Let's Discuss the Construction of Trading Strategies
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Technical Indicators and the Holy Grail
- When it comes to trading, most people are familiar with technical analysis indicators such as the common K D, M A C D, R S I indicators, Moving Averages, Bollinger Bands, etc., which are widely used in various commodities.
- Trading strategies, built upon technical analysis, usually consist of multiple different technical indicators, with clear entry and exit definitions. They can be backtested to reveal long-term win rates, performance, losses, maximum drawdowns, etc., providing insights into the strategy's effectiveness and suitable leverage.
Let me share a fact with you: Fundamentally, these well-known technical indicators have their theoretical bases, meaning each can be a "Holy Grail" if used properly.
In my opinion, profitable trading strategies are everywhere, though the varience of quality are huge, and some of the strategies don't make any sense.
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The myth of high win rates in trading strategies
-Some long-term profitable strategies do not necessarily have high win rates. Many decent trading strategies have win rates below 50%, or even 40%, but can yield good returns over time. Perhaps you can add some technical analysis indicators as filters, but while this may increase your win rate, it could also potentially cause you to miss out on some excellent trading opportunities.
- Some long-term losing strategies, on the other hand, have high win rates, but often result in losses. Why ? Consider the common "Averaging-Down" strategy. You may win 9 out of 10 times, creating an illusion that averaging down never loses. But if you lose once, with a loss of up to 50% of your capital, you need to gain 100% to recover. Many people are eliminated by the market at this point.
I won't deny the existence of high win-rate, high-performance strategies. Perhaps it's just my limited knowledge and experience that prevents me from reaching that realm. But as long as I can consistently profit and achieve expected return rates, beating the market returns, I'm satisfied.
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When constructing a trading strategy, ask yourself: what's your annual return rate target in percentage?
Remember, high returns always come with high risks.
- Ask yourself, what is the annual return you're aiming for in your trading? And the the fixed deposit rate at banks is ___%, average market return (ETFs, funds) ___%, return from investment-linked insurance ___%
- I often see beginners with only 20,000-30,000$ (usd) in funds fantasizing about making a living through trading, but almost 99.9% of them failed.
Why?
- A 20% annual return is already a benchmark among professional traders. If you only have 30,000, how could you live on a profit of 6,000 a year? Not to mention using compounding to grow your capital, or with smaller amount of capital.
- Chasing high returns with leverage could result in high losses, or even complete wipeouts.
And this always happens to beginners.
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.
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When setting a trading strategy, you must consider your annual return rate target and the associated risk. Remember, high returns always come with high risks.
Successful long-term trading strategies often include:
1. Generally Works. Be applicable across different commodities and have a positive expected value.
2. Make Sense. Clearly align with fundamental market trading principles.
3. Acceptable Win Rate. Maintain a sustainable win rate to avoid consecutive losses. (For instance, a win rate of only 30% implies a 2.8% chance of losing 10 times in a row, and a 0.5% chance of losing 15 times in a row. How many stop-loss hits can your capital withstand?)
It's not easy to find such strategies in short-term trading due to the high randomness of short-term market trends. However, some professional traders leverage this randomness to create profitable strategies. Swing trading, on the other hand, is less challenging.
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I am Beta, hope my article is helpful to you~
Please hit the "Like" , leave a "Comment", or "Follow" me.
Your support is my motivation to keep writing :D
.
.
Technical Indicators and the Holy Grail
- When it comes to trading, most people are familiar with technical analysis indicators such as the common K D, M A C D, R S I indicators, Moving Averages, Bollinger Bands, etc., which are widely used in various commodities.
- Trading strategies, built upon technical analysis, usually consist of multiple different technical indicators, with clear entry and exit definitions. They can be backtested to reveal long-term win rates, performance, losses, maximum drawdowns, etc., providing insights into the strategy's effectiveness and suitable leverage.
Let me share a fact with you: Fundamentally, these well-known technical indicators have their theoretical bases, meaning each can be a "Holy Grail" if used properly.
In my opinion, profitable trading strategies are everywhere, though the varience of quality are huge, and some of the strategies don't make any sense.
.
.
.
The myth of high win rates in trading strategies
-Some long-term profitable strategies do not necessarily have high win rates. Many decent trading strategies have win rates below 50%, or even 40%, but can yield good returns over time. Perhaps you can add some technical analysis indicators as filters, but while this may increase your win rate, it could also potentially cause you to miss out on some excellent trading opportunities.
- Some long-term losing strategies, on the other hand, have high win rates, but often result in losses. Why ? Consider the common "Averaging-Down" strategy. You may win 9 out of 10 times, creating an illusion that averaging down never loses. But if you lose once, with a loss of up to 50% of your capital, you need to gain 100% to recover. Many people are eliminated by the market at this point.
I won't deny the existence of high win-rate, high-performance strategies. Perhaps it's just my limited knowledge and experience that prevents me from reaching that realm. But as long as I can consistently profit and achieve expected return rates, beating the market returns, I'm satisfied.
.
.
.
When constructing a trading strategy, ask yourself: what's your annual return rate target in percentage?
Remember, high returns always come with high risks.
- Ask yourself, what is the annual return you're aiming for in your trading? And the the fixed deposit rate at banks is ___%, average market return (ETFs, funds) ___%, return from investment-linked insurance ___%
- I often see beginners with only 20,000-30,000$ (usd) in funds fantasizing about making a living through trading, but almost 99.9% of them failed.
Why?
- A 20% annual return is already a benchmark among professional traders. If you only have 30,000, how could you live on a profit of 6,000 a year? Not to mention using compounding to grow your capital, or with smaller amount of capital.
- Chasing high returns with leverage could result in high losses, or even complete wipeouts.
And this always happens to beginners.
.
.
.
When setting a trading strategy, you must consider your annual return rate target and the associated risk. Remember, high returns always come with high risks.
Successful long-term trading strategies often include:
1. Generally Works. Be applicable across different commodities and have a positive expected value.
2. Make Sense. Clearly align with fundamental market trading principles.
3. Acceptable Win Rate. Maintain a sustainable win rate to avoid consecutive losses. (For instance, a win rate of only 30% implies a 2.8% chance of losing 10 times in a row, and a 0.5% chance of losing 15 times in a row. How many stop-loss hits can your capital withstand?)
It's not easy to find such strategies in short-term trading due to the high randomness of short-term market trends. However, some professional traders leverage this randomness to create profitable strategies. Swing trading, on the other hand, is less challenging.
.
.
.
I am Beta, hope my article is helpful to you~
Please hit the "Like" , leave a "Comment", or "Follow" me.
Your support is my motivation to keep writing :D