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    How to Develop a Profitable Trading Strategy: Why You Should Do the Opposite of What the Majority of Traders are Trying to Do
    How to Develop a Profitable Trading Strategy: Why You Should Do the Opposite of What the Majority of Traders are Trying to Do
    How to Develop a Profitable Trading Strategy: Why You Should Do the Opposite of What the Majority of Traders are Trying to Do
    Ebook78 pages1 hour

    How to Develop a Profitable Trading Strategy: Why You Should Do the Opposite of What the Majority of Traders are Trying to Do

    By Heikin Ashi Trader

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    About this ebook

    How to Develop a Profitable Trading Strategy


    Why You Should Do the Opposite of What the Majority of Traders are Trying to Do


    Traders become active in the stock market for no other reason than to collect points, ticks and pips. As much as possible and as fast as possible. Everything else is pastime and useless analysis. Traders therefore need a method, a system that does exactly that: accumulating small profits permanently, which eventually adds up to a considerable plus in the account.


    For this to happen, the author takes the classic recommendation "cut your losses and let your profits run" under the magnifying glass. In this book, he does the opposite of this well-meaning advice: keep profits as small as possible and choose losses as great as possible.


    In the second part of the book, he is investigating a strategy that works with this premise. And the historical backtesting gives him right. When traders do the opposite of what the crowd is trying to do, they finally have success!


    Table of Contents


    Part 1: Do the Opposite of What the Crowd of Traders is Trying to Do!
    1. What Traders Can Learn from Automatic Trading Systems
    2. Do the Opposite of What is in the Trading Books
    Assertion 1: Cut your Losses and Let your Profits Run
    Assertion 2: Try to Achieve a Good Risk Reward Ratio
    Assertion 3: You only Need a Hit Rate of 33.33%
    3. Aim for a High Hit Rate
    4. Why Trading Strategies with "Good" RRRs Are Usually Unsuccessful
    5. Praise of the Take Profit Order
    6. Praise of the Automatic Entry


    Part 2: Trading Strategies with a Small Price Target and a Wide Stop
    Test 1: German Bund Future, Crossing Moving Average Strategy
    Test 2: E-Mini, Crossing Moving Average Strategy 1
    Test 3: E-Mini, Crossing Moving Average Strategy 2
    Conclusion
    Glossary
    More Books by Heikin Ashi Trader
    About the Author


    About the Author


    Heikin Ashi Trader is the pen name of a trader who has more than 17 years of experience in day trading futures and foreign exchange. He specializes in scalping and fast day trading. In addition to this, he has published multiple self-explanatory books on his trading activities. Popular topics are on: scalping, swing trading, money- and risk management. 

    LanguageEnglish
    PublisherDAO Press
    Release dateOct 30, 2018
    How to Develop a Profitable Trading Strategy: Why You Should Do the Opposite of What the Majority of Traders are Trying to Do
    Author

    Heikin Ashi Trader

    ​Heikin Ashi Trader is the pseudonym of a trader who has over 19 years of experience in day trading futures and currencies. He traded for a hedge fund and then went on his own. He specializes in scalping and fast day trading. His scalping book "Scalping Is Fun!" is an international bestseller and has been sold more than 30.000 times. His books have been translated into 11 languages.

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      Book preview

      How to Develop a Profitable Trading Strategy - Heikin Ashi Trader

      Imprint

      Part 1: Do The Opposite Of What The Crowd Of Traders Is Trying To Do!

      1. What Traders Can Learn from Automatic Trading Systems

      Traders become active in the stock market for no other reason than to collect points, ticks and pips. As much as possible and as fast as possible. Everything else is pastime and useless analysis. Traders therefore need a method, a system that does exactly that: accumulating small profits permanently, which eventually adds up to a considerable plus in the account.

      Trading is not about analyzing the financial markets and trying to predict future prices. As a rule, most traders fail with this kind of approach. They want to understand the market. My experience is that one cannot understand the behavior of financial markets. Too many actors with different intentions all trading at the same time push the price arbitrarily back and forth.

      Therefore, the first step towards success comes with the insight that traders cannot understand the behavior of the market. As a result, they cannot analyze it and certainly not predict it. I know an army of analysts is continually trying to achieve this feat. They merely satisfy the needs of the public for explanations, whether of a fundamental or technical nature.

      These explanatory models may work for a while but eventually the time will come that those models will start to generate losses. The result is, of course, that the trader will be frustrated and will try to analyze his past trades (again!). On the other hand, even worse, he will try to optimize his system.

      In the worst case, he will go in search of a new strategy from which he hopes to finally gain the desired success. In this spiral of searching for the perfect strategy, many traders get in. Repeatedly they put their hope in something new. Moreover, repeatedly, they always end up disappointed, again. Although they might have success occasionally, a new unlucky blow will soon replace it.

      Most financial markets that I know are so efficient that it seems to be almost impossible to beat them. They force the trader to surrender. Therefore, many people give up and go on to spread the rumor that you cannot make money on the stock market.

      I have also gone down this painful path and came close to giving up. It is only when I started looking at automated trading systems that I began to look at trading in a very different light. After years of vainly trying to get a grip on my trading through technical analysis, I have now learned a much sober way of looking at stock market transactions.

      If you are afraid that you will have to go this excessively, I ask you for some trust and patience. You do not have to switch your trading to automatic. That is not the purpose of this book. I will like to use a few concrete examples to show what I have learned from dealing with automatic trading. Moreover, my hope is that you will also have the opportunity to look at trading in a completely different way.

      Nowadays, there are numerous trading platforms, which also allow the nonprofessional to perform simple back testing. A back test is a method by which the trader can check a certain trading idea for its robustness. With this software, he can perform a backward-directed test. This shows him in seconds how he would have cut off if he had traded this idea in the past years.

      He not only gets the results of these thousands of computer-simulated trades. He also gets a thorough statistical analysis of this test. Those data shows him in detail whether it was even worthwhile to have traded this trading idea. I hope it speaks for itself that a trading idea, which has not worked in the past ten years, likely will not work in the next ten years (there are exceptions).

      If, on the other hand, the trader has an idea that has worked very well over the past ten years, then it has good chances to replicate this result over the next ten years. There is no guarantee here, but the chances are in any case better if the back test is positive.

      Having such information is important to me before a trader starts working with a trading idea at all. If the trader knows black on white that he has a stable and successful strategy, he will be able to trade with more confidence. This is, of course, especially important when

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