Good afternoon, trading blog readers. Trading systems are a kind of business plans for trading. Working without them in the financial markets is like putting a ship into the ocean with lowered sails. You should have a diagram before your eyes that outlines all the necessary criteria for trading point by point. If you look at it, trading systems are your path to less emotional and more profitable trading.
For some reason, some novice traders believe that discretionary trading– this is trading by mood, by stars, or by something else, but not by a trading system. Yes, the final decision always remains with the individual, since he or she always has a choice: trade everything or settle only on the best options. For example, when a trading system finds 10 stocks for a discretionary trader that meet his criteria, he will not trade all 10, but will select the best few based on the presence of a trend, the strength of the price movement, and execution relative to the rest of the market. But remember, a trading system with clear rules is always present.
System traders, on the other hand, follow their trading systems with mechanical precision. Since they are based on absolute rules, this type of trading is well suited for partial or full automation. For example, a strategy can be written in the form of a script in trading platform and after it is launched, the computer will begin trading without your participation, including identifying a transaction, sending an order, managing and closing a position.
Always remember that any type of trading requires adequate trading strategy. We will talk further about how to develop them.
Rules for creating trading strategies
Trading system is a set of rules on a piece of paper (not in your head or on the computer) that determine how and where you will trade, and includes the following components:
Market
Today, a trader is not limited solely to stocks. You have a wide range of trading instruments to choose from, including bonds, commodities, currencies, exchange-traded funds, futures, options and e-minis (mini futures contracts). However, in order for your trading to have a chance of success, you need to focus on instruments that have good liquidity and volatility. Themes trading instruments, liquidity and volatility we discussed in the relevant articles.
It's important to note that a strategy that works well for stocks may not necessarily work for, say, futures. You should have different trading systems developed for different markets. Many successful traders work in the following way: first they focus on trading one instrument, and then, as the necessary skills gradually increase, they add others.
Timeframe
Timeframe– this is the chart interval on which your trading decision is made. In many ways, it is associated with a trading style. In other words, the longer you plan to hold a position, the larger the interval of your charts should be. For example, a swing trader spends most of his time analyzing the day, while a scalper bases his trading decisions on analyzing the minute.
Remember this: price activity (liquidity and volatility) remains the same on different time frames for the same trading instrument; but the same trading instrument can look different on different timeframes, for example, wonderful on the daily, but terrible on the 5-minute. Therefore, indicate in your strategy which chart interval you analyze most often and on which you base your trading decisions.
Indicators
Trading systems must include any indicator that is used on your chart. Technical indicators are mathematical formulas based on the past or current price of a security, as well as its trading volume. Various types are used, for example, to determine trend, momentum, volatility or volume, but none should be used by you as a buy or sell signal generator. The purpose of the indicator is to indicate securities that meet trading criteria and are approaching your entry point into the market.
Additionally, each indicator has its own settings, which you must also add to the strategy. For example, if you use a moving average, then you need to specify its period: 10, 50, 200, etc.
Position size
Trading systems that do not take this criterion into account are doomed to failure. This is one of the most important points because it determines the amount of your risk.
Position size- This is the dollar value of your trade, or the number of securities that you allow yourself to trade in one trade. It is determined as a percentage of the trading capital, for example, 0.5%, 1%, 2%, 5%, etc., and is never violated or changed arbitrarily.
In general, it is normal for a novice trader to start his trading with minimum size positions, say: 1 lot for stocks or 1 contract for futures. With time and experience, the bar can be raised, taking on greater risks each time.
Entering the market
Traders are either conservative or aggressive by nature, and this is reflected in their rules for entering the market. Conservative traders may wait for a lot of confirmation that they are right before opening a position, while aggressive ones are sometimes guided by minimal market signals. Regardless of what type you are, the rules for entering the market should match your perception of risk, since this is precisely the moment when you are risking part of your trading capital.
Always keep this in mind: the more confirmations you need, the less trading activity you will have, and the more trading opportunities you will miss; the opposite applies to aggressive entries.
