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Trading breakouts
Breakouts require momentum to keep the trend going, but a lack of buying or selling pressure might cause the price to fall back into its prior range. Trend traders should be aware of these dangers and utilise risk management to limit possible losses.

While trend trading can be profitable, it is vital to remember that due to the inherent noise in financial markets, not all buy signals will be effective. Prices change constantly owing to a variety of reasons such as news events, economic data releases, and market mood, which might result in false signals.

The level of market volatility can also influence the success rate of trend trading signals. High volatility can cause sharp price changes in both directions, making it difficult to predict the trend's direction. For trend traders, timing is key since entering the market too early or too late might cause the signal to fail. As a result, traders should employ a combination of technical indicators to determine the best time to enter and exit the market.

To summarise, successful trend traders are aware of the dangers associated with trading and employ technical analysis, risk management, and expertise to increase their success rate over time. Traders can improve their chances of success and decrease potential losses by being aware of the dangers involved.

Skate.
 


Trading may be volatile, and things might go wrong for no apparent reason
As @DaveTrade said 'unforeseen circumstances' and unexpected events, such as market volatility or unexpected news, can result in big losses. No trader puts himself in danger knowingly, yet no matter how knowledgeable or experienced we are, we may confront obstacles beyond our control.

Trading can be intimidating for a newcomer, and even seasoned traders are not immune to the risks involved. However, keep in mind that losses are a regular aspect of trading and may be controlled with the correct risk management tactics.

As my old boxing instructor used to say, "Don't get in the ring if you don't want to be hit." Similarly, traders must be prepared to incur losses and take precautions to limit their risk exposure. Setting Stale stops, trailing stops, and avoiding high-risk trades may all be part of this.

To summarise, trading can be volatile, and losses are a natural part of the process. Traders must be ready to face these dangers and take precautions to limit their exposure. Traders can limit their losses and increase their prospects of long-term success by employing the proper risk management measures.

Skate.
 


The SAP Strategy is designed to cater to beginner traders who may find trading intimidating
The coding technique used in the strategy is intended to help these traders understand system trading and determine whether it aligns with their trading objectives and risk tolerance.

By prioritizing optimal market conditions and utilising a multi-stage exit strategy, the SAP Strategy aims to reduce the emotional toll of trading and improve traders success rates. While some will perceive the strategy's cautious pace to be too slow, it is important to remember that successful trading requires patience and discipline.

To assist traders in developing a long-term, sustainable trading approach, the SAP Strategy will try to focus on selecting successful entries while limiting losses. Although this method may appear to be slow at times, it is intended to offer traders a firm basis upon which to grow and improve their success rates over time.

Overall, the SAP Strategy is not the most interesting trading strategy, but it’s excellent for anyone interested in exploring system trading and wishing to improve their trading skills and attain long-term market success. The strategy's design considers the demands of inexperienced traders and tries to provide them with a firm basis upon which to build.

Skate.
 
DaveTrade said:
@Skate , I have to know, what does SAP stand for in the name SAP strategy?
Click to expand...

@DaveTrade it's just an acronym for "System Analysis Project"

My goal for this project was to create a trading system that shows how trading can be made more approachable and less intimidating for those just starting out. We understand the risks and can handle the ups and downs as seasoned traders, but others just starting out may not have the funds to endure significant losses. I wanted to exhibit a safer, more conservative method of trading that prioritises long-term gains above short-term gains with this initiative. While there is always the possibility of a trading technique failing, I am ready to take that risk in order to promote a better, more sustainable approach to trading.

Skate.
 
Any mechanical system without significant losses, ie. minimal losses, would be of interest to all. You have my attention. No system can be perfect so give us the whole picture, worts and all.
 
DaveTrade said:
Any mechanical system without significant losses, ie. minimal losses, would be of interest to all. You have my attention. No system can be perfect so give us the whole picture, worts and all.
Click to expand...

@DaveTrade, to avoid being viewed as a signal service, I will provide complete transparency of all signals generated and actioned as soon as a buy or sell signal is executed, it will be displayed for all to see only minutes later.

I trade in the pre-auction only in order to ensure I snag Monday's opening price. The confirmed price and number of shares purchased will be displayed in the course of the sales tab for anyone to check.

Transparency is of the utmost importance to me, and I'll strive to keep everyone informed throughout the trade process. In addition to the signals, I will be posting price charts, and equity curve so others can follow along. In this manner, everyone will be able to see the process behind the trades and understand why each trade was taken. I'm sure there will be an "information overload" but that's what will make this project engaging.

Skate.
 
This is a 365-day Backtest of the SAP Strategy
The SAP Strategy is a new strategy especially developed for this project. The backtest displays how this strategy would have performed. So there is no ambiguity I've explained the process of backtesting below.




