next day?
Answer: Place them again at the new prices; you can have up to 3 trades open in any particular stock, but the maximum number of trades you should have open are 6 trades.

The Entry Signal for ILU on the 6th of May was 4.29. We triggered on open, as the opening price was actually 4.25, which was lower than our order price! This is the advantage of placing LIMIT BUY orders before market open!

The "Existing Order" table shows Emergency Stops in Red. These are not altered throughout the life of the trade (7 days). Targets for each trade are altered daily.
The table shows the number of days since the trade was taken to help you keep track. If the trade does not reach target after 7 days, you place an order to SELL ON OPEN at Market Price!

Trade Size Example:

If your Account size is $20,000, your "position size" per trade is no more than $8,000. (200 times the quantity per $100 of account size in the table)

Looking at the above table, the order quantity shown for CEY is  as 5.8613 stock per $100 of account size. The stock quantity you should order is 200 * 5.8613 = 1,172 stock. As the Limit Entry price for this share is $3.66, you will see that the total position size in this case would be $4290. This is because the "risk factor" has been applied to this order.

This is not the case with ILU on this date. 9.3184 stock quantity * 200 gives a total quantity of 1,864 stock. The Limit Entry price for this stock is $4.27, a total of just under $8,000 total position size.
Back to Home Page

 

Rules:

  1. Your account size determines the amount of CFD's of each stock you should order. Your "position size" for each CFD order should be no more than 40% of your total account. The purchase price taken by the broker is only 4% of your initial account value (the margin)! (We have tight stops so it's OK if the account has fallen in value as long as you stick to this figure).

  2. The quantity of stock you should order is shown in the report per $100 of your account size. In order to further reduce risk, an additional "risk factor" has been applied to this calculation which reduces position size in some cases.

  3. A maximum of 6 trades should be open at any one time. It is sometimes possible to receive 10 or more signals in one report. Be sure not to exceed 6 open trades. It is a good rule to set a limit of 4 trades to be taken in any one day! You should check with your broker to ensure this.

  4. There may be up to 3 open trades taken on different days for any one particular stock, however, the overall number of open trades should still be 6.

  5. All orders you place should be "Good for the Day" only, & should be placed before the commencement of trading. This is because you only want to buy if the price is right only on that day & stocks may slump temporarily at the start of trading.

  6. Emergency stops are placed as STOP SELL orders & set for the life of the trade. They should be closely adhered to.
    NOTE: If you have 2 or 3 trades of the same stock filled on different days, they will have different STOP SELL prices. (These are far enough below the initial LIMIT BUY order prices to allow movement before a "bounce")

  7. Targets are placed as LIMIT SELL orders & change daily. This needs to be linked to the emergency stop STOP SELL order above as an OCO (One Cancels the Other order). You need to adjust the targets every day before market open! Unlike your STOPS, Targets will be the same for trades taken on different days in the same stock! When the target is hit, you will almost always be in profit!

  8. Any stock purchase made on a specific date is closed out at open on the 8th day, by setting a SELL ON OPEN order. This cannot be executed on all platforms & you may need to call your broker!

  9. Reports include information on Targets, Entries, Exits & possible trades taken, but independent monitoring is necessary as there are sometimes too many combinations of trades to keep track of!

Subscribe

Download Sample Report

ORDER TYPES:

  • LIMIT BUY: The price you place an order at to buy a CFD position if the stock price FALLS to that price. If you place an order for a stock which is below the current price this is taken to mean a LIMIT BUY order on all platforms that we know of, but you should check to make sure if you are not familiar with the platform you are trading.
  • STOP LOSS: The price you place in the STOP or STOP LOSS box on the on line platform you use to exit the trade if the price goes too far against you.
  • TARGET: The price at which you take profit. This may also be referred to as a "limit".
  • OCO: One Cancels the Other. This is available on all on-line platforms & allows you to place orders so if you reach your TARGET that order is filled, but the STOP is then canceled. You don't want to still be in the market with an order which may trigger to sell a month later!!
  • SELL ON OPEN: Used to exit any stock you have held for 7 trading days at the start of the 8th day. The Target has not been reached so capital is used to trade other stocks that WILL reach target. You may have to phone these orders in, depending on your broker!

NOTE: Some types of orders may not available through all on-line brokers. Target type STOP SELL orders may be too far out of range for some on-line brokers! You should check the terminology used by your broker for different types of orders, as these definitions can also vary!

System Description - Factors that Reduce Trading Risk:

DropMaster is a Mean Reversion system [MR]. All possible risk has been mittigated to the greatest extent by the following factors:

  • trades only the top 200 ASX stocks [the best performers]
  • has tight stop losses
  • takes a maximum of 6 trades at any one time, deploying only 24% of available capital
  • has a 69% success-rate
  • has a 7 day time-stop to shorten the chance of a sudden drop in price of an individual stock
  • has been back-tested for 11 years [using the original ASX lists to eliminate survivorship bias] with positive results for all years
  • must pass a series of tests, including 2 out of 3 moving averages, short, medium & long time-frame [must be trending up]
  • a special reversion test
  • requires a prolonged fall, rather than employing a days down approach
  • has a momentum determination algorithm, which calculates when the fall is most likely to have reached a temporary low
  • has a much tighter stop-loss than most MR systems, due to some of the above factors
  • makes its highest profit when prices are highly volatile

Should you have any further questions please click here to email us.

Please read our Disclaimer

/SPAN> Bulls & Bears Report Pty Ltd

Back Email a Friend View Printable Version
 
Privacy Policy, Disclaimer and Financial Services Guide