Trading systems describe the rules for entering the market with two components: trading filters and entry points. Trade filters is a set of conditions that must be created by the market for the transaction to be executed. Think of them as a safety net for your entry point. In the form of trading filters, we use different price movements or indicators that create conditions for us to safely open a position.
Point of entry- this is the only criterion on which we base our decision - to issue an enforcement order. Let me show you an example based on a swing trading strategy:
- Trading filters for a long position (creating a bottom):
- Daily timeframe
- The 10- and 30-period moving averages indicate an uptrend, with price falling between them
- The presence of at least 2 downward days in a row
- Trading is carried out near the support level
- The S&P 500 market indicates a buy
- Entry point (at the base):
- Entering the market with a market order at the end of a trading session that closes above the previous day's high
- If an important candlestick pattern is formed, then enter the market at the end of the trading session, when there is confidence in its final formation.
Please note that when creating an entry point, it is important to indicate the types of orders with which you are going to open positions. Therefore, follow the highlighted link and read about it in more detail.
Exit from the market
In my opinion, this is the second most important item after position size that trading systems should describe. For example, when trading stocks, you will not experience a loss until you close your position. How and at what level you will do this needs to be decided.
When creating rules for exiting the market, remember that each transaction has two paths of development: profitable and unprofitable. In other words, you need to take into account both the option of a possible loss and its limitation, and the option of a possible profit and the level of its fixation. Here are the criteria you will need:
- Position management strategy in case of its profitability
- Stop loss level
- Trailing stop level
- Time. For example, closing a position at the end of a trading session or something similar.
Let's look at my proposed rules for exiting the market:
- Initial stop loss level
- 1-2 cents below the low of the reversal pattern
- Per level of support
- At least 1 ATR
- Managing a Profitable Position
- The stop loss is moved after the end of the trading session to the low of the previous day. The position is closed by the market.
Trading systems are absolute conditions for successful trading in financial markets, like business plans for enterprises. We looked at the basic rules and criteria by which strategies are created. But it’s also important to learn test trading systems to determine their effectiveness, which we will talk about in the next post. Trading Blog thanks for your attention. Be successful!
There are many stock trading strategies. Some traders trade using indicators, others using candlestick formations, some using Elliott waves. In this article we will talk about two main strategies that are based on price and price levels. This is a rebound from the level and a breakdown of the level. These are fundamental strategies to which volumes, tests of price levels, trading signals - false breakout and mirror level, indicators and Elliott waves can be attached as filters. Within the framework of fundamental strategies, two more strategies can also be distinguished: trend and countertrade trading strategies.
In my trading, I only use price, volumes, level tests, as well as horizontal and mirror levels, false breakouts. In addition, I look at trend lines and open interest as additional information. In most cases, I trade a rebound from the level.
1. Rebound from the price level
2. Breakdown of the price level.
1. Rebound from the price level (support and resistance level)
Rebound from the price level- this is buying or selling near a support or resistance level, where it is possible to place a short stop.
Strategy: intraday trading (we close trades at the end of the trading session)
A more risky, counter-trend strategy, with a short stop of 300 points.
So, let's look at two options using examples release from level:
- shorts (sales)
- long (purchases)
The first option is short (selling)
Daily chart:
Using the RTS index futures as an example, we will consider a rebound from the resistance level of 89,500 points. On November 5, 2015, there were sales, a red daily bar formed, and there was a rebound from the resistance level of 89,500 points. A weak short signal was formed, since the daily bar did not close below 88,000 points.
Before this, on October 12 and 16, 2015, there were sales from the level of 89,500.
A strong short signal is a close below 88,000 points on a daily or hourly timeframe.
We are waiting for a short signal on the hourly timeframe.
Hourly chart:
On the hourly chart we see a closing below 88,000 points and consolidation at this level, consisting of several hourly bars.
