Developing your trading strategies, suggestions

Beginner Questions
1

Hello all,

Since I started I’ve been a total bomb and I realize why - I did not approach trading in a very structured way - more like “oh look, there’s a head and shoulders”, “Let’s take a trendline bounce”, “get on top of the range”, etc. Stop placement was more pip based than technical level, etc. You might say it was a period of wild experimentation and a search for soul.

My discipline went through its early stages of idiocy (loosening stops, adding to a loser, etc), and I understand all too well its importance. My biggest problem is strategy and structure.

I am trying right now to work on developing concrete, well defined trading strategies. I don’t want to call it a “system”, because it seems that my personality is ill suited to absolute blind execution of a system (esp. one that heavily leans on technical indicators). I’m more of a person who likes to have the ability to make a determination on the spot, not simply work like a computer program. I also think that as the market changes, a person can adapt better if adopting a discretionary approach rather than a very rigid system.

That said, does anyone have any advice how you developed your strategies? I would imagine one way is to take a look at what’s already out there that suits your personality, and begin modifying it in a way that works optimally for you.

My approach right now is to develop three basic strategies: trend, momentum breakouts (news), and range oriented.

My philosophy is that first I need to do “pre-screening” every day, that is:

  1. Identify all relevant support/resistance levels and trendlines, check what is happening on the weekly, daily, and four hour, see where the 200 pd moving average is sitting.
  2. Check for news release times, in order not to get stuck in a trade during an important announcement,
  3. Determine which pair is trending, ranging, or consolidating at the moment.

After that, I need to identify what strategy would be appropriate for which pair at the moment, the trend strategy, the momentum breakout strategy, or the range strategy. Then, look for the setups as they develop, and act on them.

How is that so far?

Thanks for any and all suggestions…

2

I think it’s a great starting point but I would tackle one strategy at a time. Like work on your momentum strategy until it’s successful and you are able to make positive trades on a consistent basis, then go to work on the range strategy. If you try to work on all three at once you may get confused or flustered. It happened to me when I was trying to work out a daily trading strategy with a 4h strategy.

Best of luck to you and keep us posted.

3

I see. Yes, one of my weaknesses is trying to do too many things all at once. That is a big problem I’ve had with trading. So much information to absorb it will drive you insane. Another big problem - waiting for the right setups. That can really try your patience!

4

Agreed.

What times do you trade and over what time period if you don’t mind me asking.

5

I really tried for a while to chill out and do the daily and four hour candlestick thing, but I find I just don’t have the patience for it, partly because its just so easy for fundamentals to come out and destroy your trade. Everything can be going great, then Bernake hiccups during a speech, or while you’re sleeping some Chinese official says the dollar sucks and they’re going to dump it all, and your nice long candle with a 120 pip profit just turned into a doji, lol…

Consequently I find that I can only focus on 15 minute charts. They offer more setup opportunities, and that makes me happy. I want to be in for a nice 40-50 pip move, 1:2 risk/reward, and be done at the end of the day.

I have started forcing myself to be at the desk by 8 am EST, so I catch the NY-London overlap. Trading the afternoon NY and the Sydney session is like watching molasses flow, plus the market makers play their stop running games. You may think you need a 10 pip stop in a quiet market, but in reality what I think ends up happening is you need to simply maintain the same stop as in a liquid market, while getting a worse profit. I think trading from 4 pm to 7 pm is just asking to be killed, unless you know how to get in on the stop runs (Augusto Silvani talks about that in his book, “Beat the Forex Dealer”, Boris Schlossberg also has some ideas on that).

So that’s my game, basically. My target is to make 10% a month (starting with breakeven each month, then to 5% a month, then 10%). Eventually, when I get this down, I want to target a consistent 25% a month. If Martin Schwartz could do it, so can I…

6

Personnaly I had this ego in the past, now that I am wiser, I would just go with automated trading systems :slight_smile:

7

I guess the idea of something automated is still difficult for me to grasp. I mean, sure you can back-test it, but just blindly executing a system on a computer is a bit tough for me to handle. What if today is the first day that your system is no good anymore? You’re going to take a 20% drawdown to find that out?

8

20% drawdown means nothing by itself. It depends on the kind of system. You’re reasoning only by your own psychological suffering threashold for which the market doesn’t care :slight_smile:

9

You have a point, of course. But I still can’t bring myself to the necessary comfort level - not yet anyway, since I’m new to this game. I think that traders, when they get very good, and spend a lot of time in front of the screen, can probably get a good sense of market rhythm, and respond to it. Scalpers in particular seem to be very good at this, its the whole floor trader approach to trading.

Who knows, its entirely possible I’ll be agreeing with you in a few months or years, I don’t discount that :wink:

10

In science there has been a revolution called quantum mechanics where “reality” becomes a wave probability. Some people just couldn’t get accustomed to that idea, same kind of problem in trading: you cannot accept that sometimes market’s or trading system deviation can have a probability distribution queue :smiley:

11

See I tried and tired to trade smaller time frames but I just can’t do it lol, I end up over trading. I can be patient with the 4hr’s and Dailies, I guess it’s just my style.

I completely agree with you about the second half of NY being soo dead. I don’t even bother to look at it.

12

Dear Sir

I really agree with you about a system for trading. It removes any emotional bias from the game. My question is trading systems only available for short term trading

Also what mechanical trading system do you use?