What if you had an algo which understood market sentiment and knew when the market was ripe for buying and selling with trader being interested in long only trading. So when the algo indicates get out do you then find another system to get you in?
I'm not an algo trader. Yet, I would think that if a algo only gives signals/trades in one direction that correlates with the current market sentiment... I will assume that when market sentiment changes...that algo would be idle (not producing any trade signals). It's then up to the trader to design another algo system to exploit a different market sentiment. Simply, if the trader does not have another algo for other types of market sentiment...that trader will be just taking it easy and waiting for the system to start spitting out signals again for him/her to trade if/when market sentiment changes to the market sentiment that the system can exploit. wrbtrader
"I will assume that when market sentiment changes...that algo would be idle (not producing any trade signals). " For non intraday trading, correct, common knowledge there are times for engagement and non engagement. "It's then up to the trader to design another algo system to exploit a different market sentiment". No. There are really only 3 phases to the market, long, short and sideways/chop. Some briiliant minds may be able to profit going long in a falling market or chop but it's like swimming against the current. A better strategy is hitting it hard when conditions are aligned with market sentiment this way risk it lowest and gains are greatest. Anyone who is employed in any task needs a break, trading is no different, why be a slave day in day out in market conditions which indicate your money is subject to unnecessary greater risk, in actual fact skewed against making a profit. Unfortunately we are wired with a bias, we see a stock making gains against market sentiment and believe we could have reaped that. imo, it's a falacy because random outcomes is what it is, not the norm, cannot be anticipated. For example you may go in to trade outliers, but for every winner you will hit 5 losers. Activity does not always equal progress.
There's a difference between phases of market, market sentiment and market context. In fact, different types of algos are designed for such. Regardless, if someone's one strategy is to only go Long in uptrends...that's what they should do instead of trying to go Long in downtrends. Thus, that strategy that's designed to only go Long in uptrends should be hitting it hard in uptrends and idle (sidelines) in downtrends. Yet, I don't believe an algo will be more discipline (stick to the plan) than none automated traders that will tend to get caught by that falacy that you're talking about...breaking our rules in the trading plan because of something we visually see on the charts. Best to just stick with one strategy and learn to only trade the markets that the strategy was designed for until you're ready to diversify into other types of market conditions via different strategies. Many financial institutions do this with their employees. They hire oil traders, another department for metal traders, another department for fixed income traders, another department for wheat/soybeans/corn traders and so on. They do that because they understand its more than just 3 market phases. There's different fundamentals involved, different geopolical involved and many other things that makes it very difficult for one trader to just pick up and apply that same one strategy to a different asset. Reason why I think its strange when I see retail traders trading many different markets in the same day or week instead of just concentrating only on one market until they master it. I'm sure you see this too. Someone one day trading futures, another day trading forex currencies and another then trading stocks and so on. It's as if they're part of the camp that you got to always be involved in the markets...trade whatever they think is moving (that's hot or making the news) because of that belief we can reap the rewards. My point, this isn't just about one strategy...its also about one trading instrument for that one strategy...understanding their limitations and your own limitations. wrbtrader
I struggle with this very hard. I know what I need to do and I know what I can do that works, but I always feel the urge to do something and after the fact I can look at my trades and say "that wasn't my setup, I just wanted to make something happen"...I've lost a lot of money (to me) because of this.
Size of any trade has to reflect the damage it can cause to your account if it does not go your way (regardless of signal frequency).
I'm thinking about going down to trading only a few stocks rather than looking for certain setups only whichever stock has what looks to be my setup...to try and avoid the temptation to always be doing something.
I appreciate that. Right now I'm trying to crack some strategies in equity options but I'll keep you mind.