Let's move on to the 5-minute chart and look for the short entry point from the level of 88,000 points.
Five minute chart:
On the 5-minute chart we see that several bars are being traded, all bars are closing below 88,000 points. We enter shorts with a stop of 150-300 points.
Second option —long (purchases).
Buy (long) using the example of futures on the RTS index from the resistance level of 81,500 points.
On November 13, 2015, we approached the support level of 81,500, where there was strong trading in August. The day was closed with a red bar, but if based on the candles, then a doji candle was formed - there is no certainty. There is no signal to go long on the daily bar, since they closed with a red bar, but the progress of sales on November 13, 2015 was not great, they did not go down much. Since we are at the support levels of 81,500, where there was strong trading earlier in August, we will wait for a signal to go long on the hourly timeframe. Closing above 82,500 points and consolidating above this level consisting of two or more hourly bars will be a signal to go long.
Daily chart 1:
Daily chart 2:
Hourly chart:
On the hourly chart we see that trading is underway and a few bars are closing above 82,500 points. We are looking for a long entry point on the five-minute chart.
Five minute chart:
On the five-minute chart we also see pro-trading and enter long from the level of 82,500 with a stop of 150-300 points.
2. Breakdown of the price level.
Let me say briefly, when a price level breaks through with the daily bar closing above or below the level, it is not recommended to buy and sell immediately; you need to wait for the price to return to the level, and then look for an entry point.
Daily chart:
Examples were given on the daily charts. But these strategies work on any time frame. Let it be an hourly, five-minute chart. All examples are shown in history and you can see how the situation developed further. But the purpose of this article is not entry points, like here I would enter, here I would exit. And what you should pay attention to when searching for and understanding the pattern of movement of a trading instrument (futures). Having understood which, you can calmly wait for your signal and open positions without emotions. More likely to make a profitable trade.
Happy bidding everyone.
- Translation
Note:This post was written by British developer and financial analyst Michael Hulls-Moore, who is a professional in the so-called Quantitative trading. From our point of view, the information contained in this topic may be of interest to technical specialists and developers who are interested in the stock market and have the skills to create, for example, successful trading robots, but do not know where to start. Therefore, the topic will be considered in this context; in addition, the text is adapted to Russian realities, some terms are translated accordingly. We welcome your comments! (It is better to send translation corrections in private messages).
Algorithmic trading is an extremely complex area of finance, and in order to master the amount of information that will allow you to create your own trading system or get a job as a developer in financial company or fund, it will take quite a lot of time. Extensive experience in programming is simply necessary for successful work in this market; at a minimum, an algorithmic trader must be well versed in languages such as C/C++ (Java is also promising in the field of finance) and Python, Matlab and R ( TradeScript, developed in the USA, is gaining popularity in the Russian market - approx. translation).
Any high frequency trading system consists of four main components:
- Strategy identification - that is, determining the trading strategy, exploiting the advantages contained in it and choosing the frequency of trading.
- Backtesting of a strategy - obtaining historical data on trading and “running” the strategy on them, analyzing the results and optimizing weak points.
- The engine is the part that connects to the brokerage trading system ( ITinvest recently launched a new Matrix system - approx. translation), automatically trades and adapts to changes in the market to reduce costs.
- Risk management - allocation of capital to commit trading operations optimally, determining the sequence of actions in the event of an unsuccessful combination of circumstances in the market.
Trading strategy
In trading, any action is always preceded by the stage of collecting and studying information. Before choosing a strategy for trading, it is necessary to analyze initial data such as the amount of available funds, and also take into account how the new strategy is combined with those already in use. Individual traders are simply obliged to pay great attention to transaction costs and do their best to reduce them, and choose accordingly optimal strategy trade.
Contrary to the popular belief that “no fool would share a strategy that makes money,” in fact, in public sources you can find information about strategies that actually work. In addition, analysts and scientists sometimes publish the results of their research and financial experiments. There are quite a few blogs on the topic of algorithmic trading on English language(in Russia, sometimes interesting topics pop up on the Smart-lab.ru resource), and sometimes data on trading strategies of funds gets into the press.
