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Trading the Measured Move: A Path to Trading Success in a World of Algos and High Frequency Trading by David Halsey

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CHAPTER 16

The Trading Plan

Keeping Your self Safe with Statistical-Based Rules

There are as many different ways to trade the markets as there are people who trade them. No trading strategy will be successful without four elements.

The Four Legs of a Trading Strategy

It's easy to think about these elements in relation to a chair with four legs. A chair needs all four legs to be functional and stand on its own. The same is true for a trading strategy. Without these four elements or legs, any trading strategy will fail. Some trading strategies have very specific rules for entry and no rules for taking profit. Other trading strategies might have very specific rules for profit taking, but have no specific rules to protect profits once they are acquired. Even trading strategies that follow strict money management principles will fail if they do not have specific entry and exit points. What most trading strategies focus on is how to enter into the market. That is the easy part. The ultimate goal of the trading plan is to design statistical-based rules. Statistical-based rules allow you to enter, exit, and hold on to profit. Ninety percent of all volume in our modern markets is traded by computers. The rise of computer algorithms has made statistical-based rules even more profitable. As traders, our job is to grab onto the coattails of those trading algorithms. By grabbing on, you're able to trade on the path of least resistance and take advantage of the algorithm's volume. Traders ...

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