Starter System Rules

The Starter System is a simple trading strategy designed as a solid foundation that can be developed into more sophisticated systems.

Overview

The Starter System uses moving average crossovers to determine trade direction and implements volatility-based position sizing with trailing stops for risk management.

Opening Rules

The system generates signals based on the relationship between short-term and long-term moving averages:

Condition	Signal	Action
16-day MA > 64-day MA	LONG	Go long (buy)
16-day MA < 64-day MA	SHORT	Go short (sell)

Overtrading Prevention

The system will not open a new trade after a recently closed trade if both are in the same direction. This avoids overtrading in volatile markets where you might get whipsawed.

Example:

• You're long SPY and get stopped out
• A new LONG signal appears immediately
• The system will NOT generate this signal to prevent re-entering a losing trade

Position Sizing

Position size is calculated using a volatility-adjusted formula:

Notional Exposure = Capital × Target Risk% / Instrument Risk%

Position Size = Notional Exposure / Current Price per Share

Parameters

Parameter	Description	Recommended
Capital	Your total trading capital	Your account value
Target Risk%	Maximum capital at risk per trade	12%
Instrument Risk%	Volatility of the specific instrument	Varies by symbol

Instrument Risk Calculation

Instrument Risk% = Annualized Standard Deviation of Daily Returns (25-day lookback)

Example values:

• SPY: ~15-20% (moderate volatility)
• TLT: ~10-15% (lower volatility)
• QQQ: ~20-25% (higher volatility)

Position Size Example

Capital: $10,000
Target Risk: 12%
Instrument Risk (SPY): 18%
SPY Price: $450

Notional Exposure = $10,000 × 12% / 18% = $6,667
Position Size = $6,667 / $450 = 14.8 ≈ 15 shares

Closing Rules

Positions are closed using a trailing stop order with a calculated stop target price.

Stop Price Formula

For a LONG position:

Stop Target Price = max(Previous Stop Price, Current Price × (1 - 0.5 × Instrument Risk%))

Stop Calculation Example

Current Price: $450
Instrument Risk: 18%
Stop Distance: 0.5 × 18% = 9%

Stop Target Price = $450 × (1 - 0.09) = $409.50

Trailing Behavior

• The stop only moves up (for longs) or down (for shorts)
• It never moves against your position
• As price increases, the stop follows to lock in profits

Day 1: Price $450 → Stop $409.50
Day 2: Price $460 → Stop $418.60 (moved up)
Day 3: Price $455 → Stop $418.60 (stays, doesn't move down)
Day 4: Price $470 → Stop $427.70 (moved up)

Why Use the Starter System?

Purpose

The Starter System is designed as a simple foundation that teaches core trading concepts:

• Trend following (MA crossovers)
• Risk management (position sizing)
• Capital preservation (trailing stops)

Ideal For

• Beginners learning systematic trading
• Small accounts (starting with ~$1,000)
• Building a foundation before adding complexity

Limitations

• Not optimized for all market conditions
• May underperform in ranging/choppy markets
• Simple MA crossovers can lag price action

Future Development

The Starter System can be enhanced with:

• Additional filters (volume, volatility)
• Multiple timeframe confirmation
• Sentiment indicators
• Sector rotation logic

Implementation in Ody's Rope

The application automatically implements these rules:

1. Signal Detection: Monitors tracked symbols for MA crossovers
2. Position Sizing: Calculates recommended shares based on the formula
3. Stop Management: Adjusts trailing stops based on the closing rules
4. Notifications: Alerts you when signals are detected

Remember

The system provides recommendations - it does NOT automatically execute trades. Always review signals before taking action.