Of course, no one will discuss in public all the aspects and details of setting up a profitable strategy. The key to profitability lies precisely in understanding what parameters the strategy should have, as well as its “fine tuning”. However, the almost 100% way to create your own strategy is to “steal” other people’s ideas and then refine them.
Most strategies can be divided into two large groups - “playing on inefficiencies” and “following the trend”. The first type of strategy exploits market inefficiencies (for example, spreads in the prices of related financial instruments) and the fact that in the short term the price of assets often returns to their original level. Trend strategies play on the psychology of investors and the actions of funds, trying to “jump” on the train of a new trend and manage to collect profit on this before the movement reverses.
Another important point algorithmic trading- this is its frequency. Low frequency trading (LFT) involves holding a financial instrument for more than one trading day. Accordingly, with high-frequency trading (HFT), all transactions occur “intraday,” that is, within one trading day. There are also so-called ultra-high frequency strategies (UHFT), which involve holding an asset for seconds or even milliseconds. Great development in the world and Russian markets Now high-frequency trading has gained popularity.
Once a strategy is selected, it is necessary to test its effectiveness on historical data. This process is called backtesting.
Backtesting
The essence of backtesting is to confirm or refute the profitability of a chosen strategy launched on historical data. Knowing the results that a strategy would have shown in the past allows us to assume its effectiveness in the current market situation. Of course, the fact that a strategy brought in a virtual million based on historical data does not guarantee success in the real world.During backtesting the most important point is the availability of data on past trading sessions, to launch the strategy. There are several ways to obtain this data - brokers and exchanges often provide it, but there are also third-party data providers.
It is also important to determine the metrics that will determine how successfully or unsuccessfully the strategy worked “on history.” The industry standard is the concept of "maximum drawdown" and Sharpe ratio. The maximum drawdown is the maximum loss on a portfolio over a certain period (usually a year). Low-frequency strategies may have greater drawdowns than high-frequency strategies due to certain statistical factors. A backtest will show the maximum portfolio drawdown that could have occurred in the past, which will give a rough idea of what to expect in this regard when working in the real current market. Sharpe ratio is an indicator of efficiency investment portfolio(asset), which is calculated as the ratio of the average risk premium to the average deviation of the portfolio.
Once the strategy has been tested and all identified bottlenecks have been eliminated, possible drawdowns have been minimized and the Sharpe ratio has been maximized, it’s time to move on to the actual development of the trading engine.
Trade module
The trading engine is the means through which the list of trades to be executed in accordance with the trading strategy is transmitted to the broker's trading system. The process of generating orders can be half or fully automated, and the mechanism for executing them can be manual, half manual (“one click”) or fully automated. For low-frequency strategies, manual or semi-manual order entry is most often used. For HFT strategies where every millisecond matters, a fully automatic method is generally used.
The main points that should be taken into account when developing a trading system are ensuring a reliable and fast connection to the brokerage trading system (usually via an API) or providing direct access to the exchange, minimizing costs (including broker and exchange commissions, as well as possible slippage).
Transaction costs are one of the main things that an HFT trader needs to think about. They usually consist of three components: broker and exchange commissions (and taxes), slippage (the difference between the price at which the transaction was planned to be executed and the price at which it actually took place), and the spread of the specific financial instrument(the difference between the purchase and sale prices - bid/ask). The spread is not a permanently fixed value and depends on current liquidity market.
High transaction costs can turn a potentially very profitable strategy with a good Sharpe ratio into a completely unprofitable one and vice versa. It can be quite difficult to correctly predict transaction costs using a backtest; this usually requires obtaining historical tick data from the exchange, including information on bid/ask prices.
It is also necessary to remember the difference between the system's performance in the real world and what it showed in historical data. The difference can be quite significant, and there are many reasons for this. Bugs software and errors in the trading strategy itself may not appear during backtesting, but play an important role during real work On the market.
