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Changing strategy for market conditions

  • #1
  • First Post: May 9, 2008 4:10am May 9, 2008 4:10am
For those traders who've been kicking around for a couple of years or more...

Do you change your strategy according to market conditions? It seems to me that there's virtually no strategy that could be called consistently successful when backtesting over a long period of time (10 years +), which would suggest that the best traders change, or at least modify their strategies over time.

If so, could you give me some examples? I'm not looking for systems, but maybe reasoning as to how long you followed one strategy, what made you change it, and over what timeframe?
  • #2
  • May 10, 2008 8:45am May 10, 2008 8:45am
it sure does change

that's why there is no so called holy grail in the business

in my strategy other than the technical system I also understand the underlying fundamental behind the pattern/market behavior

if those fundamentals are changed I would definitely switch my strategy

the biggest fundamental that I think any serious forex traders should watch is the interest rate of the currencies

second, we need to have a rough description of the relative strength of currencies

without these two in our mind we are merely gambling

sorry, more to say none of the strategies mentioned in the internet incorporate these important fundamental analysis

so you can find lot of technical systems/trading methods from the internet but in order to execute them with high probability you need to go deep into fundamental. otherwise one will only find those systems profitable on a certain period of time.

all the technical methods explained are basically good and attractive, afterall it was the technical simplicity that drag many newbies into this game, but all had major weakness of unable to "explain" the fundamental reason behind it
  • #3
  • May 12, 2008 5:07pm May 12, 2008 5:07pm
Hi Gift, great response.
I'm keen to pick your brains on this. With the interest rates, what do you read into them? For eg, the US is obviously suffering and have slashed interest rates to reduce the price of credit/kickstart the economy. But then the UK with much higher interest rates is suffering similar, but finds it can't do anything about it because the risk of inflation is so great.

Two different rates, two similar predicaments no? OK, in fairness the UK isn't quite where the US is, but give it time...

And when you say relative strength, are you talking about say the strength of the Euro, weakness of the dollar?
  • #4
  • May 12, 2008 5:09pm May 12, 2008 5:09pm
Quoting triphop
For those traders who've been kicking around for a couple of years or more...

Do you change your strategy according to market conditions? It seems to me that there's virtually no strategy that could be called consistently successful when backtesting over a long period of time (10 years +), which would suggest that the best traders change, or at least modify their strategies over time.

If so, could you give me some examples? I'm not looking for systems, but maybe reasoning as to how long you followed one strategy, what made you change it, and over what timeframe?
How about changing to markets having certain conditions according to strategy. The method to me is more important than the specific market I trade
Man who scratches ass should not bite fingernails
  • #5
  • May 13, 2008 7:56am May 13, 2008 7:56am
Quoting triphop
Hi Gift, great response.
I'm keen to pick your brains on this. With the interest rates, what do you read into them? For eg, the US is obviously suffering and have slashed interest rates to reduce the price of credit/kickstart the economy. But then the UK with much higher interest rates is suffering similar, but finds it can't do anything about it because the risk of inflation is so great.
USD is still (fortunately) the leading indicator of the Market

in stock, we have DJIA (and it is just merely an average!!!), in forex we have US index or just USD in general as a major currency

if you trade stock outside the US you will find that in most stock exchange the DJIA will influence the day's bias more than 50% of the time

now, how to use this to our benefit?

in forex, interest rate play as a very important indicator of the economic strength and thus the currency as well

when the interest rate of the most important (important doesn't mean the strongest) currency is change, chance are high that the majority of pairs are adjusting themself naturally to this change

I don't pay attention to what is the current interest rate, I'm more interested in what is the tendency of the int. is it appreciating or depreciating? how terrifying is the inflation risk? you can check this inflation tendency by reading the gold chart. the higher the risk, the more likely int will go up.

if you understand this you will know that the chance for ECB to increase the interest rate was slim on April

the simplest way to apply this to your trading rule no matter what pair you play, is to never open any position 1 day prior and after the interest rate statement because that would be times for high speculation, of course unless you are playing long term
  • #6
  • May 13, 2008 8:21am May 13, 2008 8:21am
Quoting triphop
And when you say relative strength, are you talking about say the strength of the Euro, weakness of the dollar?
it is essential to get our hand on the "hot" pair, in forex our option are basically limited to the EUR, GBP, USD, JPY, CHF pairs but with more experience (eventhough I don't think neccessary) we can play the CAD and AUD/NZD

in stock we have what they called the Bullish Percentage which is basically group of sector indexes useful for doing sector comparison basically

if we don't have access to the index we can compare S&P sector index (or any other sector indexes) charts, usually an index which can achieve higher high when other only formed a head and shoulder formation to be "stronger" than the rest of the sectors

in forex we can do similar analysis, let's just use the EUR/USD and GBP/USD

G/U peaked and corrected on November 2007 while E/U continued its rally thus afterward I would measure the EUR to be stronger than the GBP. and remember that most pairs will lost momentum and volatilty near strong support/resistance and that what happened to GU since January 2008

so people eyes are currently more on E/U than G/U, which make it hot and has more tendency to trend (we all love trending pair aren't we?)