This is a 730-day backtest of the SAP Strategy
The backtest displays how this strategy would have performed. So there is no ambiguity I've explained the process of backtesting below.



Disclaimer
@DaveTrade, it's natural for a trader to look for a trading method that will regularly make gains in the market. However, it is critical to be mindful of the dangers of examining a strategy's historical performance and assuming that it will provide similar outcomes in the future.

I recently read "most seemingly lucrative strategies generate their profits from random noise rather than repeatable patterns" which raises a crucial question. How can traders tell the difference between a seemingly successful strategy based on random noise and one with a repeatable pattern?

It's also important to keep in mind that the market is constantly evolving, and what worked in the past may not work in the future. As a result, it is vital to examine and change a trading strategy in response to changing market conditions. A few posts back I explained the features that drive the SAP trading strategy, including entry and exit criteria, stop-loss levels, and position sizing.

It is vital to recognise that backtesting has weaknesses. Backtesting with past data may not always accurately reflect future market circumstances and unforeseen occurrences that may have an impact on the performance of any trading strategy.

In conclusion, backtesting is an important step in establishing a trading strategy's potential success before implementing it in actual trading. However, in order to prevent the hazards of data mining bias, it is critical to use backtesting efficiently.

Skate.
 
@Skate now you have done these backtests wouldn't it be informative to take a couple of two year data periods from other years of the market, not consecutive, to see if the backtest results are similar or by how much the results differ.
 

For me looking at those back-test data the important numbers are:

Winning trades: 48%
Losing trades: 51%
Average winner: 20%
Average loser: 10%

Which essentially means a random entry and the money is made via money management, analogous to exit strategy.

Therefore the edge in this system is money management. That is a real edge, but a tough edge psychologically to maintain over time.

The other issue that I would highlight is that this is a long only system. The back-testing did include 2022 data which was a bear market. That being said, a long only system is logically more profitable in a bull market. In a bear it will rely ever more heavily on the exit strategy. That can take a toll psychologically. Currently (in the US) we have a technical bull market or cyclical bull within a secular bear. It will be interesting to watch whether the Aus. market can shake off the US. Unlikely.



I'll be watching with great interest.

jog on
duc
 
DaveTrade said:
@Skate now you have done these backtests wouldn't it be informative to take a couple of two year data periods from other years of the market, not consecutive, to see if the backtest results are similar or by how much the results differ.
Click to expand...

@DaveTrade, it's important for others to understand that backtesting has inherent restrictions. While backtesting with historical data can provide significant insights into how a trading strategy could perform under specific historical settings, it may not always properly reflect future market situations or unforeseen events that could affect the approach's performance. As a result, backtesting results must be interpreted with caution, and other factors like as market volatility, liquidity, and regulatory changes that may alter the strategy's effectiveness must be considered.

Regarding the backtesting results for the SAP Strategy, it's important to note that the performance of any trading strategy can vary greatly depending on market conditions and time frame. While the 2018 statistics may suggest that the SAP Strategy performed poorly, it is vital to include past years and longer-term performance indicators when evaluating the strategy's overall efficacy. Choosing random years for backtesting can also assist alleviate worries about cherry-picking findings and provide a more thorough assessment of the strategy's historical performance.


2018 was the SAP Strategy's worst year as it was for most system traders





Backtest period 8th June 2017 to 8th June 2018





# Backtest period 8th June 2019 to 8th June 2020





# Backtest period 8th June 2017 to 8th June 2023 (Longer 6-year backtest)




In conclusion, while backtesting can provide vital insights into a trading strategy's previous success, it's critical to understand that it has limitations when it comes to predicting future results.

Skate.
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

32. Handling market fluctuations
To properly manage market volatility, traders must have a well-defined trading strategy and risk management plan. This involves having clear rules and processes in place for buying and selling positions that are responsive to market movements in order to minimise losses and maximise profits. Traders can handle market changes successfully and boost their chances of success by regularly watching market patterns and news events and adapting trading accordingly.

Successful traders approach trading methodically and patiently, avoiding impulsive actions and emotions that can lead to costly blunders. They emphasise emotional stability, as well as building emotional intelligence and remaining market-engaged. Traders can better control market volatility and boost their chances of success by doing so.

Effective position management is critical for market success, and traders can do so by selling positions to minimise risk and improve performance. This requires having a clear series of exit strategies in place and being willing to sell when necessary, such as a trailing or stale stop exit or a planned profit-taking approach.

Successful traders understand the psychology of the market and the motives that drive it. They are aware of how their emotions may influence their decision-making, independent of market sentiment or whether they are on a winning or losing streak.

Traders must maintain discipline and alertness regardless of market mood to maximise their chances of trading success. They can strengthen their ability to resist market fluctuations by keeping emotionally calm and focused in the face of uncertainty and volatility.

