Since you already know there are three main market types, you should consider thinking how to plan your strategy
to obtain the best possible results in any market conditions. You should also decide what market type best fits your personality
as a speculator and your financial position.
On the market with visible trends you will want to wait for a major change in prices and minimize temporary losses
diminishing your account balance during consolidation periods; on lateral markets you will use support and resistance
levels to take advantage of profits resulting from minor prices changes; on changing markets you will try to use short-lived,
high adjustments, performing short transactions and going out of the market.
Here you should start looking for signals and use them to create a system which will be best for you, the selected market type
and timeframe. You need not to build your whole strategy immediately. For instance, you can start from one market entry signal. Then,
if you find a good entry signal, you can start combining it with different exit signals.
Remember, this is how you can do it:
- Test and use symmetrical strategies - buy "long" and sell "short". There are strategies involving only "long" or only
"short" entry signals. You can combine both kinds. Terstra System Rersults Report includes among other rhing results of a given strategy
and a breakdown of your transactions into short and long ones. You may find out that the "long" side of your transaction system is good,
but the "short" side needs more work, or the other way round. Or the idea failed.
- Test and use market entry and exit strategies at every point of the graph. You can test a transaction system in which market
entry and exit signals occur at any price (O,H,L,C) within any given bar rather than only at the closing price.
- Test strategies involving different market entry or exit signal criteria. Stock exchange programs enable
you to create transaction systems including numerous entry or exit signals. A single transaction system may involve different
signals for "long" entries, "short" entries, closing a "long" position and closing a "short" position.
- If you can, test strategies which allow different quantities of contracts or stocks bought or sold. Your transaction
system should not be limited to only buying "long" or selling "short" once and closing positions. Buying or selling multiple
times in the same direction causing new contracts or stocks to be added to your market positions is called "pyramiding",
but this strategy is considered fairly aggresive.
- If you can, test strategies with different number of contreacts or stocks on entry or on exit. As an example: you could specify
the purchase of 1 contracts or 100 shares for a given entry signal. For another entry signal, which is rather infrequent, but is more
likely to successfully conclude a transaction you could define the purchase of 2 contracts or 200 shares.
You can incorporate virtually anything you can think of in signals of the strategy you build but remember that sometimes simple
is better. Just try not to complicate things. The key thing at this stage is that you can and should test all your ideas, no matter
what they are.
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