Methods To Consider A Day Trading Strategy?
A day trading strategy isn't merely a set of rules. It's a idea of how the market works and the way traders react to price movements. This concept is the basis of the trading rules. Without understanding the idea underlying the day trading strategy, you cannot decide if the principles makes sense. You are also unable to enhance on the rules and differentiate the better trade setups from the worse.
Let's take the favored Holy Grail trading setup by Linda Raschke as an example. The concept behind this trading strategy is that in very robust traits, pullbacks are inclined to fail. The strategy then uses the Common Directional Index (ADX) indicator to find robust trends. advisor If the market is trending upwards, as soon as costs pull back to the moving common, we'll purchase, and hopefully the pattern will resume.
Indicators aren't perfect. Nevertheless, with the concept of this strategy in mind, regardless of what the ADX shows, it's best to look at the chart and ask yourself if the chart shows a strong trend. If it doesn't, regardless of the value of the ADX, it's best to skip the trade.
After understanding the concept of the strategy and why it really works, you must classify the strategy. There are 4 types of primary trade setups: reversal, retracement, vary-sure, and breakout. The win rate and reward-to-threat ratio depends upon the type of trade setup. The Holy Grail strategy is a retracement type strategy with high win rate and lower reward-to-threat ratio.
Earlier than accepting the strategy into your day trading arsenal, you must also pay attention to the indications needed and when you have access to those indicators. Some indicators might be proprietary and chances are you'll have to fork out a hefty sum to get them. Even when the indications are freely available, you also needs to check if your trading platform provides them. This is an important step as having the correct indicator is essential to employing any day trading strategy.
Final but not least, you also needs to consider if the strategy is mechanical or discretionary. If the strategy wants discretion, you will note in case your trading expertise permit you to train the discretion to acquire an edge in trading. If not, you must practise using the strategy in demo or simulation mode until you might be confident to trade the strategy with discretion.