Best Practices

Proven strategies for consistent, profitable trading with EDISON.

Risk Management is #1 Priority

The 1-2% Rule

Never risk more than 1-2% of your account on a single trade. This ensures you can survive a losing streak without blowing up your account.

Account: $10,000
Risk per trade: 1% = $100
If stop-loss is 2% away: Position size = $100 / 0.02 = $5,000

This way: You lose max $100 per trade

✓

A professional trader protects capital first, profits second

Daily Loss Limits

Set a daily loss limit. If you hit it, stop trading for the day. This prevents emotional decisions after losses.

• 5% daily loss limit: Stop trading if account down 5% today
• 10% weekly loss limit: Reduce position size after bad week
• 20% monthly loss limit: Review strategy if down 20% in month

⚠️

The goal is preservation of capital. No single day is worth jeopardizing your long-term account

Position Sizing Formula

Position Size = (Account × Risk%) / Stop-Loss %

Example:
Account = $10,000
Risk per trade = 1% = $100
Stop-Loss distance = 3%
Position Size = $100 / 0.03 = $3,333.33

Trading Discipline

Have a Plan Before Entering

Before clicking "Buy", you should know:

✓ Entry price
✓ Stop-loss price (and why)
✓ Take-profit target (and reason)
✓ Position size (calculated)
✓ Risk:Reward ratio (should be 1:2 minimum)

💡 If you can't answer these, DON'T TRADE

Stick to Your Plan

Once in a trade, don't modify your stop-loss upward or take-profit downward because you"re emotional. EDISON follows the plan—so should you.

Rules:
✓ You CAN move stop-loss tighter (protect gains)
✓ You CAN take profit early if plan changes
✗ You CANNOT move SL further away from price
✗ You CANNOT hold hoping for better exit

Don't Average Down on Losers

If your trade goes against you, NEVER add more to it hoping to average down. This is how accounts get wiped out.

✗

Bad: Losing trade going -5%, add more hoping it reverses

✓

Good: Trade hits stop-loss, close position, move on

Proper Backtesting

Before Going Live, Backtest 3+ Months

Never trade live without seeing how your strategy performs in historical data.

npm run backtest

Look for:

• Win Rate: >50% is good (60%+ is excellent)
• Profit Factor: Gross Profit / Gross Loss >1.5
• Drawdown: Max loss shouldn't exceed 20-30%
• Sharpe Ratio: >1.0 is solid (higher is better)
• Monthly Returns: Consistent, not volatile

Test Different Market Conditions

A strategy that works in trending market might fail in sideways market. Test:

• Trending markets: Strong up/down moves
• Sideways/Choppy: Range-bound price action
• Volatile: High ATR, big wicks
• Different time periods: Bull market, bear market, recovery

💡

The goal is to find which conditions your strategy thrives in, then trade only those conditions

Forward Test (Paper Trading)

After backtesting looks good, paper trade for 1-2 weeks to see if it works in live market conditions.

Paper trading shows slippage, real market conditions, and your emotional response—things backtest can't simulate.

npm run start:paper

Live Trading Guidelines

Start Small and Scale Gradually

Your backtest showed 60% win rate? Great! But live results might differ. Start small and prove it works.

Week 1-2: Trade minimum position size
Week 3-4: Double position size if profitable
Month 2: Scale to normal position size

If losses: Reduce size, review strategy

Monitor Actively (First Month)

During the first month of live trading, check frequently (daily). This helps you:

• Catch bugs early
• Understand real slippage
• See how your bot handles anomalies
• Build confidence in the system

Track Everything

Keep detailed records of all trades:

• Entry price, exit price
• Stop-loss hit vs take-profit hit
• Market conditions (trending, choppy, etc.)
• Why you took/exited each trade
• Slippage observed

Review this data monthly to identify patterns and improve your strategy.

Have a Kill Switch

Always be ready to stop the bot immediately if something goes wrong:

• Unusual market conditions (flash crash, gap)
• Exchange connectivity issues
• Bot behaving unexpectedly
• Account behavior looks wrong

⚠️

Keep your laptop nearby during first month. Don't let bot run unattended.

Emotional Control

The hardest part of trading is emotional control. Here's how to manage it:

😤

After a losing trade

Take a break. Don't immediately re-enter. Your plan was good, sometimes markets are unpredictable.

🤑

After a big win

Don't get greedy and change your strategy. Stick to your plan. One good trade doesn't validate changing your system.

😌

FOMO (Fear of Missing Out)

You will miss some moves. That's OK. Your strategy only needs to catch some moves to be profitable. Don't chase.

😰

In a losing streak

Even 70% win rate strategies have losing streaks (5-10 losses in a row). Reduce size, stay patient, let the math work out.

Remember:

Trading bots like EDISON remove emotion from entry/exit. Your job is to trust the system and NOT override it with emotion.

Continuous Improvement

Monthly Review Process

1. Compile all trades from the month
2. Calculate statistics (win rate, avg profit, max loss, etc.)
3. Identify best performing days/conditions
4. Identify worst performing days/conditions
5. Make one change (only one!) and test it
6. Compare results vs last month

Questions to Ask

• Which strategy is most profitable? Focus on that.
• Which timeframe gives best results? Stick to it.
• Which times of day am I most profitable? Trade then.
• Am I following my plan? If not, fix it.
• Is this still matching market conditions? Adapt if needed.

💡 Key Point:

Small, consistent improvements lead to exponential gains. Focus on 1% improvements each month rather than trying to overhaul everything.

Golden Rules of Trading

1️⃣

Protect capital above all else

2️⃣

Follow your plan, don't override emotions

3️⃣

Risk 1-2% per trade, always

4️⃣

Be consistent, avoid overtrading

5️⃣

Backtest thoroughly before trading

6️⃣

Track and review all trades

7️⃣

Improve gradually, not drastically

8️⃣

Learn forever, markets change