By Andrey Stoychev
Any average trader knows that it is very difficult, if not impossible, to have a universal working trading strategy. Each approach, each tool, analysis or indicator works in one way while the market is in a rage and in a completely different way when it is in a trend. Sometimes a strategy works in high volatility and low liquidity, but performs very poorly in low volatility and high liquidity. And of course, any other such combination could also be true.
Along with a trader's self-control and how successfully he controls his emotions and follows his own rules, the changing and dynamic state of the market is the biggest enemy of successful trades in the long run. We all know that you can get lucky with the most illogical and risky strategy. You can make money in one, two, 10, even more trades. But to be successful, you must have months and years of successful trades. And during this time, we face different market conditions, and hence the strategy either has to undergo different metamorphoses and additional adjustments or be truly unique. Can this be easily achieved?
Why is it difficult for someone to change the settings and logic of the strategy based on the change in the market? The answer is very simple - no one knows when the market changes or if you do, you understand it too late. In fact, if you understand when and what the state of the market is, you already have a big advantage and you don't need to follow a strategy, you just ride on the crest of the wave... Difficult, right?
Is it easier to create a unique strategy? In order to create a successful, that is, a unique and independent of market conditions strategy, in first place you need a lot of experience and market research. It takes a lot of patience and handling a lot of data and information to eliminate dead parameters, difficult, pointless and possibly expensive trading tools. It takes a lot of testing, a lot of failed trades, which from the experience I have and despite all the different backtests, it's clear that it takes years. And this time should be used to the full to be able to go through all the possible states of the market. Not only on a book (using historical data), but also live - with demo, and in more advanced stages - with real accounts, money and transactions.
After the initial rough work, comes fine tuning and risk management. The mental setup and preparation for starting real trading is also very important, as well as the head-on collision with reality - a lot of losses, a lot of time and energy. Then a new portion of analyzes and calculations, until gradually the light in the tunnel becomes a nice trader's sun and we stop seeing the ghost from the headlight of the oncoming market train, which until now has brutally caressed us on all the turns and uneven rails.
I have experienced all these moments on my back over the years, and that is why I now quite calmly and confidently explain the steps of building a successful strategy. I went through all the phases, I had hardships and happy moments, losses and gains, but in the end I decided on the ideal option for me:
- Trade at a time convenient for me – 1-2 hours on average per day between 08:00 and 10:00 CET;
- Exclusive and only intraday trading, without unnecessary prolongation of the life of the position and mental strain;
- One or a maximum of 2 transactions per day, which reduces the danger of overtrading and generating excess costs for spreads, commissions, interest;
- One of the most liquid and popular instruments, which minimizes the chances of illogical and manipulative movements - DAX (Deutscher Aktienindex (German stock index)) - this is the German benchmark, making up the 40 largest and most liquid local, but internationally important , companies. In total, these companies account for 80% of the capitalization of public companies in Germany;
- A very popular tool and easily available through most brokers and investment firms. Possibility of two-way trading (short and long positions) and leverage if needed to determine a more accurate and precise definition of risk;
- Clearly expressed stops, which protects capital and, in turn, facilitates risk management;
- Every day there are three options – buy, sell and no deal. In different than expected market conditions, this protects against mistakes and losing streaks.
It would be very difficult for me to explain the mechanism of this intraday strategy in one article, but I would highly recommend that you use the listed advantages by orienting yourself and looking around for your strategy, tailored to your needs, opportunities and appetite for risk.
If you find a combination of these parameters (which are unique to each individual trader) you should have a good foundation in developing your winning strategy.