Examples of creating trading robots using TradeScript.
Risk management
The concept of “risk” includes all of the above-mentioned dangers. The risk consists of technological dangers (for example, a sudden failure of servers), broker risk (company bankruptcy), and in general anything that could potentially interfere with the intended functioning of the trading system.Part of risk management is the process of optimizing capital (its distribution between various strategies). This is a rather complex process using a large number of"mathematicians". The industry standard that describes the relationship between the optimal allocation of capital and obtaining the maximum effect from the work of trading strategies is the Kelly criterion.
Another important component of risk management is determining a trader’s own psychological portrait. Every person has some traits that can hinder successful trading On the market. In the case of algorithmic trading, the psychological effect plays a lesser role than in “manual” trading on the market, but is still present - after all, trading robot monitored by a person who may want to take a loss too early or rush to close a position for fear of increasing losses.
conclusions
Algorithmic trading is a very complex area of human endeavor, but it is also a very interesting area of finance. In order to have a chance of achieving success in this matter, you simply need to master programming at a good level. You need to train yourself by creating trading modules yourself (trading engines, data analyzers, tools for backtesting strategies), using available resources - after all, we are talking about your own money, which no one wants to lose.The Russian Trading System (RTS) is a large exchange structure on which securities trading is carried out, accessible to both private investors and large companies, and investment funds.
RTS was created in 1995 after the merger of several regional trading platforms into the organized market valuable papers. Initially, RTS was created as an over-the-counter alternative. Bidders agreed on the deal over the phone, after which they submitted their bids in electronic system.
Now RTS is full-fledged stock exchange th, where hundreds of different securities are traded. From the trading system, RTS has grown into a group that not only organizes trading, but also provides a wide range of additional services(clearing, depository, settlement).
RTS Group structure
- OJSC Stock Exchange "Russian Trading System" (controls the activities of all other structures);
- NPO CJSC "RTS Clearing House";
- COMPANY " Clearing center RTS";
- CJSC Depository Clearing Company;
- OJSC "St. Petersburg Exchange";
- OOO " Technical Center RTS".
In addition, the RTS group includes a number of foreign exchange organizations located in Kazakhstan, Ukraine and England.
Activities of RTS
The RTS currently operates several trading platforms, both exchange-traded and over-the-counter, as well as a derivatives market. Let's look at each of them in detail.
Stock market
Within stock market RTS operates 4 platforms: RTS Classic, RTS Standard, RTS Start and the T+0 market.
Classic securities market
The RTS Classic market is the oldest organized platform for trading securities in Russia (it has been operating since the foundation of the exchange in 1995).
Features of the FORTS market
- relatively low costs for transactions for the purchase/sale of assets;
- lack of additional indirect costs(payment service fees and depository fees);
- great opportunities to use various trading strategies;
- the possibility of insurance against price fluctuations for certain assets (, dollar exchange rate);
- partial deposit of funds (initial margin);
- carrying out transactions with guaranteed income (for example, we sell futures and buy shares).
Among the main market opportunities that are available to everyone, it should be noted that speculative transactions with futures securities, as well as hedging (insurance) of existing risks.
Let's take a closer look at how these strategies are implemented for stock futures.
Speculation
Stock futures are an excellent tool for making profits: you can play on the rise or fall in stock prices in order to make a profit.
For example, you expect that in the future the shares of a certain company will increase in price - then you need to buy futures on shares of this company. If, on the contrary, you expect that the shares will fall in price, then you enter into a contract to sell futures.
The advantage of performing transactions on the futures market is also that when concluding a transaction on a futures contract, the investor contributes only a small fraction of the value of the asset (guarantee collateral of about 10-20%).
Consequently, the investor saves on transaction costs.
For example, you want to buy futures on shares of the Alpha company, full price contract is 100,000 rubles.
