Need a trading strategy? Test your ideas against the market. Here are some tips
Today I want to talk about the common mistake that I see among traders.
You see, there are many different strategies. Some based on price action, patterns. Some based on technical indicators. The list goes on. You can catch trend with them or catch reversal moves.
In most cases, traders borrow ideas from different strategies and try to build their own. Nothing wrong with that.
They force it to work on instrument and time frame they trade most of the time.
For example. Trader likes to trade on 15-minute EUR/USD. He or she will try different strategies on that 15m EUR/USD chart. In many cases, these strategies won’t work that perfect. They were created by someone else who trade stocks on a daily time frame and now our trader tries to implement that strategy in a different environment.
Tips are simple.
Test your strategies on different time frames. In many cases, the higher time frames the better results. The strategy may have mixed results on 15- or 30-minute but it may work much better on 4-hour and daily time frame. Same strategy, same rules, the only difference is the time frame.
Test your strategies on different instruments. You have stocks, indices, currencies, crypto, commodities. For example volatility on currencies is lowest since 2014. Still, if you check stock indices, oil or Bitcoin charts you will see nice trends here. Maybe your trend following strategy won’t work great on currencies but it will work on oil and crypto which are trending.
I see that a lot when I build my robots (I trade both manually and with robots). You can’t build a universal robot that will work with stocks, currencies, on all time frames. You build a robot and test where it works great. If my robot trades around daily pivot points I want to trade it on instruments that respect these levels (mostly biggest currencies). If my robot trades by catching trend moves then I need to find trending instruments (now it may be Bitcoin or stock market’s indices such as SPX).
We can dig dipper.
Do not force yourself to trade with specific style because of other traders you follow. That’s a common mistake – people see that some traders make money in day trading Forex or penny stocks trading and they try to replicate this. When reality is that these are the hardest ways to make money in trading. Maybe swing trading on higher time frames will be a better option for you?
So how to find the answers?
As always, backtesting can be helpful here. You can backtest on paper or you can use some tools. TradingView and their Replay option should be enough (it’s a good place to start because you have almost all important instruments such as stocks, currencies and other and Replay option makes it easy to test them all). There are also other tools and simulators which can help you to backtest – if you use Metatrader then FXSimulator from Soft4FX should be a good choice.
There is no simple solution or strategy for success in trading. You have to take your ideas and test them against the market. If you find your spot – your time frames, your instruments, you can improve your strategy.