Many books and articles have been written about how to use moving averages and a variety of technical indicators to trade the markets. Amazingly, very few of these books or articles show actual test results.
After finding rules that work, many traders are tempted to optimize the parameters. This is easy to do, and is the beginning of the end of many solid trading plans.
Finding a logical reason that your trades should work is the first step in coming up with a market beating strategy. After that, testing is required to be certain your idea actually works in the market because, in the end, markets are driven by emotions and logic will sometimes fail in the face of that.
Designing a trading system is simply a series of decisions. First is deciding what edge you have over all the other players in the market. This isn’t as difficult as it sounds. Using a logical approach to the markets, any individual can develop a unique insight that lets them profit.
To be successful in trading means that you make money and the most important rule new traders must understand is that it’s more important to make money than it is to be right.
Traders buy and sell for a variety of reasons. Some traders will make decisions based upon news headlines or gut feelings. One may read that gasoline prices are at record levels and decide they have to go down, while with equal certainty another trader decides the news justifies even higher prices. These strategies rely on luck, rather than mathematical probabilities, to succeed.
A trading system is a collection of formulas and rules that generate buy and sell recommendations. Trading systems have been developed for decades, but the recent advances in technology with the pc and internet have increased interest in them and broadened the number of people actively involved in their use. Technical indicators such as oscillators, …