How to
Develop a Profitable Day Trading Strategy

前言
这篇文章讲的是如何开发出一个良好的交易系统。里面将系统发展分成五个步骤,算是交易系统开发的标准程序。有兴趣的朋友可以看一看……
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In
this article I will explain to you how to develop a profitable day
trading system in five steps:
Step
1: Select a market and a timeframe
Step 2: Define entry rules
Step 3: Define exit rules
Step 4: Evaluate your day trading system
Step 5: Improving the day trading system
Let’s take a closer
look at these steps.
Step 1:
Select a market and a timeframe
Every market and every timeframe can be traded with a day trading
system. But if you want to look at 50 different futures markets and
6 major timeframes (e.g. 5min, 10min, 15min, 30min, 60min and
daily), then you need to evaluate 300 possible options. Here are
some hints on how to limit your choices:
•
Though you can trade every futures markets, we recommend that you
stick to the electronic markets (e.g. e-mini S&P
and other indices, Treasury Bonds and Notes, Currencies, etc).
Usually these markets are very liquid, and you won’t have a problem
entering and exiting a trade. Another advantage of electronic
markets is lower commissions: Expect to pay at least half the
commissions you pay on non-electronic markets. Sometimes the
difference can be as high as 75%.
• When you select a smaller timeframes (less than 60min) your
average profit per trade is usually comparably low. On the other
hand you get more trading opportunities. When trading on a larger
timeframe your profits per trade will be bigger, but you will have
less trading opportunities. It’s up to you to decide which
timeframe suits you best.
• Smaller timeframes mean smaller profits, but usually smaller
risk, too. When you are starting with a small trading account, then
you might want to select a small timeframe to make sure that you
are not overtrading your account.
Most profitable day trading systems use larger timeframes like
daily and weekly. These systems work, too, but, be prepared for
less trading action and bigger drawdowns.
Step 2:
Define entry rules Let’s simplify the myths of “entry
rules”:
Basically there are 2 different kinds of entry setups:
•
Trend-following When prices are moving up, you buy, and
when prices are going down, you sell.
• Trend-fading
When prices are trading at an extreme (e.g. upper band of a
channel), you sell, and you try to catch the small move while
prices are moving back into “normalcy”. The same applies for
selling. In my opinion swing trading is actually one of the best
trading strategies for the beginning trader to get his or her feet
wet. By contrast, trend trading offers greater profit potential if
a trader is able to catch a major market trend of weeks or months,
but few are the traders with sufficient discipline to hold a
position for that period of time without getting distracted.
Most indicators that you will find in your charting software belong
to one of these two categories: You have either indicators for
identifying trends (e.g. Moving Averages) or indicators that define
overbought or oversold situations and therefore offer you a trade
setup for a short term swing trade.
So
don’t become confused by all the possibilities of entering a trade.
Just make sure that you understand why you are using a certain
indicator or what the indicator is measuring. An example of a
simple swing daytrading strategy can be found in the next
chapter.
Step 3:
Define exit rules Let’s keep it simple here, too:
There are two different exit rules you want to apply:
◆Stop Loss Rules to
protect your capital and
◆Profit Taking Exits to realize your profits
Both exit rules can be expressed in four ways:
• A fixed dollar amount (e.g. $1,000)
• A percentage of the current price (e.g. 1% of the entry
price)
• A percentage of the volatility (e.g. 50% of the average daily
movement) or
• A time stop (e.g. exit after 3 days)
We
don’t recommend using a fixed dollar amount, because markets are
too different. For example, natural gas changes an average of a few
thousand dollars per day per contract; however, Eurodollars change
an average of a few hundred dollars a day per contract. You need to
balance and normalize this difference when developing a day trading
system and testing it on different markets. That’s why you should
always use percentages for stops and profit targets (e.g. 1% stop)
or a volatility stop instead of a fixed dollar amount.
A
time stop gets you out of a trade if it is not moving in any
direction, therefore freeing your capital for other
trades.
Step 4:
Evaluate your day trading system The first figure to
look for is the net profit. Obviously you want your system to
generate profits. But don’t be frustrated when during the
development stage your day trading system shows a loss; try to
reverse your entry signals. On our website you already learned that
trading is a zero sum game: So if you are going long at a certain
price level, and you lose, then try to go short instead. Many times
this is the easiest way to turn a losing system into a winning
one.