this is optional as people usually are more pair-oriented, I'm a GU lover too,
the good thing to pick "weaker" but popular pair is that pair will tend to be more emotionally-driven than fundamentally

again this is your pick, please check your recent E/U and G/U chart and I bet you will understand all the BS I talked about

cheers
  • #7
  • May 13, 2008 12:53pm May 13, 2008 12:53pm
Much appreciated Gift (sure there's a joke there somewhere...!).

How about ranging vs trending markets? If you take ranging markets - as EU has been for the past week, it obvious gives a kicking to trend-based strategies. Do you flit between ranging and trending strats?

To me this is the difference between using TPs and using trailing stops... seems like one's more appropriate than the other in different market conditions, but in yours - or any other experienced traders approach- wise to move between the two? Or even feasible to guess where one range ends and a trend starts?
  • #8
  • May 13, 2008 9:25pm May 13, 2008 9:25pm
Quoting triphop
Much appreciated Gift (sure there's a joke there somewhere...!).

How about ranging vs trending markets? If you take ranging markets - as EU has been for the past week, it obvious gives a kicking to trend-based strategies. Do you flit between ranging and trending strats?he two? Or even feasible to guess where one range ends and a trend starts?
well it is always different about what one knows and what one acts

1. what I know is that all technical strategies should basically based on the assumption that price does trend which means it has higher probability to move in one direction than the other. what I meant by picking a "hot" pair or stock was to have even higher probability for the price to slope up or down.

2. what I do as an intraday trader is to watch for repetitive patterns on daily basis. for eg. during australia and japan hours, price is more likely to move sideway, etc.

thus by applying these assumptions into your trading plan with enough confidence and luck (of course) hopefully you can exploit the Market to the fullest extent possible. so my question for you is what is your assumption of FUTURE trending and ranging markets? that's what matters in this game. if you have the answer that's good and my suggestion is YES, flip between straegies

btw, just by glancing the chart E/U was developing enough trend for me lately, again it depends on which timeframe our feet are

Quoting triphop
To me this is the difference between using TPs and using trailing stops... seems like one's more appropriate than the other in different market conditions, but in yours - or any other experienced traders approach- wise to move between the two? Or even feasible to guess where one range ends and a trend starts?
first I'm in now way has more experience than anyone. perhaps I'm only willing to sacrifice more in my life for this a$$

the answer for your question should come after your strong belief of the current Market condition

for eg. if a triangle is break to the upside or downside, it is a good sign that a ranging period is over. it has been used for decades and I believe would still be useful in the future. another uncommon example, if a price failed to reach Andrew's Median line the reversal trend would be much stronger than the previous trend, etc, etc, etc

to give a specific answer I need to know your rough trading method but I think it is safe for me to assume that you use trailing in a ranging and full SL on trending. well I use trailing only if I'm more than halfway to my first target in both trending and ranging market. I really hate to see my +50 positions turn into a loss

however, my 2 cts on for the key shift of the trending/ranging strategy is not on the SL but on the TP

here's why, in a trending market, I believe that price will easily breakout previous support/resistance, thus making my lower than support or higher than resistance target more feasible. in a ranging market, let alone S/R breakout, price bounces even before hitting minor S/Rs, thus my TP on a suspectful ranging market should be lower and consequently to keep my risk/reward ratio, my SL should be squeezed

last, I will elaborate more on the "hot" term. by hot I meant that more people are watching the Market, which also means more newbies are coming to play and you know what newbies do? they trade emotionally. and they are the real cause of a bubble. I really love the word panic and greed, these two will deliver strategic traders to wealth.

good luck !!!
  • #9
  • May 13, 2008 9:47pm May 13, 2008 9:47pm
nobody knows when the market will change.... so preparing for it is useless.

you know after the fact.

why do you think so few people are consistently making money?
  • #10
  • May 14, 2008 12:16am May 14, 2008 12:16am
Quoting tdion
nobody knows when the market will change.... so preparing for it is useless.

you know after the fact.

why do you think so few people are consistently making money?

why do you think nobody knows when the market will change?
  • #11
  • May 14, 2008 12:19am May 14, 2008 12:19am
Quote
nobody knows when the market will change.... so preparing for it is useless.

