Strategy Development:

Strategy development
is a process, each process requires definite steps. In this case:



1- Goal



2- Plan



3- Initial Strategy Development



4- Execution of Strategy



5- Review of Results



6- Error Correction



7- Re-Deployment



8- Final Strategy


Let us take the first step and see how we go about it:


The webinar can be found here: Consistent Profits - Strategy Development





                                                                       What’s the Goal?








  A strategy is a means to achieve a Goal/vision.




•  So our first step is to define where our strategy will lead us.




•  When I was asked this question at the very starting of my trading my answer was: I want to trade
   forex for a living(starting cap at the
time: 1000 USD).













            Now lets get to the core of how to set our Goal:





  First lets tweak the question a little:

                                        
What's the realistic Goal?



  This makes it easier to decide the factors/elements to consider in our decision making.



  The factors:
     
a) Starting Capital

     
b) Experience/Expertise Level

     
c) Acceptable Risk

     
d) Screen/Analysis Time




Once we know all these, the Realistic Goal will be easily defined.









                                               Assumptions:





Going forward we will need to use the assumptions:




Starting Capital: 10K(10,000 USD)




Experience/Expertise Level: Beginner(6 months demo minimum)




Acceptable Risk: 1% per week




Screen-Time available: 8-10 Hours a day.

Taking the above into consideration:




                                         •GOAL:  Monthly: 0-6%




                                                      PLAN







Goal: 0-6% per Month



Now that we have our Goal its time to Plan.



While this is counter-intuitive, I prefer to plan before going to strategy development.




                                “Plan your Trade, Trade your Plan”
                                                  
Wise Advice








Making a plan is difficult and essential.




Plans can be simple or complex, both work.

The
things to consider when planning:




Is it suitable to our unique style of trading?




Does it play to our strengths?




Checks and balances for everyday application of plan.


This topic can take up a lot of time. We will discuss in-depth in future articles.




                                         Why Demo’s help in Planning:








Remember the aptitude test in High School?



Demo’s are forex trading aptitude test. They help us to recognize our aptitude to various types of trading.


Not so useful if we aren’t able to comprehend the
results.



I was very surprised by my aptitude test after high school, didn’t have a clue about how to comprehend the answers luckily the testing authority gave me the result in a few words. No such luck in trading.




                                                 Analyzing Demo Results:








Basic Analysis:






Put all your trades in an excel sheet.

 Clear the clutter:







Remove all trades with no Stop-loss & Target.




Put 3 reasons for each trade.




Now, Remove all trades for which 3 reasons are not available.




Remove any trades where initial Stop-Loss was greater than Target.


The above would be easier with a Trade journal.




                                                     Data to Intelligence








We have data, now we must convert it to intelligence.

  The process is simple, ask a question and look to find the answer from the data:





A few of the questions which I would ask:





     a) What is the type of market(trending, ranging, breakout..) in most of the profitable trades?


         
Gives me my most successfully traded market.


    
b) Was at any point in these trades the Position size so high that a Stop-loss hit would be 3% of
         starting capital?


         Gives me a check on whether I was gambling and got lucky.



The above two questions help us find 1 strength and 1 potential weakness.
 

There is a lot more we can learn about our strengths and weakness’s from this data, just keep asking relevant questions.







































                                             What is the basis of a Strategy?








Every strategy works.



Will it work for you is a question which needs to be answered.




A strategy needs to be based/tailored according to the traders strengths and weaknesses.




If you agree with the above, we have our first task for Strategy Development: Recognizing Strengths  and Weaknesses.




                                                              Strategy:








We have the basis/controls of our strategy already:


1- Max Loss: 1% per week


2- Time-frame: 4H, Daily


3- Only trade our strength: Market Type




The above two will act as our basic filters.




This is common for basic and intermediate strategies.









Let us add one tool which is used by professionals, intermediate traders and anyone else who uses charts: TRENDLINES.


We can now get our Basic or 1st strategy:

  • Entry: Based on Trendlines, our filters (1% max loss per week, Preferred market type) keep us out of trouble.
  • Stop-Loss: Based on Trendline Support or Resistance. Again the filters will act as check.
  • Exit: Again Based on Trendline.


In webinars I have covered indepth: Goal and Planning. Will send out the articles and links for the same soon. Delaying the last part: Strategy Development and subsequent steps till we I get the articles up here.