The
next figure you want to look at is the average profit per trade.
Make sure this number is greater than slippage and commissions, and
that it makes your day trading worthwhile. Day trading is all about
risk and reward, and you want to make sure you get a decent reward
for your risk.
Take
a look at the Profit Factor (Gross Profit / Gross Loss). This will
tell you how many dollars you are likely to win for every dollar
you lose. The higher the profit factor the better the day trading
system. A system should have a profit factor of 1.5 or more, but
watch out when you see profit factors above 3.0, because it might
be that you over-optimized the system.
Here
are some more characteristics you might want to consider besides
the net profit of a system:
•
Winning percentage Many profitable day trading systems
achieve a nice net profit with a rather small winning percentage,
sometimes even below 30%. These systems follow the principle “Cut
your losses short and let your profits run”. However, YOU need to
decide whether you can stand 7 losers and only 3 winners in 10
trades. If you want to be “right” most of the time, then you should
pick a system with a high winning percentage.
• Number of Trades per Month Do you need daily action?
If you want to see something happening every day, then you should
pick a day trading system with a high number of trades per month.
Many profitable day trading systems generate only 2-3 trades per
month, but if you are not patient enough to wait for it, then you
should select a day trading system with a higher trading
frequency.
• Average Time in Trade Some people get really nervous
when they are in a trade. I have heard of people who can’t even
sleep at night when they have an open position. If that’s you, then
you should make sure that the average time in a trade is as short
as possible. You might want to choose a system that does not hold
any positions overnight.
• Maximum Drawdown A famous trader once said: “If you
want your system to double or triple your account, you should
expect a drawdown of up to 30% on your way to trading riches.” Not
every trader can stand a 30% drawdown. Look at the maximum drawdown
the system produced so far, and double it. If you can stand this
drawdown, then you found the right day trading system. Why
doubling? Remember: your worst drawdown is always ahead of
you.
• Most consecutive losses
The amount of most consecutive losses has a huge impact on your
trading, especially when you are using certain types of money
management techniques. Five or six consecutive losses can cause you
a lot of trouble when using an aggressive money
management.
In addition this number will help you to determine whether you have
enough discipline to trade the system: Will you still trade the
system after you have experienced 10 losses in a row? It’s not
unusual for a profitable trading system to have 10-12 losses in a
row.
Step 5:
Improving your system There is a difference between
“improving” and “curve-fitting” a system. You can improve your day
trading system by testing different exit methods: If you are using
a fixed stop, try a trailing stop instead. Add a time stop and
evaluate the results again. Don’t look at the net profit only; look
also at the profit factor, average profit per trade and maximum
drawdown. Many times you will see that the net profit slightly
decreases when you add different stops, but the other figures might
improve dramatically.
Don’t fall into the
trap of over-optimizing: You can eliminate almost all losers by
adding enough rules. Simple example: If you see that on Tuesdays
you had more losers than on the other weekdays, you might be
tempted to add a “filter” that prevents your day trading system
from entering trades on Tuesdays. Next you find that in January you
had much worse results than in other months, so you add a filter
that enters trades only from February – December. You add more and
more filters to avoid losses, and eventually you end up with a
trading rule that I saw recently:
IF FVE
> -1 And Regression Slope (Close , 35) / Close.35 *
100 > -.35 And Regression Slope (Close , 35) /
Close.35 * 100 < .4 And Regression Slope (Close ,
70) / Close.70 * 100 > -.4 And Regression Slope
(Close , 70) / Close.70 * 100 < .4 And Regression
Slope (Close , 170) / Close.170 * 100 > -.2 And MACD
Diff (Close , 12 , 26 , 9) > -.003 And Not Tuesday
And Not DayOfMonth = 12 and not Month = August and Time
> 9:30
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Though you
eliminated all possibilities of losing (in the past) and this
trading system is now producing fantastic profits, it’s very
unlikely that it will continue to do so when it hits
reality.

Markus
Heitkoetter
As
CEO at Rockwell Trading Inc, Markus has taught hundreds of
investors how to make consistent profits in the US and European
markets. Markus started trading 19 years ago. At that time he
was...
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