In conclusion, traders who can effectively control market volatility have a better likelihood of trading success. Traders can withstand market volatility and boost their chances of success by having a well-defined trading strategy and risk management plan, good position management, and emotional stability and discipline.

Skate.
 


I've had a logo change
The objective of this post, though, is not to dwell on this point but instead, expand on the backtesting procedure to get to a tradable strategy despite being designed solely for this project. I'd like to highlight the effort put into establishing a technique that accommodates those new to system trading.

It was critical to ensure that the plan was comprehensible to people with little or no prior knowledge of system trading which is why I spent significant time refining the multi-level exit strategies and incorporating a unique buy filter with matching parameters, making it more user-friendly and straightforward. By doing so, I intend to encourage more people, regardless of background or knowledge level, to investigate and benefit from system trading.

Backtesting is an important stage in determining the effectiveness of a trading strategy before implementing it. However, effective backtesting is required to avoid the problems of data mining bias. Testing each component separately and assessing its sensitivity to changing price data and parameter variables, gives a real expectation of how the strategy will perform under pressure.

Overfitting happens when the rules of a strategy are fine-tuned to the point where the main notion is verified, but the results are erroneous due to the backtest being too exact. Overfitting can lead to poor performance in real trading.

Backtesting, on the other hand, is insufficient to ensure the success of a trading strategy. Markets are complex and continuously changing, and no strategy can ensure that it will be effective in future market conditions. As a result, traders must determine the market circumstances required for their strategy to succeed and alter their approach on a regular basis to respond to changing market conditions.

Backtesting is a valuable tool for analysing the performance of a trading strategy, but it must be utilised cautiously in conjunction with other methods of evaluation. To improve their overall trading success, traders should set reasonable expectations, eliminate data mining bias, analyse each component independently, and stress test the strategy's vulnerability to changing market conditions.

Skate.
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

33. Have a clear understanding of your abilities
In addition to self-awareness, traders should be aware of their own strengths and weaknesses. This understanding can assist traders in identifying opportunities that complement their strengths and avoid trades that exploit their deficiencies.

A trading plan with well-defined entry and exit rules can also assist traders in remaining disciplined and focused. Every trading strategy should be based on thorough research and development with an awareness of market factors such as trends, volatility, and risk levels.

During market downturns, when fear and uncertainty lead to illogical decision-making, the importance of emotions when trading is amplified. In order to respond to these changing conditions, traders must be adaptable and flexible. This requires a willingness to modify their trading strategy and risk management approaches as needed.

It is critical for traders to stay current with market trends and news occurrences. These factors can have a considerable impact on the market, and traders who are aware of them can make informed decisions and alter their trading accordingly.

Developing emotional intelligence and self-awareness is a difficult but necessary part of effective trading. Traders can improve their decision-making processes and achieve higher performance by prioritising these abilities.

Incorporating these changes into their trading practices can help traders manage turbulent markets by retaining discipline, focus, and self-awareness to avoid making rash decisions that can jeopardise their financial goals. Traders may make well-informed decisions and produce profitable trading outcomes by remaining adaptive, knowledgeable, and self-aware.

Traders must approach trading with a long-term outlook and an openness to learning from both their wins and losses. They should look at losses as an opportunity to learn and enhance their trading abilities and expertise.

With a well-defined trading plan, and a long-term perspective, traders may succeed in the markets where others have failed.

Skate.
 


1. Agreed.

2. This is in conflict with point 1. You cannot remain disciplined to a well defined entry/exit rules in 1 and then in 2, modify entry/exit rules/risk management.

Which is why that I argue that 'risk management' and 'trade management' are two separate concepts. You need a long strategy for bull markets a sideways strategy for sideways markets and a bear strategy for bear markets. You cannot 'modify' a bull strategy just because the market turns bear.

An individual trading plan for each strategy is trade management. All your trade management plans = your overall risk management (portfolio capital allocation) to market conditions.

3. The problem is that macro-analysis is very hard to get right and even if you get it right, timing is a major factor as often (usually) macro-factors take quite a bit of time to play out. Then you need the correct exposure. That could be stocks (which one or buy the sector), commodities, bonds, currencies or other?

I'm going to follow this thread and contribute a market posture (US based but we'll see whether the Aus. market follows) and see whether it adds any value to the long only strategy.



A bit overextended, but the bull move is still intact. The macro-environment is horrible. It won't matter until it matters.

jog on
duc
 
ducati916 said:
I'm going to follow this thread and contribute a market posture (US based but we'll see whether the Aus. market follows) and see whether it adds any value to the long only strategy.
Click to expand...

@ducati916 thank you for responding to my daily post, and any contribution that you make will be extremely welcomed. Reading alternative views from a different perspective is how we develop as a trader. When traders adopt open-mindedness and readiness to consider opposing viewpoints and ideas, in my opinion, is critical for continuous learning and enhancing their trading skills.

