There is no perfect strategy

Staring at the backtesting charts, and optimizing using my gradient checker, I can easily reduce the number of loss trades (and profit trades) during sideways market periods.

However, the discovery of the slowly trending in the non-volatile market mentioned in the previous log entry has bothered me a bit. There is a long trend right here which means there is a good chance to make some money but…

–       checking against a slow MA gradient will not stop the loss trades,
–       checking against the fast MA gradient results in almost no trading activity,

What I see are three market conditions I need to try to make money in:

1)    A healthy volatile market full of short trends.
–       Can make money using a short time period (H1) trending strategy like MACD?

2)    A sideways/consolidation market with no trend.
–       Can make money using a mean reversion strategy (RSI/Stochastic/BB)?
–       Can make money on potential breakouts (BB Squeeze)?

3)    A non-volatile market with a long slow trend.
–       Can make money using a long time period (H8/D1) trending strategy like MACD?
–       Can make money on potential breakouts (BB Squeeze)?

Effectively that means I’ll need three different strategies running at the same time. Each strategy will need to know when it should be active or inactive depending on the type of market.

I need to come up with some way to distinguish the different types of markets.

If you’re getting mixed signals, you’re better off doing nothing than taking a “best guess”. If a chart doesn’t meet all your criteria, don’t force the trade!

Posted in Backtesting, Optimization, Research, Strategies, Trend and tagged , , , , , .

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