Creating a profitable strategy (Part one)
Lots of people want to know how to do a winning trade. But very few ask, or think hard enough about how to create an overall postive strategy.
In the context of trying to do something positive over the long term, a trade is just one component of a broader strategy. Trades will win but also lose and therefore it’s the overall strategy where we want to get the balance right rather than getting too focused on each individual position you take.
All my strategies start with some crazy idea. I could be on a golf course, on a train, or chatting to somebody and a thought pops into my head. “Hey, if I back at X why Y occurs and I lay by an offset of Z, I wonder what happens?”
Of course, you have to have some rational thought process, but I should point out that some of the best strategies I have uncovered have been completely counter intuitive. Something else that is counter intuitive is knowing whether it is profitable or not at this stage, is not important. I know from my many years in the market, it is generally efficient. Therefore my worse possible loss, even with a completely crazy strategy is really only the amount I lose in commission or costs to the server provider. There could be a small varience that could work both ways for me, but I tend to park that out my mind at this stage.
Nearly always, my first attempt at deploying a strategy is to automate the general idea. This means I can dip my toe in the market without any prejudice on my behalf. I set things up in the morning, let them loose, and return at the end of the day to put them in a spreadsheet and learn what happened. From there you start to build out.
That’s what I’ll cover in part two…
Even seemingly random things can contain information
Category: General, Trading strategies