Concerning the distinction between risk management and trade management, I believe you are accurate in stating that they are two distinct ideas that are both necessary for profitable trading. Risk management is concerned with managing overall portfolio capital allocation and market exposure, whereas trade management is concerned with making decisions about individual trades based on the strategy for the specific market environment.

We all accept markets go up, go down as well as sideways so there is no argument from me on this point. Having three distinct strategies, one for a bull market, one for a sideways market, and one for a bear market would be a fine touch to react to shifting market situations.

I would like to emphasise the SPA Strategy has been coded to only generate signals at the optimal time in order to take advantage of shifting market patterns and volatility levels. Although this method may appear to be slow at times using this cautious approach, it is important to remember that successful trading requires patience and discipline. The SAP Strategy will try to focus on carefully selecting entry positions and cutting them lose quickly when they fail to perform, to limit losses.

By incorporating these concepts into trading practices, I believe, traders can achieve a higher level of performance and success in the markets.

Skate.
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

34. Defining a Trading Strategy
Developing a well-defined trading strategy is critical for financial success. Emotions and instincts can distort a trader’s judgement and lead to poor trading results. Traders can reduce the influence of irrational decision-making and make more informed decisions by following a defined set of rules and using a disciplined strategy.

While developing a trading strategy takes time and work, the benefits include enhanced performance and risk control. Traders who are disciplined and focused on their financial goals and are willing to adapt their approach when market conditions change are better prepared to deal with unexpected and chaotic market situations.

Creating a successful trading strategy requires taking into account a number of criteria, including risk tolerance, trading style, time horizon, and market conditions. Extensive study and analysis, particularly technical analysis, can assist traders in better understanding the markets and identifying prospective trading opportunities.

Technical analysis is the study of price behaviour to detect market patterns and trends to establish an effective trading strategy. With technical analysis it’s all about identifying market trends. To create a profitable trading strategy, you must be able to spot and capture significant market patterns for probable entry and exit points.

Before you begin trading, you should determine your trading objectives and risk tolerance. This will assist you in developing a trading strategy that is personalised to your specific requirements. Your trading objectives should be specific, measurable, achievable, believable, relevant, and time-bound. The amount of risk you are willing to take in your trading is determined by your risk tolerance.

You can begin to construct a trading plan and trading strategy once you've determined your trading objectives and risk tolerance. Your trading strategy should include an entry condition and a series of exit points that also has a well-defined take-profit stop. Even when emotions are running high, it is critical to stick to your trading plan.

It's essential to create a backtesting procedure to analyse the effectiveness of your trading strategy. Backtesting your trading strategy using historical data allows you to examine how it would have fared in the past. This can help you uncover flaws in your technique and make changes before trading with real money.

Backtesting is essential to identify any flaws or weaknesses in your trading methodology. Also, keep an eye on market conditions and alter your plan as necessary to ensure long-term effectiveness. By following these steps, you can create a trading strategy that is in line with your objectives and will assist you in achieving financial market success.

Developing a trading strategy can be intimidating if you're new to trading. However, having a well-defined trading strategy is critical for market success. A trading strategy can help you control risk by allowing you to make informed decisions about when to enter and exit a trade.

Finally, a well-defined trading strategy assists traders in avoiding emotional decisions, improving performance and risk management, and allows them to stay disciplined and focused on their financial goals. In turbulent and uncertain market conditions, traders who stick to their plan and stay adaptable can flourish as the benefits can be substantial.

Skate.
 
When I was new to trading I'd heard people saying that you need a trading plan but I was unsure about how to create one. These days you can get info on just about anything if you just google it. My advice is to break up the parts of your trading plan into blocks and research each block to gain a workable level of knowledge in that area, then when you have your blocks of knowledge then you work on the best way to integrate the blocks to come up with your first trading plan.

Most importantly, don't forget the first block in your plan, that is the selection of what you will be trading. What you trade will also influence how you will trade it. Keep in mind your personality and your lifestyle when selecting what and how to trade. Hope this may help some that, like me, were a little unsure about how to go about this thing that everyone keeps talking about.
 

@DaveTrade thank you for sharing. Dividing a trading plan into blocks and researching each block to get a realistic degree of understanding is a sensible and useful technique.

I believe that developing a trading plan is a personal process that takes research, time, and effort. Using a "block technique" when developing a trading plan may just be the way to go, at the very least it's an idea well worth considering. It's critical to note that a trading plan isn't a one-size-fits-all answer but rather should be adapted to a particular trading style, personality, and the time you are able to commit to this endeavour.

I'll address "creating a trading plan" in tomorrow's post and follow it up the next day with a post on "creating a trading strategy". Both issues, in my opinion, are essential for successful trading.

Skate.
 
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