How to create a trading strategy

Many years have passed since I decided to learn how to trade. It has been a long and sometimes ungrateful journey. One does not have reasons to be optimistic when it is about trading since maybe 90% of the aspiring traders merely fail. I will give you a few tips I won't extend if you are a beginner or are still struggling to find your edge in this complex business.

I won't spoon feed anyone nor answer any question that can be found on Google, here or anywhere else. Trading is a personal journey that demands high engagement and an extremely strong research spirit. I really do not mentor nor have any intention nor interest in doing it. So, please avoid contacting me for that, no second warning on this.

SIMPLICITY
Trading is improved by simplicity because the more complexity you add to your system, the more unknown factors you have to resolve each time you roll the dice. Trading is about repetition and averaging winnings with losers. The most important factor in trading is having one single pattern you master. One pattern that you know when it starts and where it ends.

REPETITION
You will feel confident once you have spent months or years repeating the same pattern over and over again, day after day. After a long period exposing yourself to the same asset class (preferably one single instrument and one single timeframe), you will start to interiorize what you see on your charts or your trading platform, whatever kind it is, and intuitively will recognize your valid set-ups. And you will also be aware of when your setup is invalidated by an unexpected change in the market structure and you need to cancel a trade anticipatedly. Months or more often years are required to complete this stage.

MARKETS
For non-foreign FX crosses, you must limit your trading between 5:00 and 15:00 GMT, normally from Tuesday to Thursday at the beginning. If you want to trade indices or shares, you may better focus on NY trading session hours. It is fundamental for you to study what your asset class does during each different hour because markets have cycles. I used to have a clock in front of me to see at what hours there was more activity and which kind of activity depending on the hour.

If you trade non-US assets, then you should shift your trading time to the hours your asset's market activity takes place.

METHOD
The key aspect of trading is your risk and money management skills. You need to learn what is the risk-reward ratio and how to deal with it. It is related to your accuracy. For very long-term investment you may be interested in traditional portfolio allocation based on returns and volatility, but that is not the most common case among retail traders. We usually are more focused on swing-trading and our risk depend on the structure of a price swing than on when a trend will be exhausted.

Compounding is also a key concept you have to study very well and how to apply it to your position size or, if you use stop-loss, to your stop-loss price. This aspect is critical and complex, but it is the difference between earning 10% annually or doubling your account in two months.

DETERMINISM
Uncertainty is the material trading is made of and that is quite opposed to the traditional way we understand the world. People tend to think that there are necessary or basic bricks the world is composed with. But the trading environment goes against it because it lacks of rules and there is nothing guaranteed at the end of the day, no matter how diligent you are or how hard you work.

There is nothing guaranteed for you. You throw off a cristal bottle and you get paid only if the bottle breaks in a thousand pieces. And you pay when it is not broken. That's it.

The only rules are your strategy rules:
- Execution: when you hold, when you enter and when you exit from a trade.
- Size: how you calculate your optimal entry and exit size and execution levels.

THE PATTERN
There are a million possible patterns. Both technical and fundamental trading are valid approaches because there will always be someone smart enough to find a repetitive behaviour to be exploited.

The only method I know to find a pattern is to study your charts until you realize something happens repeatedly. To note down the variations you find and then study these variations separately. While repeating that process, you will eventually come along with new problems you will have to resolve until that, in the end, something may start to form inside your brain and will reveal forms and structures to be traded on.

No other way other than repetition over a single pattern will lead you to quicker results after a considerable amount of hard work and dedication. During about a decade I have studied tens of methodologies and different approaches to trading. None gives immediate results and the more specialized you become, the better for you.

PSYCHOLOGY OF TRADING
Psychology represents about 70% of your trading success. You need to be smart enough or responsible enough if you want to realize that you have a brain that you need to take control of. Trading is an extreme experience that can only be overcome with an exceptional attitude. Read Trading In the Zone or Trading for a Living or any similar book if you want to improve your chances of survival in the markets significantly.


AN EXAMPLE
One of the best patterns to be traded are tops and bottoms. It is the same double, triple, head and shoulders; all are the same. If you learn how to trade these, you can build a career. They always appear in each market cycle, therefore if you are an intra-day trader you get trading opportunities every day with these. The advantage of tops and bottoms is that if you trade them correctly, you will be trading at the best possible prices every time.

The problem with patterns is learning how to recognize them. At the beginning you will identify mostly wrong structures, so you will need to spend a lot of time practising before being able to correctly identify them.

If you want to learn, I recommend you to use a demo account with Metatrader or the paper-trading features of TradingView. Spend one year studying a bottom pattern, trading it only. Examining your past trades when you succeeded and failed. Analyze how to improve your entries and exits.

Find others that are doing the same on forums, groups or telegram. Work together with others and you will see how beneficial is sharing your ideas and experiences as well as setting common goals with others like you.

