Hi
New to trading, still reading up on it.
Just if I could get a confirmation on this, that is, i only use one strategy at a time until it fails??
If so, what counts as a strategy?
Lets say I trade FTSE and I position trade and use double top double bottom strategy, does this mean I do not consider any other charting pattern like pennants, etc as long as that strategy remains successful?
Or is the strategy itself to trade using just charting patterns generally?
From the former option I could consolidate my strategy by using trading indicators. The latter opens me to different options however.
Whats the general consensus on this?
Regards
You shouldn't limit yourself to just one strategy at a time. That would be the same as putting all your eggs in one basket. Yes, you spread your risk across instruments, but you are still at the hands of the market state at the time.
For example: you have a trend following strategy, but the market is consolidating. You will find the vast majority of instruments also following the same as the index. Therefore you have to endure the constant to and fro, whipsaw, of being stopped out.
Now if you have two strategies, one for trend and one for consolidations and they were both firing signals, possibly even on the same instrument, you take a hit on some of your trend strategies, and start getting results on the range bound. Now what if you have reversion to mean strategies? do you see where I'm going. You can exponentially increase your potential return.
Overall you stand a much much higher chance of success with 3, 4 5 strategies that "work". I'll come on to that word... work
you asked what constitutes a strategy..
you need an entry criteria, exit, position size, possibly target, and a stop. You might want to add conditions such as higher time frame confirmation, the state of the market, the relative strength etc but those conditions are completely up to your own ccritera.
so taking your example of chart patterns, where a double top/bottom is looking for new trends to start, a pennant is looking at trend continuation. You could add consolidation phases so yes, you should be looking to trade multiple strategies
Ideally these strategies are being used have proven to be successful. They have a high hit rate, with a better than average win to loss ratios etc. You could test all these strategies together of course, but just make sure your logs record the strategy that fired etc. when you have multiple strategies on the same instrument, one going long, one going short potentially, with different stops then it gets confusing.
I'd probably say many don't even find one that works for them. I personally doubt you'd run out of strategies, but you'd run out of time or money if you only tried trading one at a time until it failed.
hope this helps.
