Tag: Trading Systems Guide - Page 2

What loss limit can I use in my trades?

Again, as long as I speak of losses, I must start this article by saying that is completely impossible to avoid losses. Sooner or later they come to all traders. A good trader simply accept them consciously, which also involves applying systematic rules to keep the losses well controlled.

This article will not discuss the position of the stop loss, it will focus on the loss limit on volume that should be applied in all trades. That is, the maximum amount of money that would be lost if the operation goes wrong. Knowing this amount is essential to calculate the size of the trade.

The scientific method in the development of trading systems

by rcanessa

Tell me one thing: how do you validate your trading system? How can you be sure that by following these entry and exit signals from the market you will have profitable results? Just because you have executed a backtest and it has given you good results?

In today’s article I propose to rethink your way of working and begin to apply the scientific method as a procedure of development and validation of trading systems.

Trading systems based on models

by rcanessa

As we said in our previous article, we can classify trading systems into two groups: those based on models and those based on exploitation or data mining.

In this article we will discuss in detail the systems of the first type, defined as those who propose a model to represent the behavior of the market and from it, try to get benefits.

The algorithms that are part of this group are usually very simple in terms of the rules they use, although its development is usually relatively complex depending on the algorithm. The starting point of the models used for this type of strategy is the detection of a market inefficiency we want to exploit. Inefficiency produces an anomaly or a pattern on the price that can be described using a mathematical model that allows us to predict to some extent where the price will be in the next period based on a function based on historical price information.Let’s look at some of the most common strategies based on models.

A New Way to See Trading Systems

by rcanessa

Although you probably have already noticed it, the trading systems are evolving and becoming increasingly technical. As you can imagine, some professional traders recommend to make a qualitative leap and try to convince once and for all that the use of trend lines, price chart patterns and obsolete oscillators in the same way that comes in thousands of books it is not exactly the best approach to winning in trading. I know this is a very broad and intense debate and that many people are not quite agree, but I plan to present new ways of seeing trading that might be interesting for some.

That said, we will introduce a new way of looking at trading systems. And for this let us first reformulate their classification. Typically, systems classify roughly in the classical groups of trend followers, countertrend and pattern-based. But today I propose a completely different alternative to any other classification that you may have seen.

Considering how a system is developed, we can establish two groups of trading systems: trading systems based on models and trading systems based on exploitation (mining) of data. We will describe these groups in detail.

What is a Robust Trading System?

by rcanessa

The difficult part to begin to trade in any market is to define the strategy or trading system that we are going to apply to make money, as there are many trading systems but:

Which trading systems are really robust?
What are the main features of robust trading system?

A robust trading system is a trading strategy that is designed to perform well under different market conditions and over long periods of time. A robust trading system is not overly sensitive to minor changes in the market or to specific market conditions, but rather has a built-in flexibility to adapt to changing market environments.

A robust trading system typically involves a combination of different trading strategies and risk management techniques that are tailored to the individual needs and objectives of the trader. The system should have clear rules for entering and exiting trades, as well as a well-defined risk management plan that includes strategies for managing drawdowns and minimizing losses.

A key characteristic of a robust system is that it has been thoroughly tested using historical market data to ensure that it has a high probability of success in the future. This testing should include multiple market scenarios and time periods to ensure that the trading system can perform consistently over a wide range of market conditions.

Overall, a robust system is designed to help traders achieve their trading goals while minimizing risk and maximizing long-term profitability. By having a well-designed and thoroughly tested trading system, traders can have confidence in their ability to navigate the markets and make informed trading decisions.

We can do a practical exercise to evaluate the robustness of two well-known trading strategies:

Forex Money Management Guide

by rcanessa

In this section, we will try to explain what is money management, what are the different techniques used when applying it, as well as other concepts related to this topic.

Introduction to Money Management

Money management is probably the most important aspect of managing a trading account. It is something so simple that can be learned in ten minutes and certainly is one of the most important causes of losses for most traders, usually in a reduced time.

As the name suggests, Monetary Management is nothing more than a set of techniques that help us to determine the size of our position to control potential losses that may arise when the market move against us.

Due to the high leverage offered in the Forex trading, many inexperienced traders assume a higher risk than any investor should take, resulting in hardly recoverable losses.

Scalping Guide for Traders

by rcanessa

What is scalping?

The scalping can be defined as a very effective (but also risky) trading technique which has become one of the most popular strategies in recent years. It is also known as “Quick Trading” and is one of the most effective trading strategies used in highly liquid financial markets such as Forex. Scalping is a series of short term operations (buy and sell fast trades) over the trading session, which can reach even the hundreds of daily trades with ease. In this case, it involves transactions that may take 1-2 minutes on average and sometimes even a few seconds.

The scalping is classified as an intraday trading technique, ie transactions whose duration is less than a day and can last from several seconds to several hours. Through the scalping, a human trader can make up to 20 or more buy or sell buy and sell trades in an hour to profit from micro-movements of the market. Automated trading systems based on computers are capable of a much larger number of scalping operations per day.

Common money management techniques for Forex

by rcanessa

In this article we will discuss some of the most popular techniques of money management applied in trading. Although the topic can get complicated and also there are many techniques, we will focus on the most important.

Fixed Capital Percent Technique

This technique determines that we should risk the same percentage amount over the size of our trading account in every operation we perform. It has several advantages, for example, when we win, we will gradually increase the size of our position, thus harnessing the power of compound interest, while when we lose, we will reduce the position size, protecting our account from further losses.

It is probably the most widespread money management technique among traders, because a priori, is the one that offers more advantages.

Why Trading Systems Stop Working?

by rcanessa

Developing an effective trading system can be a challenging and time-consuming process, and once you have one, it can be exciting and rewarding to see it consistently generate profits. However, occasionally, you may experience your trading system suddenly stop working, and what was once a profitable strategy, now appears to be losing money. In this article, we will examine the … Read more

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