However, you will not have to pay the entire amount of the transaction, but only the amount of the guarantee, which is 15,000 rubles (this is what the broker will write off from your account). That is, having spent only 15,000 rubles, you actually bought a contract for 100,000 rubles.
Hedging
IN in this case the investor's actions are aimed at reducing possible risks associated with a fall in the price of his shares. To minimize possible losses in the stock market, the investor enters into a futures contract to sell.
As a result, possible losses on the stock market are compensated by profits received on the FORTS market.
For example, you have shares of the same company “Alpha”, which now cost 100 rubles per share. You are afraid that in a month these shares will fall in price, in order to insure against possible losses, you enter into a futures contract to sell securities at the current price.
Then, if in a month the price of the shares really falls, you will compensate for the losses by selling the shares at the price of 100 rubles, which was indicated at the conclusion futures contract.
However, there is one thing: if the price rises, then on the contrary you will lose the opportunity to make a profit. That is, hedging is a kind of insurance, a tool that is aimed only at preventing possible losses, but not at making a profit.
Over-the-counter activities of RTS
RTS's over-the-counter activities include organizing the work of two indicative securities quotation systems: RTS-Board and RTS Global.
RTS Board
RTS Board – special Information system, which began its work in 2001 and is intended to carry out indicative quoting of securities that were not admitted to trading on the RTS Stock Exchange.
Unlike the stock market, here we are dealing with quotes that are not based on actually completed transactions. Indicative quotes show that a given security could be sold at a certain price stated by the issuer.
The actual price of the security at the time of the transaction, if one takes place, will depend on a number of additional factors(transaction volume, settlement day, buyer status, etc.).
That is, the RTS Board is not a trading system, but an information system that allows potential investors to get acquainted with information about securities that are not admitted to public trading on the stock exchange.
For small domestic issuing companies, the RTS Board is a tool for initially increasing (the speed of sale) the securities they issue, as well as an opportunity to draw the attention of potential investors to new and promising securities.
RTS Global
RTS Global is an RTS project that began its work in 2008. The system allows investors from Russia to gain access to securities foreign companies.
RTS Global is based on the technologies and operating principles of the RTS Board system, only here investors have access to information about indicative quotes of not domestic, but foreign securities.
In addition, with the help of the RTS Electronic Agreement Center (ECC) and CJSC Depository Clearing Company, Russian investors can, through the RTS Global system, enter into over-the-counter transactions with shares of a number of foreign companies, mainly companies from the CIS countries and Europe.
Thus, CJSC DCC has access to a number of foreign depositories, including:
- Clearstream Banking S.A. Luxembourg;
- Euroclear Bank S.A./N.V;
- National Depository of Ukraine;
- "Republican Central Securities Depository" of Belarus;
- Central Depository of Kazakhstan.
The emergence of an over-the-counter market for foreign securities in Russia has significantly expanded the boundaries and capabilities of the domestic stock market.
RTS Index
Since the RTS is a stock exchange, you should definitely talk about stock index RTS, which has been calculated on the exchange since the beginning of the first trading in September 1995.
The RTS Index is the main indicator general condition Russian stock market, reflecting its growth or decline.
The principle of operation of the index is the same as that of the index - it reflects the total change in the value of a certain set of securities based on the results of trading.
Only unlike, which takes into account changes in the price of shares of 30 companies, the RTS Index is calculated based on indicators of the dynamics of securities of the 50 largest enterprises in Russia, including:
- Aeroflot;
- Bashneft;
- Severstal;
- Gazprom;
- MMC Norilsk Nickel;
- INTER RAO UES;
- LUKOIL;
- Sberbank of Russia;
- Surgutneftegaz;
- and others.
It should also be noted that the RTS Index shows the total market capitalization (value) of shares of companies included in the list, expressed in relative units (points). In this case, unlike the MICEX Index, the value of shares in US dollars is taken for calculation.
Capitalization in this case is defined as the number of outstanding shares multiplied by their actual value. market value. She reflects total cost enterprises at a certain point in time.
