When I am thinking about a new trading strategy I've found it helpful to at first focus on the 'why' this strategy should make money before getting to the 'how' the strategy makes money. And if someone is explaining their strategy to me and can't answer the question of why the strategy is supposed to make money I immediately become pretty skeptical. Trading is more than pattern seeking. Looking at patterns is helpful to identify how to make money but first you should identify why your strategy deserves to get paid - what service are you providing the market that justifies your income - and then look at patterns to then identify when this service you provide has greater or lesser value. Here's a few of the 'why's' I can think of: (futures) 1) Providing "smart" liquidity. Stepping aside during toxic flow but taking the other side of uninformed traders. A very good strategy here makes a little less than 1/4 increment per round trip. 2) Simple information dissemination. This is the speed game. New information comes out. Economic release, crop report, pure arb, etc and prices need to move to adjust to the new reality. You serve the market by adjusting the price. 3) News dissemination. Complex news comes in many formats. Not everything is coded up to be machine readable. Standard news needs people to interpret and act. Usually you have about 2 seconds for standard products and maybe up to 10 seconds for less obvious products. Really esoteric news/product combinations can disseminate over a period of hours. 4) High correlation microstructure relationships. This is actually a good place to be in. You need to be fast but not overwhelmingly fast and there are tons of these relationships. Think of things like the energy or ag complex. Lots of relationships and short term correlations. Looks for iceburgs or stops or other short term disparities. 5) Medium term 'macro' relationships. Sometimes these get out of whack and someone needs to bring them back inline. Need to have a good understanding of the actual products to not get killed and a pretty big balance sheet. 6) Calming the panic. People and markets tend to over-react to news or to extreme price movements. They may be forced to exit a position either by their own risk tolerance or by policy at the end of the trading session. These episodes of panic that are purely price driven tend to be short lived and you can get paid to 'calm the storm'. I think that no matter the specifics of your strategy you should always be able to answer the question of what you are providing that market that justifies you getting paid for your efforts. If not one of these reasons then something else that provides value.
Buy low, sell high. This works because it's the only mathematically proven strategy that makes money.
If you bought Enron at $40 after it retraced, well...... So even buying low and selling high don't always work well.
The trend is you friend. That's it in a nutshell. Provided the strategy reflects this you will make money, everything else is fiddling at the edges. Cheers John
Right now I am in the last phases of development of an automated strategy. Its core is: Buy high, sell higher. As johno1 said, trend is your friend.
In general I will agree but markets still go down as well as up, plenty of money to be made coming and going. Cheers John
BLaSH is not a strategy, it's a goal. The strategy would be the counter-trend detailed plan that enables this to happen.
Trading with the trend is easily the simplest and arguably the best trading metastrategy, but is not an actual strategy (aka detailed plan). This is why so many traders have difficulty implementing it: a lack of details. This is the challenge: coming up with a detailed plan for trading with the trend that is consistently profitable.
Given that most people buy high sell low (as a goal and as a reality), they just need to do the reverse of their strategy, whatever it may be. Is that detailed enough ?