Winning Rate and actual profits
are the most important parameters for evaluating day trading strategies. These
are used by most of the day traders. Before you run through, let us go to the
conceptual side of day trading strategy.
When we say ‘strategy’, it is
not only the set of rules that we talk about. It is about understanding the
market movements, its impact on the prices and ultimately the intelligent
actions of the traders. This is the basic concept for understanding trading
rules. You would fail to execute your planned moves if you do not understand the
basics of day trading strategy. Hence, you won’t be able to judge whether you
trade setup is good, bad or the worst!
To understand better, consider Lin da Rasch ke’s
Holy Grail trading setup. It says that pullbacks usually fail in very strong
trends. So we use the ADX [ Average Directional Index] indicator to look for
strong trends. When the market trend is upwards, the trend may resume if we buy
the very moment when prices pull back to the moving average.
But this is also true that these indicators are not dot
perfect! But is you have the concept of this strategy clear in your mind, you
will be confident about your moves. Now what the ADX shows, doesn’t matter much.
Now when you have the concept clarity and have understood
well how the strategy works, the next thing you need to do is classification of the strategy.. Four
basic trade setups are: retracement, reversal, range-bound and breakout. The
type of trade set up decides the reward to risk ratio and your win rate. For
example, The Holy Grail strategy is the retracement type. It has lower
reward-to-risk ratio and high win rate.
Other than the strategy, one more important thing for your
day trading is the ‘indicator’. See if
the indicators you need are accessible to you at what price. Like, the
proprietary and copyrighted ones will definitely be available in exchange of a
hefty sum. So choose the indicators wisely, even if they are available for free
as it is of utmost significance for your day trading strategy.
mathematical formulas of all these indicators and if this formulas are mixed
well it can give excellent result in any markets. All software at
nice blend of this formulas.
And lastly, one more important thing to be brought to your
notice is see how your strategy is-
discretionary or mechanical? If it is discretionary, check whether you can
exercise that or not. Are you confident about that? If no, then all you need is
practice, practice and some more practice! Paper trading provides you room to
practice without any fear of loosing. After all, as they say, practice makes a