Strategy: You can define how best to achieve the desired objectives. Before that, you should know what your goal: to think this activity as a business. This is not about winning in the market but how to win it and how to make this profit sustainable over a period of time.
1) Basic principles of a strategy
Most people who are doomed to think that trading is an appropriate strategy on how to enter or exit the market then combines several moving averages, indicators, or combine some key reports from a previous interpretation, this course is part of the strategy, however is not the whole, occupies only a percentage that is awarded a total of 33%. In this chapter we call Technical trading systems or understood as devices that use mathematical indicators that provide a Trigger (trigger-market) to enter with a positive expectation about the chances of success of the raised position.
1. Measure of leverage right investment to make your stop does not lose more than a predetermined percentage% of its capital in advance to adjust for that amount of points your stop and have it match that amount.
2. Asymmetric leverage in favor: do not use martingale strategy types (twice each time I lose my bet) to win small amounts first before increasing the portion of money in the market. Thus no capital risk, only gain.
3. Risk assessment system of trading, the expectation of the system must be greater than 65%
4. Wait, wait their chance to know: You only handle the conditions and term of where the market is not dependent on others you
5. Keep your system or device to market entry and exit in a simple and simple: Some people think that the more tools to use on my graphics get better results. This may be possible, however a high degree of sophistication not often synonymous with best results since the reading of your system you can make mistakes, the more the system requirements have more collateral interpretations may have, at this point we must not confuse sophistication with positive probability of success.
First let's see the components of a Trading System
A trading system requires the collaboration of a number of tools. The first thing we must have is a device: This can be an indicator or more of them working together: Example Stochastic, MACD and moving averages. Then we need to make a matrix.
Composed by:
1. Display
2. Hypothesis
3. Sampling
4. Measurement
5. Weighting
6. Positive Expectation:
Visualization is the preparation stage of the scenario is where they meet a certain amount of empirical data and evidence that lead to proof that a background with a consistent line. This is for example if a system crossing SMA (Moving Averages) fulfills its mission to predict the future behavior of a curve prices.
Scenario: It is up to the evaluation of the results of the visualization over the preparation of the statement of the hypothesis. For example:
We want to verify that the data supplied by the crossing of two moving averages will result in 70% effective operations between winning and losing.
Taking a sample - Agreeing with the statement of the hypothesis it is necessary to hold an amount of data taken from the last graph of prices that allows us to verify the effectiveness of the device you're using. This should dump the data to an array of checks and take samples of the price data with a specific methodology and uniform rules to avoid unwanted deviations and thus distort the outcome of the study.
Measurement is the process of taking the sample under the uniform rules laid down before: For example in our case the crossing of MA conditions and form of the cross, that angle of penetration will be assessed in a cross to enter the Matrix check number of crosses to be taken into account and so on.
Weight: is the ability to extract the results of measurements taken before and placed in the matrix, the frequency of successes and failures in terms of statistical measures, the amount of drop down sequence of successive failures, the system Profits and losses from it. Variables that affect the behavior of the model and the possibility of transferring to the future. Evaluating a logic variable with the amount of losses that can take the system to cut time. As you would in real time.
Positive expectations: the expectation of success is a given sequence in a reasonable amount of time according to the trading strategy proposed by the operator. So is the expectation that the yield, number of operations against the winners losers in a given time. Nothing of a system that would yield a 100% chance to gain but which gives a year. Therefore the profits must be positive and distributed a number of signals in the time of a harmonica.
(See the topic "expectation")
They should also establish a trend, or cycle opposite solution.
Trend: When the market is on lateral movements, you must have a device to accompany you to take advantage of the directional mode takes price corrections. Contrary to this trend, to detect these movements is always good to use one or both MACD combination of moving averages that reflect the short medium and long term and their crosses e.g. 5, 20, 50 MA.
Against trend: as advanced in the previous paragraph are all trend reversals or corrections opposite solution (profit taking). Many systems rely on the use of these movements: for example a pivot system, which averaged maximum prices, minimum and contemplating closures, also supports math and resistance:
Points serve as the pivots at the entrance and exit, while estimates based on the previous day, also used these quite a week or month. The fundamental principle which underlies the pivots points is the interpretation of them as elements of price control between various media and resistance data for calculation are: the maximum (H), the minimum (L) and closing price (C). The average price or pivot is obtained as:
Pivot (H + L + C) / 3
To calculate the levels of key support and resistance (pivot points) with the following formulas:
1st Support: S1 = (2 * AP) - H
Resistance 1: R1 = (2 * AP)-L
2nd Support: S2 = AP - (R1-S1)
Resistance 2: R2 = (PA-S1) + R1
The application of this method suggests entering the market by buying up the S1 pivot price and selling price until the R1 pivot. It is recommended some type of filter before entering the transaction that the wreck is located a certain percentage of their daily route above or below the R1 or S1.
Cycle: it includes the development of price between two minimum and maximum: it is probably the most demanding market but the most active and prolific as it takes both movements upward or downward. It also requires a state or lateralized channel market, with a previous behavior of the curve with the price pattern of the channel, or it is located in congested areas of the market. Is appreciable aid indicators and oscillators such as stochastic cycle to determine the income of the operations.
