Hello
Been doing some work/thinking on my trading process . . .
Random Thoughts
Basically for index futures 2 types of techniques can be used to design a trading systems / method
- Trend following (Buy High - Sell Higher, Short Low - Cover Lower).
- Reversion to Mean (Buy on Dips, Sell on Rise)
Trend Following
For trend following the most popular methods use SAR i.e. stop and reverse, trying to classify market into 2 phases Up-Trend & Down-Trend.
One can also bring in the concept of Sideways or No-Trend, effectively introducing a third stage of not being in trade. So the trend following system can be in Long Mode, Short Mode and Sitting on the Sidelines Watching Mode
Again most of the trend following methods use Break-Out / Break-Down as the entry technique. For a trend following system one requires 2 definite things / rules to be in-place, one is the
Time-Frame and second is the definition of the trend.
There will be millions of combinations for defining the trend based on hundreds of indicators. One of the method using price action defines trend as the price making successive higher swings for an uptrend and lower swings for a downtrend.
Reversion to Mean
This type of trading entails identifying key Support and Resistance levels and trying to sell into resistance zones and buying into support zones.
Combining Both
Most of us (traders) who spend efforts on designing / searching trading systems are effectively trying to combine these two types i.e.
Buy Low - Sell Higher, Sell High - Buy Lower
Happy