Printsypy trade with the trend of their concepts
There are four basic principles that should be part of any trading strategy:
Trade trends;
Reduce the loss;
Let profits run;
Manage the risks;
You must be sure that your trading strategy involves all of these principles required for success.
Trading trends relates to the determination of rules of open positions. This requirement means that you should always open in the direction of current price movements. Mathematical analysis of prices shows that prices vary largely randomly with a small trend component. This scientific fact is extremely important for those who want to establish their trade on a sound scientific approach. This means that any attempt to trade short-term patterns or practices that are not based on the trends, are doomed to failure.
A good example of such a doomed system - Japanese candles. This theoretical conclusion is based on my previous research. Many years ago, when the candlestick analysis came into vogue, I tried to create a profitable trading system based on the candles. I tried a lot of options are absolutely no avail. I just have not met anyone who could demonstrate the efficacy of candlestick analysis, using the strict rules. Successful traders use a method that gives them a statistical edge. This advantage comes from the tendency to form price trends. In the long run you can make money by trading only on these trends. Therefore, when prices are on the uptrend, you should just buy it. When prices are on the down-trend - only to sell.
Although this important principle is well known, traders are often surprisingly neglected. In search of additional income they are trying to buy at the bottom and sell at the top, before the new trend is established. Successful traders have learned to wait until the confirmation of the formation of a new trend, before taking a position in accordance with it.
An alternative trend-following is predicting. It is a sin, which fall almost all traders. They study the problem of trading and conclude that to be a successful trader must learn to predict the market. There is no end, willing to sell you their latest discovery in the prediction of the market. We all want to believe that prediction is possible - it's so nice to make predictions and be right.
Trade with the trend seriously, as logically based exit point is located far enough and if you are wrong, can bring great losses. This is well explained by the fact that there are so few really successful traders. Not many can make a trade in such a severe psychological manner.
You can define a trend only in relation to a specific time frame. When you define a trend, it may be, for example, an interval of two weeks or six months, or hours. An important part of a trading plan is deciding how to choose a time interval. While it is probably more psychologically easy to select the interval shorter, better results are obtained by trading in the longer intervals. The more you spend a long trades, the more profit can be.
To maximize the chances of success, your timeline for measuring the trend should be at least 4 weeks. Therefore, you should include in the direction of price movements that last for 4 weeks or more. A good example is based on the trends of the strategy is to buy when the closing price is higher than 25 trades back and sell when it is less than 25 days ago.