General Strategy Improvements

So as I was reviewing the trades placed last week, my TREND_REV strategy (still in development) placed a trade near market close on Friday.

OMAR_TREND_REV:2013/11/15 14:25:15 Enter BUY 16000@93.82300 Bid: 93.79800 Ask: 93.82300 TakeProfit: 95.64800(1.85000) Stop: 92.87200(0.92600)      11/16/2013 06:25:15   93.796

Let’s see… Bid: 93.79800 Ask: 93.82300 … Ask minus Bid, that’s 2.5 pips… okay not bad. I was scared because when I look at AUDJPY now I see it is 12.8 pips spread.

Weekend Spread

What if my strategy had traded later when the spread was so wide? To be instantly down that many pips is ridiculous. I need to safeguard myself against these kind of unnecessary losses.

Actually I have been doing a bit of research in the past week, and combined with the conclusions in the 337 pip win post, I think I need to investigate the following general improvements.

  1. Spread Checking: Don’t enter a position if the spread is too high.
  2. Trading during certain times: Some strategies work best during liquid times, like the London and NY session overlap.
  3. Trading during certain volatility: As above, one can use the ADR/ATR to measure volatility and if it is too low, ranging, then they simply do not trade. We want a moving market to make money.
  4. Scaling: Scaling in to winning positions and out of losing positions may improve results. Though depending on the strategy (mean reversion for example), the opposite may improve results.
  5. Partial Profit and Trailing: Close half your position at break-even point and switch trailing stop for unlimited gains. This probably depends on the strategy.
  6. Entry Orders instead of Market Orders: It is much better to have the market move to you than to move for the market. By using entry orders not only do we avoid the spread, but also our signal can be confirmed when the price moves to us. If it did not move to our entry point, then we avoid a false signal and a bad trade!
  7. Holding over the weekend: Often there are huge gaps at market open on Monday. Investigate closing positions before the weekend, or moving to a much tighter stop or a stop that would mean profit.
  8. Support and Resistance: Support and Resistance lines are very real, and can be the difference between hitting your profit target or not. If the profit target or stop loss is near one of these lines, 5 pip adjustment to the other side might be enough to make the difference. Unfortunately their detection is very difficult to implement.

So the above are some of the things I need to look into. I think, depending on the strategy, applying these can improve the results. I’ll of course publish my findings on this blog for all to read as I finish with each one.

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