Good morning all,
I recently received an email from a reader M.K. with relation to his best trading strategy. Hereunder is the body of the email I have received, in relation to his/her methodology:
“My best trading strategy…
1. prv.close less than prv.range – weak, else strong
2. weak stock: open less than close it is very weak, else very strong
3. strong stock: open greater than close it is very strong
4 chart observations to follow:
a) watch for higher low’s for buying
b) watch for lower high’s for selling
very weak buy above average of (yday close and today open)
very strong sell below average of yday close and today open”
Hereunder are some comments I have provided:
1. I like the fact you don’t use the indicators and you have a simple plan
Please think about the following:
2. you are looking only at the previous bar. In my opinion, this is too short sighted. It is important to look at what is happening in the larger timeframe as well. What is price doing in the weekly timeframe? What if you have a closer area of strong or confirmed support or resistance in the daily timeframe ? What if price is in a sequence of moves up or down on a timeframe larger than 1 day?
3. Define what a weak stock is. Less than close: how much is that 0.2%, 0.5%, 1%?
4. Define what a strong stock is. Greater than close: how much is that 0.2%, 0.5%, 1%?
5. Chart observations: are simple and well defined
6. Again what very weak means, how much? Can you provide a measure?
7. What very strong sell means, how much? Can you provide a measure?
8. Unfortunately as it is defined at this stage the method cannot be replicated and its effectiveness, reliability and expectancy cannot be measured. But it can surely be improved in this area.
9. It’s a good starting point and you will probably need to add more details and make the method replicable and measurable.
10. Moreover, what is your risk? Where do you exactly enter? Where is your stop? Where will you take partial profits? Where you will exit the full position?
11. Do you have an entry technique, do you filter your entries if so how?
12. What is your risk? How do you define your 1R? Is that 0.5%, 1% or 5% of your account?
13. What are your trading goals? Do you have written objectives? Do you have the psychology in place to follow your strategy?
What is your take? Please answer below or let me know it on Twitter.
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Have a good day