Let’s talk about trading strategies. How to get an advantage over other players? Statistics show that 80-90% of people lose their money on results of year. Basically, because they disregard the rules of risk management; the absence of a clear idea of the market nature also plays some role.
If you were looking for information about trading, reading the books, then you were bound to meet some conflicting information. Someone says it is not necessary to set “the stop-losses”, while others – on the contrary. Someone, that “stops” should be big in order to avoid “market noise”, while some say, that they should be as much as «short» in order to improve entry accuracy. Some are trading over the trend, saying «trend is your friend», while others are making money, trading with anti-trend. Some say you can’t make money, using “manual trading”, while others are making a lot of money and energetically promoting their “miracle system” with a huge percentage annual.
If we classify strategies for entry and exit duration, then there are following possible strategies. Here are they:
- Short profit – short stop. Usually made on pulses. Breakouts and reversals on important levels. Despite the apparent attractiveness – the strategy requires a lot of focus and concentration. More relevant for robots, than for manual trading. Mathematical expectations may vary, depending on the instruments. With proper money management (MM) and strict abidance by rules, it may give not bad results. Basically, in this case there’ll be a smooth growth curve.
- Short profit – long stop. Very comfortable psychologically, but mathematically has no high score. The probability of positive trades can be very high. But the greatest disadvantage is that in the case of a stop, you can lose a lot of income during many periods. Having got a few stops in a row, it would be very difficult to restore. Since profit is much less than loss. It requires very tough MM & abidance by rules. With rare exception, such strategies are usually unprofitable or not sufficiently profitable.
- Long profit – short stop. Most traders are looking for such a strategy. From the point of view of mathematics, it can provide the greatest mathematical expectation. But there are a lot of psychological aspects, which are worth knowing. The first is that inputs are usually quite rare, according to such a strategy. So you can miss many movements. The second is that this strategy involves a large number of stops. And consequently, when you get the 5th or the 6th stop – there can be a situation, when you: а) start being afraid of opening a trade not to get another stop b) start opening trades and “optimize” inputs in such a way, that goes beyond the system c) start increasing stops d) take little profit e) early go in break-even zone f) all together. If briefly – not everyone can withstand such pressure. Imagine, rare inputs (for example, several times a month + series of stops) may lead to the fact that you can be broken in 2-4 months. Furthermore, such a strategy can barely be used well with algorithms. Not fully formalized strategy often leads to failure.
- Long profit – long stop. Suitable for many traders, but not all estimate it correctly viagra wo bestellen. All because that, using this strategy, it is not possible to use your capital in the full power. Accordingly, expectations of such a strategy can be very modest. If you use position sizes aggressively – you can very quickly lose the entire capital. From the point of view of expected value – this is not a bad option, but you need patience.
- Short profit without stop – it’s just a suicide, I wotn’ even write about it.
- Long profit without stop – is an investment. It is not suitable for trading. Bought & forgot. For years or even decades. We have a separate article about the comparison of trading and investment – read it to understand the advantages of each method.
There are such trading styles:
Trending strategy. Most choose exactly “Trend is your friend”, and according to statistics exactly good trend can give the best results in the ratio of profit / risk. But a good trend is only 10-15% of the time. Another 5-15% can be very sluggish trend, which resembles a saw with a slight slope. All the rest of the time it is a “saw” where you will have “stops” and shake. Therefore, if you use a style – you need to either have a very large range of instruments (e.g. shares of NYSE) or, if you are trading a few tools – be patient. Sometimes for several months there may no trend.
Antitrending strategy. As mentioned before, such “saw” is present on the market most of the time, so the antistrategy can be even more effective, than the trending one. But it is at first glance. In fact, you may also “break the stops”, as well as with the trending strategy, you can take profit more often, but the income will be significantly less.
You must decide what psychological style will be more comfortable for you. Both strategies are good, but in theory, “the trending strategy” has a lot more of the mathematical expectation, because some trends can be very strong and very long. «Antitrending strategy» is always a quick profit fixation. When used correctly – you can make money sure and reliable, but you “won’t set the Thames on fire “.
With Volfix program, you can see the turning points and trends much more accurate, than simply studying the bar chart. Notice how the bars are compressed, before they turn around, just like a spring.