EP-Space Trading Philosophy

The objective of the EP-Space strategy is to ensure that no trade ever results in a loss. By this, I mean I aim to close every position at a higher price than the average purchase price. For profitable trades, I will apply an anti-martingale approach, while for unprofitable trades, I will employ a martingale strategy to recover and ultimately turn them profitable.

Initial Entry Rules

Positions will be initiated when market indicators signal a BUY signal, but only if there is “price confirmation.” Entries will be made using a stop order, which will be placed at the previous day’s closing price plus 0.875 times the median daily true price range over the past 84 trading days.

• Position Size: The size of each position will be 10% of the model account size. For an initial account balance of $50,000, this means $5,000 per trade. The number of shares/contracts to buy will be calculated by dividing $5,000 by the stop entry price, rounding to the nearest whole number.
• Position Limit: No more than five positions can be open at any one time. No new trades will be entered until there are fewer than five open positions.

Trade Management for Profitable Positions

The primary purpose of stop loss orders is to lock in profits and protect against losses, which aligns with the anti-martingale strategy for profitable trades.

• Trailing Stop Loss: For profitable positions, a trailing stop loss will be applied. The risk amount for the stop loss will be calculated as 0.875 times the median daily true price range over the past 84 days.
• Stop Loss Adjustment: The stop loss will be set at the previous day’s closing price minus the risk amount (for long positions). This stop loss will be updated at the end of each trading day and will not be adjusted upward during the trading day.
• Triggering Profitability: The trailing stop loss will begin once the stop loss price exceeds the average purchase price, making the position profitable. As the position continues to move in the desired direction, the stop loss will adjust, ensuring the position remains profitable when it is eventually stopped out.

In some cases, trades may be closed early if the market indicators issue a SELL signal. If this happens, the entire position will be sold, regardless of whether the stop loss has been triggered.

Trade Management for Unprofitable Positions

The martingale approach will be used for unprofitable trades to eventually bring them into profitability. The concept is inspired by the AIM (Automated Investment Management) strategy, which allows for averaging down and lowering the overall cost basis of an unprofitable position.

• Holding Unprofitable Trades: Unprofitable positions will be held until they become profitable. There are no expiration dates for stocks, though positions can theoretically go to zero if a company goes bankrupt. While this is rare, it is something to be mindful of.
• Averaging Down: If the closing price of an unprofitable position falls 20% or more below the average purchase price, additional shares will be bought to lower the average purchase price. The number of additional shares purchased will be equal to twice the percentage decline, times the initial position size ($5,000 for the model account). For example, if the stock’s price is 25% below the average purchase price, the amount to reinvest would be 50% of $5,000, or $2,500.
• Multiple Averaging Downs: This process can be repeated as necessary, with each additional purchase lowering the average purchase price. The position will not be exited until it becomes profitable.
• Position Limit: To manage cash and avoid overtrading, no more than five open positions will be allowed at any one time.

The goal of this strategy is to ensure that each position ultimately becomes profitable, either through trailing stop loss mechanisms or by averaging down on unprofitable positions until they recover. The key is patience and disciplined trade management, while maintaining a limit of five open positions at a time to ensure the model remains balanced and avoids excessive risk.