Accordingly, if the value of shares of enterprises included in the list for calculation increases, the value of the RTS index also increases, if the value falls, the index falls. The index itself is calculated simply.
Let's say the initial capitalization of the companies was $100,000, the initial index value was 100 points. The companies' capitalization currently amounts to $500,000. Therefore, the index will be equal to 500,000/100,000 * 100 points * 1.0752559 = 537 points (1.0752559 is the established adjustment factor).
It is according to this scheme that the value of the RTS index is determined, the dynamics of which reflect the state of domestic market shares
What do you need to become a trading participant on the RTS?
Only legal entities holding licenses to carry out transactions with securities.
If you want to participate in trading on the exchange as a private investor, then to carry out transactions on the RTS exchange, contact accredited professional intermediaries (brokers, dealers, management companies) who have the appropriate licenses and experience in performing such transactions.
Stock trading strategies - a mandatory component for making a profit
— Why do you need a trading strategy?
— What should be the trading strategies?
— Purpose, style and strategy of stock trading
— Profitable strategy for trading
— Strategy “Forex Power Trader”
— MICEX(forts) trading strategy on three moving averages
- Conclusion
Forex strategies and trading methods in the securities market are one of the main tools for a novice trader and investor. The Forex market and other financial markets are in constant change and having a profitable trading strategy in your arsenal is an important condition for successful trading.
As a rule, Forex strategies are divided into long-term, medium-term, intraday and scalping. In turn, strategies based on classical technical analysis and using indicators should be highlighted.
All of them find their application in trade not only in foreign exchange market, but also in other financial markets such as the stock market.
Profitable trading on the stock exchange without the use of trading strategies is impossible in principle. Even if at the beginning of your journey you make several successful transactions without using a trading strategy, the end result of your trading on the stock exchange will still be disastrous.
By developing even a very simple trading strategy, you can radically improve the results of your trading. But the most important advantage of using a trading strategy in your stock trading is that the results of your trading will become quite stable and quite predictable. Based on the results of the month, you will always be in a stable plus. Isn’t this what every trader who wants to become successful strives for?
— What should be the trading strategies?
Many successful traders devote more than one year to developing a trading strategy. They constantly improve its profitability and reduce risks. Full time job over your trading strategy is also explained by the fact that stock markets are constantly changing and therefore you have to constantly tweak your trading strategy in order to still get a stable result.
But the constant development of a trading strategy should not be an end in itself for you, otherwise you will have no time to trade. There is no need for unnecessary complexity. It’s better to have a simple strategy and make money with it now than to get bogged down in developing a complex one and waste all your free time on it. It’s not for nothing that the classics of trading say that a description of a trading strategy should be placed on back side postage stamp!
— Purpose, style and strategy of stock trading
Before you start trading on the stock exchange, you should prepare and choose your goal, style and strategy.
Defining your goals is the most important element in preparing for stock trading (regardless of whether you are trading in the stock, foreign exchange, commodity or other markets). Your goal is the amount of risk you are willing to tolerate, which is directly proportional to your return. Everyone remembers the main rule financial markets: the greater the risk, the greater the profit and vice versa.
For fast, extreme trading with high risk and reward, it is worth choosing dynamic stocks in emerging industries. And for the conservative long-term investments Municipal bonds, which are almost (!!) risk-free and bring a relatively small percentage of profit, are more suitable.
Once you have outlined your goals, it is worth thinking about a trading style that will match those goals. Your intended return on investment and the degree of risk you are willing to tolerate will literally dictate your stock trading style.
Stock trading style determines when and how you will enter the market, and when and under what circumstances you will exit it. For example, intraday trading is definitely more suitable for aggressive goals. Well, investing in old companies that are in established and predictable industries will suit more conservative goals.
There are many different styles of trading on the exchange, ranging from scalpers who “cut off” the inner husk, to long-term investors who slowly and surely accumulate capital.
