1 - The initial idea
Determine the conditions to buy / sell
From an "initial idea", you will define the buying and selling conditions of your strategy. ProRealTime then allows you to test these buying and selling conditions before deciding to actually use them. You can then easily decide whether or not you want to continue with this idea and later improve it based on your experience.
Your replies to the following questions may give you an initial idea of the type of strategy you want to create:
- Do you have a trading method you saw in a book or on the internet that you would like to test?
- What are your favorite indicators among the numerous ones available to you?
- Do you want to take into account high and low prices in your buying and selling decisions?
- Should your system take into account one condition or multiple conditions?
- Do you want to use a trend-following strategy or a counter-trend strategy?
- Do you want to only take long positions or also take short positions to also benefit from downward trends?
- Do you want to base your market exits on conditions related to technical analysis or on money management techniques (target and protection stop orders determined based on the position entry price)?
In general, a strategy starts with a simple idea which can be progressively improved.
For example, strategies may be based on a combination:
- of trend-following indicators (moving average, etc.) or overbought/oversold oscillators (RSI, Stochastic, etc.)
- of retracements (Fibonacci, pivot points, etc.)
- of breakouts of local price highs or lows
- of divergences (or counter-trends) between price and an indicator
- of unusual volume
Use ideas from your manual trading experiences
If you already invest in financial markets the best inspiration may be what already works for you when you do "manual" trading.
Manual trading may be seen as permanent experimentation and automatic trading as the automatization of techniques you already successfully apply in manual trading.
Get ideas from outside sources
Many books talk about trading strategy and may suggest trading ideas or complete strategies which you can test.