Chapter 10. Trading Idea

Following topics to cover:

How will you Enter a Market?

Entry Lovers = people ignore the drawdowns during the trade and say "Look what would happened if you had bought Microsoft way back when."

Mis-conception:

The time before entry is really the only time you feel in complete control. You tell the market, “Mr. Market, you must do this, that, and the other before I place a trade to enter. If you do not follow my rules, Mr. Market, I will not enter a trade. I am in charge here.” That feels nice, as opposed to the time spent in a trade, where many times you hope and pray the market roller coaster will go your way!

Entry & trading style:

Long-term swing trader (trades lasting weeks to months), an entry a few days early or a few days late won't affect
Scalping (抽头转卖) trader: entry becomes important. An entry off by a tick or two could turn a winning system into a piece of garbage.

After getting ideas, first turn it into pseudo code: "If close this bar is the highest close of last X bars, then by next bar at market."

Few tips:

Keep it simple
Limit number of input parameters. More parameters means more chance of over-fitting
Try to think differently. Moving average crossovers hav been over used.
Use a single rule at first. Slowly add new conditions if they significantly improve performance. Many entry conditions may turn out useless.

Most important, to get maximum profit or minimum loss. Need spend a lot of time

Common ways of exiting a market;

Stop and Reverse: A new entry position means exit for existing one.
Technical-based exits: Support/resistance lines, moving averages, candlestick patterns, etc. Need coop with existing positions
Breakeven (保本) stops: Often seem to limit profit, since they typically exit on a retracement (回撤), with market then resuming its earlier trend
Stop-losses: when coupled with good entries, can help prevent catastrophe.
Profit targets
Trailing stops

Two schools of trading system:

One for all: Applying one trading system over all market, tuning parameters for each market.
- Pro: If it works on all markets, it is robust.
- Con: Development is difficult. Need to relax their acceptance criteria
One for a particular market
- Pro: Highly customization. Easier to create.
- Con: Not robust.

Author's preference, start a trading strategy as a day-trading. (i.e. in/out, multiple trades a day).

Time Frame = length of time for each bar.

Time frame contraction (收缩) and dilation (扩散) used by many trader:
- First, Test a strategy with a 10-min time frame
- If succeed, testing on 9-min bar
- Problem: add/minus 1 min will lead to change of indicator

Program it by yourself.