When choosing a trading style, it is also important to understand your level of involvement. If you are not ready to spend all your time on analysis and orders (orders), then you are better off choosing trades aimed at weeks or months (but not days, hours, etc.). For those who want to completely forget about their capital while it grows, a long-term risk-free portfolio is more suitable.
Once you have decided on your goals, style and level of involvement, you need to begin developing your trading strategy. All previous steps are important because... they determine what your strategy will be.
An example of the goal, style and strategy of stock trading:
Goal: investing 10% of the entire portfolio in instruments with a target profitability of 25% per year.
Style: We cannot participate in intraday trading; The positional style suits us more, i.e. from 1 to 8 weeks for entry/exit; no more than 5% of capital per transaction; You should monitor and analyze the figures on the candles.
Strategy: In this case, the strategy will be based on buying shares near support and short selling shares near resistance. Only those instruments that have been in the trend you want for more than a week will be displayed. We conduct technical analysis and give preference to those stocks in which we find the discrepancies we need. For technical analysis we will use ROC and stochastics on a candlestick chart.
— Profitable trading strategy
1) We divide our deposit account in a 50/50 ratio. You will trade on one part, and the second part will always be in the cache. This must be done so that in case of loss, the size of your bet does not decrease. The likelihood that you will lose 10 times out of 10 is very small. According to probability theory, this is practically impossible.
2) We open a deal in accordance with the signals of any of the indicators or simply toss a coin (and entering with a coin is often much more effective), set a profit of +1% and a stop of -0.5%. Those. our mathematical expectation is positive.
3) If the deal is closed with a profit, then we divide the entire deposit in half again and enter a new deal with an already increased volume Money. If the deal is closed at a loss, then we enter a new deal with the same amount of money as in the previous one.
4) Open in the same direction where the last profitable trade was directed. If there was a losing trade, then we open in the opposite direction. Remember, under no circumstances should you open in the direction of the last losing trade! After all, it’s enough to run into a good trend and your trading account will instantly reset to zero.
5) Strictly follow the trading rules outlined above and your success is guaranteed. With the help of this trading system, you can earn not very much, but very consistently over a very long period of time.
— Strategy “Forex Power Trader”
The presented strategy for trading on the Forex market is suitable not only for those who already have sufficient experience of making money on the stock exchange, but also for beginners who are just starting to trade. This simple strategy is based on two indicators that are present in standard set MT4 terminal, as well as two additional Forex indicators that are auxiliary tools of the strategy.
1) Timeframe – 30 minutes
2) Schedule - any
3) Tradable instruments – main ones currency pairs Forex market(EUR/USD,USD/JPY,GBP/USD,USD/CHF)
4) Terminal used – MT4
5) The strategy was tested on the broker platform - Forex4you
Rules for entering the market:
As with most strategies written for Forex trading, the main conditions for entering the market are the coincidence of the signals of the indicators used.
Opening a buy position:
1) The Power Arrow indicator beeps and draws an upward arrow, indicating a further increase in the price of the traded currency pair
2) The red line of the RSI indicator is above the middle line (level 50)
3) The blue stochastic line is above the white line and above 80
Opening a sell position:
1) The Power Arrow indicator beeps and draws a down arrow, indicating a further decrease in the price of the traded currency pair
2) The red line of the RSI indicator is below the middle line (level 50)
3) The blue stochastic line is below the white line and below the 20 mark
When you should not enter the market using this Forex strategy:
During periods of strong fluctuations in the market and the release of important macroeconomic data, indicators will redraw signals, and this increases the risk of losses in trading using this strategy. It is also not recommended to use the “Forex Power Trader” strategy on timeframes below 30 minutes.
Notes:
The strategy uses another auxiliary indicator, Power Monitor, which shows the strength of the trend and is auxiliary in determining the amplitude of price fluctuations for different periods. Using this indicator, you can visually analyze how long the market has been in a particular trend and therefore determine the approximate life cycle the trend in the direction in which you plan to make a trade.