http://www.traderinterviews.com/idealab/idea/view/developing-a-strategy The latest comments on Developing a Strategy Sat, 31 May 2008 20:58:57 -0700 en-us Copyright Ideas For Download LLC, 2006 - 2012 http://www.traderinterviews.com/images/traderinterviews_144x19.gif http://www.traderinterviews.com/idealab 144 16 http://www.traderinterviews.com/idealab/entry/view/developing-a-strategy#c101
I also look at the time it took to form a particular rally and pullback, and allow the same amount of time for the next rally. (ie: stock rallies for 10 days, pulls back 4, my entry on that 4th would be a ten day timeframe to make it's next move higher).

As for price targets, I scale out, selling a portion at the previous high of a stock (because I bought the pullback remember), and then usualy a 127.1 Fibonacci extension as the next price target (again RIG back a few months put in a large hammer and ran right up to the 127.1 Fibo extension).

Another way to asses a price target is to take the difference between the high of the pattern and the low of the pattern and add it to the high. So a stock hits $50, pulls back to $45 and starts to turn higher, I would buy as close to $45 (with conformation the stock is now moving higher) and sell a portion at $50 leaving the rest to run to a price target of Fibo Extension 127.1 (which may be $53) and then an my $55 target last.

Buying into a security is the easy part, knowing when to sell is what takes skill I've found. If you sell a portion whether it be half or 1/4 or whatever on a big up day in the stock or at a previous high or just selling into strength, you limit your risk to the downside. I always net positive using this scale out strategy over a statistical set of trades. You can never pick EXACT tops and BOTTOMS, my as well take some off the table when you have a profit.]]> http://www.traderinterviews.com/idealab/entry/view/developing-a-strategy#c101 Sat, 31 May 2008 20:58:57 -0700 http://www.traderinterviews.com/idealab/entry/view/developing-a-strategy#c100
The point of strategy 1 is to determine the type of market and turn off the system when it is in a bad market. For example, if you build a trend following system and then turn off the system when you somehow measure that the market is more likely to be stuck in a range. I like this idea, but feel that trying to determine what type of market is going to be is just as difficult as getting a good strategy in the first place. I guess doing it this way I would think you go elsewhere to other data or timeframes to help determine the type of market. I can find the direction of the market on a 5-minute chart easily when its a simple thing to see it on the daily chart.

The other idea, #2, is what I have been working on and am having a heck of a time getting a strategy that works for long periods of time. I am working in forex so I have no volume.

You mention that you use price trend in your system. If you would be willing to expand on how you do that I would love to hear it.

Another problem I have been struggling with is how to get price targets. I am trying to build the strategy into tradestation so I can backtest it which is of course some of my problem having to define it so precisely that a computer can figure it out. One of the worst things for a system performance as far as I can tell is to correctly pick the direction and a move and then only get a small percentage of it. I am not talking about selling at the maximum or anything, but if the system correctly enters a move and then has a target of 25 pips and is out but the actual move was 100 pips then the strategy is suffering because of the target.

I would love to hear any comments about this idea that I am trying: I am looking at momentum to find the peaks and make decisions at these points. I am averaging it out a bit so it is smoother and then when it gets over a certain level and starts to drop I can be pretty sure it is going to head back down. Instead of just looking at the value of the momentum which seems to not help me, I am trying to find the price peak associated with the momentum peak and keep track of several. So far I don't have anything that works over long periods of time because of the levels that work best seem to change. I am working on making them adaptive with great difficulty.]]> http://www.traderinterviews.com/idealab/entry/view/developing-a-strategy#c100 Fri, 30 May 2008 17:41:24 -0700 http://www.traderinterviews.com/idealab/entry/view/developing-a-strategy#c99
I think a great trading system is developed through discipline. Finding one inicator is good, but I do think it is best when combining multiple indicators as mentioned in strategy 2. As technical analyisis is the voice of fundamentals, (ie: the fundamental news of a company is expressed through the charts candle) looking at various indicators for conformation can be helpful. Timeframes as well.

My system uses, Price Trend and Volume along with a cross of Moving Averages (whether MACD, Stochastic, 10/20 day it's up to you) and a Bollinger Band to help identify extension levels, through in a few FIBO retracements and you have covered a lot of ground technically, that is being expressed fundamentally. Refer to some of my comments on "3 golden rules of trading" and "buy with higher high from previous day sell for lower low from previous day."

Commet back and I'll write again. Thanks!]]> http://www.traderinterviews.com/idealab/entry/view/developing-a-strategy#c99 Wed, 21 May 2008 03:45:08 -0700