Here is an example of how to identify a double top or bottom.

https://www.babypips.com/learn/forex...-double-bottom

The way they say it must be traded is incorrect in my opinion, so just focus on the pattern, do not follow the instructions given for trading it. That is your homework, one year demoing that or another pattern until you master it and can flow with it.

Another example, you may find more Googling for it.
https://www.investopedia.com/terms/d...and-bottom.asp

I won't initially add more information to this thread unless I realized I missed something important. You can use this thread to work on these ideas with other persons with the same interests or just ignore it.

For trading patterns, you do not need additional indicators, only your OHLC or candlestick bars. Trading is all about past and future pricing levels and areas and all that information is already printed in your chart. You do not need it does not mean that you may not successfully use them. It is all about how you prefer to trade.

But remember: once you make a decision, stick to your decision until you finish your training period of six months to one year. Try to keep things simple.

Good luck.

greetings. been lurking in the forums for quite a while, but a saw a post somewhere and got this idea, which is now under investigation only.

Say that you made a good trading system. In my case i was and am working on mine for 2 years.
My question under debate is this one: Would it be worth it selling your system?

In my case, i got a very, very good system, but i am broke. I have spent countless hours and months. If i do sell the system i will get some money that will save me a lot of time. Because starting with a small amount, can indeed eventually turn in a large amount of money but time doesn't stop.

I am only considering the idea of gaining some money from the system, but the idea on itself is too complex.
First how would you price it, i can say that it is a very very very good system. so for someone it could be worth an enormous amount of money, but that depends on anyone's capital. I know there are lots of systems but lets be frank most of them are garbage, you wont find good stuff on the internet, and at least mine is something i haven't seen on the internet.

You'd say if its good why are you broke. While making the system i focused only on the technical part. i had absolutely no money management. no stop loss either.It was so good that i thought i dont need management. I started using it 1st of January, with 2k, and learned the hard way that no stop loss is idiotic. At first i was randomly closing the odd bad analysis i had but when the big volatility hit(corona virus etc), it hurt. for example at one point i had 50 trades, 100% on shorts and 80% on buys, but one of the losing ones, ended up with me doing bad analysis. my system is very complex and hard to do. human error can and will happen. so this little error ended killing lots of profits. I did fix it after spending countless hours again, finding the right stuff. But again, time doesn't wait.

If i decided to sell, how would i go about it? How do i prove my system? how much data do you think i'd need?
How do i make sure it doesn't leak? how do i make sure the "right" person takes it? Because if the wrong person takes it, it could no longer be a good system.
All in all it does sound like selling is not a good idea. BUT, on the other hand, if i did sell and get a good amount of money, i saved a lot of time i'd spend raising my balance.

Please give me some serious and helpful answers on this. What do you think? Also if you think its not a bad idea, focus on how to go about it as well

First of all, if we do have a golden goose, we will never sell it. We might share its results, but we don’t sell.

Since you got no capital to start with, you can start by sharing your golden goose’s results on a demo account hoping that you might someday get a partner to start your real journey.

the market goes up......... and then it goes down.

and all you need to know this is your eyes...............do you need elliot wave to tell you it is going up? or down?.....or do you need macd? or volume?

do you need a strategy?

if it going up, do you sell or buy?.............this is a very difficult question.....is it not ? maybe you should read books by Brooks-he has written 4- or pay 50000 usd to James for personal mentoring........

actually that is exactly what i did for 30 years...........because it is such a difficult question.

this has cost me over 200000 usd in losses.

I think you're right. i was overthinking things. Some good sleep fixed it. I will not sell. I am not broke per se, still got more than my starting capital, just got impatient.
Just tired you know? This thing i'm doing is so complicated, so many hours analyzing, and just lost months of profits because of human error. Made new ruleset to account for human error, but its gonna take a few months again.
Thanks

Wow. You're not too lazy to write a long post, that's cool. I like what you wrote about. I also have some tips, which many people don't take into account before starting to develop their trading strategy.
Before starting to build a trading strategy, a trader should clearly understand on which timeframes it is more convenient for him to trade and with what frequency to make deals to feel psychologically comfortable. The choice of appropriate trading instruments depends on the answers to these questions. These nuances are very important, as many beginners want to develop a method of short-term trading, not realizing that it is a huge work. The point is that in this case you will have to be constantly at your workplace.
Moreover, any system will have to be adapted to the constantly changing market, and this will require some psychologically "connection" with your trading system. If a trader has received a ready trading strategy and starts to make trades on it from time to time, without paying due attention to its adaptation, then after some time this trading strategy will become unusable.
The next important question, which many people put on the first place in importance, what is the main hypothesis of a trading strategy? You should know that any trading system is based on this or that hypothesis. There can be a lot of such hypotheses, but the hypothesis itself doesn't bring any money, it needs a technical shell, a set of clear rules and methods, on the basis of which a trader makes his deals.