Agreed. By the time you know the markets have changed they're usually ready to change back. Find a simple, robust method and stick with it.
  • #12
  • May 14, 2008 2:04am May 14, 2008 2:04am
Tdion:
nobody knows when the market will change.... so preparing for it is useless.

-- I agree preparing is useless, but reacting surely isn't? In a simple example, if volatility massively increases (as it has with E/U over given months), I increase my stops to give trades breathing room. This works. But I've not dabbled with TPs vs TSLs (I usually TSL), and has anyone experience of doing that when market's ranging to good effect? The danger as I see it is that while TPing, you could miss out on the one big move which makes TSLing so worthwhile. But it's tempting

Rabid - this isn't so much as strategy whoring, as tweaking is what I'm driving at.
  • #13
  • May 14, 2008 2:25am May 14, 2008 2:25am
Quoting triphop
Tdion:
nobody knows when the market will change.... so preparing for it is useless.

-- I agree preparing is useless, but reacting surely isn't? In a simple example, if volatility massively increases (as it has with E/U over given months), I increase my stops to give trades breathing room. This works. But I've not dabbled with TPs vs TSLs (I usually TSL), and has anyone experience of doing that when market's ranging to good effect? The danger as I see it is that while TPing, you could miss out on the one big move which makes TSLing so worthwhile. But it's tempting

Rabid - this isn't so much as strategy whoring, as tweaking is what I'm driving at.

should be fine as long as the wider SLs still fit your risk reward expectation

you do have your risk/reward calculation right?

as far as my experience with TSL goes

sometimes price will hit my new SL while actually it could hit my TP, sometime the TSL will safe me from getting stopped at my original SL errr I dun really care about that since we are all playing probability games

same theory goes to the trending ranging, eventhough I know when the market has higher probability for trending/ranging I dun really care about it, I know my strat and of course I know when is the best time to put them into play
  • #14
  • May 14, 2008 1:36pm May 14, 2008 1:36pm
Yes, the TSLs are fine - that's not causing me any bother. It's the TPs vs waiting to be stopped out by TSL that's bugging me.

I know there's no definitive answer because it depends on your own strategy, TFs etc, but I just wanted to hear others how often they change/tweak their strategies, or if they don't
  • #15
  • May 14, 2008 9:32pm May 14, 2008 9:32pm
Quoting triphop
Yes, the TSLs are fine - that's not causing me any bother. It's the TPs vs waiting to be stopped out by TSL that's bugging me.

I know there's no definitive answer because it depends on your own strategy, TFs etc, but I just wanted to hear others how often they change/tweak their strategies, or if they don't
and on top of that, never widen your SL, but increase your TPs squeeze your SLs that's the only adjustment appropriate to do in the ranging/trending Market switch esp. for short term / intraday trades....

if you feel that your SLs always get hit before price reverse which is always the case for crossing/breaking strategy, get a better entry, limit on the retracement and wait for it to get filled in, if not, then there's always tomorrow, and tomorrow will be better....

never look back and regret "oh I should've or would've" ... I think Cramer said that and that worths more than 2 cts
  • #16
  • May 16, 2008 9:28am May 16, 2008 9:28am
the trade on GU just now was a good example of how traders should make a logical judgement of how the current market behave

the range of GU was narrowing since early May 2008 and ended on around 15 May 2008 late US season by breaking up the sloping triangle

if you were entering GU trades from May 2008, esp earlier this week expect less profit and shorter SL and gradually increase your price range expectation after the triangle break

my entry for tonight was 1.9455 and managed to close it at 1.9530 since I knew the ranging had over, now people are convinced of the direction, indicators started to cross up, volatility increased etc.

there is no reason for expecting a +75 pips trade in a narrowed range condition

again good luck for all and never quit to learn
  • #17
  • Sep 20, 2008 10:40am Sep 20, 2008 10:40am
subs
  • #18
  • Oct 22, 2020 3:11pm Oct 22, 2020 3:11pm
You should change your trading plan according to the market situation. Otherwise, you can face a great loss in this market.
  • #19
  • Last Post: Oct 22, 2020 8:37pm Oct 22, 2020 8:37pm
To be flexible in the forex market. Market conditions are not always the same and the technique should be changed to make a profit in different conditions. But I think the market context never changes. I have met many traders who have been working with market contexts for over 10 years.
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