This thread is a bit of a follow on from the Edge thread. In that thread I talked about adapting your strategies and trading to suit the market conditions.
As it now looks like we are entering a new phase of the market and I'm in the process of changing my strategy for how I will trade over the next 6 months or so, I thought it would be a good time to start a thread showing how I do this.
Before we start a disclaimer of sorts. This is purely how I address my trading processes and goals to suit my trading over the markets and time frames I trade. I'm only a mildly successful trader and these ideas aren't going to suit everyone and other traders may find they will not work for them. I welcome any feedback and other examples from other traders.
Alright lets get started.
My strategy for the last 10-12 months - Once I had identified a major low had been put in or was close to being in and a strong rally was probably going to happen I started buying stocks looking to capture the larger trends that would develop, this buying started in Dec08/Jan09. I documented a couple of my portfolios on my blog if anyone wants proof.
Basically I was looking for stocks that had built solid bases or had broken out of trading ranges and were beginning to trend. I then brought into those stocks using various entry triggers.
While I did very well during this period I could have done a lot better but a lack of experience cost me some $, but the experience I gained was probably worth that cost.
New strategy of the next 6 months or so
This strategy is based around my ongoing analysis that I have been posting in the XAO thread and if that pattern starts to fail or my outlook on how it will play out changes so will my strategy on how I trade the markets.
Now basically instead of trying to ride trends higher I will be looking to capture smaller swings of the market. I'm now going to be looking for different patterns that will let me capture these swings and should suit the conditions - these patterns are based on my trading & research.
1. Shorts - I don't short that often due to it being difficult to get stock to short and the fact I don't find it as profitable to short stocks for various reasons. But I will now be looking for stocks that put in lower highs by breaking support and then retesting these zones and this is where I will be looking to enter my first lot of shorts. If we do start to see a sustained down trend with the overall market I will then look for continuation patterns to enter shorts.
2. Longs - I think the first stage of this period will possibly see some choppy trading conditions which will make it difficult to trade longs, so longs will be taken sparingly and will have tight trailing stops when they are taken. Again as the market makes it's mind up as to which way it will move we might see some rallies in which we can trade longs but again a tight trailing stop will be applied.
3. General - I don't expect to make anywhere near the money I made in the last 9 months in the next 6 months and I also think I will have to work harder for it. I expect my win/loss %to stay relatively the same but my R/R to drop off by quite a bit. I also don't expect to take as many trades as what I have been taking (this is a method of reducing my risks).
4. Looking for the next phase - I will be continually monitoring the market for signs that my analysis of current market conditions is wrong or we are starting to enter a new phase of the market which I will then adapt my approach to suit those conditions.
5. Be flexible - Try to remain flexible and and adapt to the conditions, if any of the above isn't working I will not stick with just because it is my strategy - I will re-evaluate and try to apply something that will work or sit out of the market till I have conditions I can trade with more faith.
How I apply this new strategy to my trading and my ability to read the market and patterns that I trade will have a big say on how profitable or how much money I lose in the next 6 or so months.
The reason I use this sort of strategy layout is I find it keeps me focused on the current market conditions and what sort of patterns that are likely to prove the most profitable and what I want to achieve from my trading for this period. It is only a guide and a small part of my trading plan.