Simplicity is the ultimate sophistication ...

Your strategy can't be suitable for every situation on the Market. So if you want to trade successfully - make sure that you have couple strategies that can work in different Market conditions. Trade safe.

you have to know what it is the market is doing.....sometimes it moves in two legs up and down sometimes in trend and pb and sometimes in spike and channel and sometimes in just a channel or sometimes in a horizontal range.......if you do not know what it is doing then you will be perplexed. if you perplexed better not to do anything

create? why? i don't see a reason why would you like spend your own time creating a strategy. you can just buy one that is out there and profitable and just tweak it for your needs man. it's that ez. but if you want to create a revolutionary system and then sell it - that's whole other conversation and I support this idea. creating a strategy just for you - doesn't worth it, believe me.

i have found that in trading you really have to find out what it is that the market has been doing....it will likely continue......if it does not continue...then you know you have to get out.

if you do not know what its is doing..... then if it stops whatever it was doing, you will not know and you will stay in the trade. THIS I HAVE DONE FOR 13 YEARS and i suspect most people do the same thing and that is why I/ they lose.


spike and channel is one of the deadliest for those traders, who believe that markets after fast moves, will pull back.....it will not do so and will keep on channeling slowly in the same direction of the spike......trapping those who positioned themselves for the pull back.. slow death

https://www.tradingview.com/x/dAP22rk4/

.i think that -knowing what the market is doing- is the basis for all sensible and profitable trading

speculating on events such as resistance will hold......the high will not be taken out.......it will fall .......is a very unprofessional way to trade

You are so right. And yeah there is no random. Personally i am not on that level. Wish i'll be, in the future. just a wish. I'm into a stage where turning the unpredictable into small chunks of certainty takes a lot of effort. Just for a few chunks.

you know there are some deluded people out there, me included that think they'll make this awesome system and gain so much money.
To be honest, for myself, i've done some pretty amazing stuff in my life, and i thought tackling this beast would be NOT be so hard. Man how wrong i was.
It's a rabbit hole.

Play the breakout to a nearby target ...

Except if you have an algorithmic strategy, discretionary trading requires a few months or years of market exposure. New traders won't be able to understand what is in front of them.

You may pay thousands of dollars in courses and books, but it is your own practice and being determined to exploit one single strategy what most likely will give you the confidence and the pattern-recognition skills you will need to transform that simple idea in a money-maker activity.

In my opinion, the best approach when learning is to take one single instrument, pattern and timeframe. And train with it until you are able to recognize it every day.

And in the meantime you will be improving your risk and money-management skills while practising in demo.

There are persons who will work on different approaches that do not require a trend or momentum-based setup. That is why I am generalizing.

Agree, reinventing the wheel is absurd.

The strategies are there, the problem is that most people won't take the time and effort required to learn and apply them. That is why I say "take one pattern" meaning one pre-existing pattern the aspiring trader will utilize to develop the strategy.

When I say "create" I mean to implement, because most retail traders will adapt what they learn according to their own preferences because they won't have an institutional approach with preestablished restrictions.

The markets have cycles and the cycles are divided into accumulation, distribution and manipulation basically.

If you learn how to identify when one of these cycles end, you can ride the price into the next level of prices and phase of the cycle.

But that is just an abstract idea and materializing it in a strategy is quite difficult.

However, if you trade intra-day, you need to be aware of the market session and hour of the day each trading phase usually takes place for your instrument.

And if you trade the weekly range, then study week days or if you trade the daily timeframe, then study the quarterly cycles, etc...

There are also seasonality charts that can be used also to help you define your bias based on decades of price trends when you want to use cycles to develop your strategy.

It depends on what you want to predict.

If you want to predict the future using raw market data (OHLCV data), then you will have a hard time and probably zero results. Many have tried, I have seen and studied a lot of Phd papers out there trying unsuccessfully to do it.

In any case, a market is based on assets settlement and orders fulfilment. And according to the needs and positions of the market participants, the market owners need to establish a settlement plan to offer a competitive bid and ask to each of their clients. There is a certain degree of randomness, meaning that each specific point of your chart has per se a zero probability to be right, but as you see your chart as a probability cloud, then you can start to think otherwise.

But that is a too sophisticated approach and I think that it is easier just to define a working pattern and apply prediction improvements on it. In my opinion, it is better to apply statistics on your strategy than trying to create a stochastic model to make money by applying it to a market.

Nowadays an experienced engineer has easy access to advanced prediction systems based on neural networks and robots that learn through trial and error (reinforcement learning). And all that can be connected to any data source, from a csv file to your broker's API or by creating a socket-based bridge for your trading terminal.

Well done mate.

Stay safe, trade safe.

KP