PARTS OF A SYSTEM
We are in a constant activity of Investigation of the markets with the objective to obtain new ideas that make possible the development of techniques and TRADING strategies to us. In that context we differentiated three very important aspects.
Determination of entries
To define as is the entry strategy is not simple task, exist numerous techniques that we can use to decide the entry points of our system in the market, aside from defining these techniques, the important thing is to decide the moment for entering the market, the key of the success of any system is to enter the appropriate moment, is to say not prematurely because we will enter very small intradaily movements that will possibly finish fast and not entering very late when the almost finished movement this.
ENTRIES
The entries are one of the diverse parts that all TRADING system has, are the soul of the system, the carriers of the "philosophy" of the system, those that decide why and when it enters. Defining the entries, all basically can be included in some of the following groups:
Entries "Donchians" or "Breakouts": These are entered that are made when the price transfers a certain level, this level can be determined by the maximum or minimum of a series of previous bars in the chart, can be a rupture of volatileness bands, rupture of lines of tendency, crossing of averages.... This type of entries one enters the market when the price or level of oscillator raises beyond certain level or the inverse one.
In the last decade they were very popular and they gave to good results the systems based on ruptures of volatileness bands, as they can be the "Bands of Bollinger", these bands mark a price level superficially and below the price of 2 standard deviations of you complete 14 I sweep of the daily or intradaily chart.
Entries by oscillating: These entries are based on the readings that the oscillating make, these are a grafica sample and numerical of diverse aspects of the price, for example, the ADX shows with a numerical value whatever to us is of fort a tendency, they show to us simply when we entered a zone of strong tendency, or when an ascent or slope is suspicious through the divergences.
The entries based by oscillating have the advantage with respect to the donchians in which these signal long before, which allows us to practically be in the market from the beginning. A good example of it is the stocastic oscillator. But also have disadvantages, usually they do not act well in periods of strong tendency, since in the oscillating with limits arriving at an end of them it does not mean that the movement is going away to finish.
whipsaws
Be as it is our type of entrance we often were whereupon, although the conditions occur but optimal so that our position is winning, we will see that it finishes in a lost one. Some times it will be almost immediately after to enter, and others we will win at first but later they will turn us lost, any system by very based and thought that it has his entries have to deal with which it denominates "whipsaws", that is the erratic movements of the market which they generate signals false, that is to say, the "noise" of the market. This a little is resembled the radio waveses, we have carrier waves that are of an almost perfect cycle, and on them many irregular small waves go. The problem is to know how to purify this noise and to see as it is the wave.
EXITS (Limit orders or Stop loss)
The management of the exits is so important or but that the entries, to define a good strategy of exits will cause that our system is but efficient much.
We will be able to define exits by protection of benefits, stops of lost and signals of oscillator.
EXITS
This it is a section in that we put much taken care of, is the great one forgotten the systems. A good system of exits will give continuous benefits us. Once made the entrance it comes the final part from the system, the one that the development of the operation controls and decides when there is to leave the position or to vary his size.
There are so many types of exits as of entries, next we enumerated most common:
Exits of system: they remove to us from the market by diverse conditions, can be an excess of volatileness, little tendency, too much time in the position, signal of oscillator, etc... Also they can open position in the sense in opposition to the previous one.
Stop of losses: they fix our losses to a fixed amount. When we touched that lost one our position would be closed automatically.
Trail stop: they are following the price, usually they store the maximum benefit that we have obtained in our position, and they are in charge to remove to us when this benefit falls of a certain level. The most important aspect is the one of the protection of the benefit.
Progressive exits , when we have positions with several contracts, this type of exits will cause that we close contracts in different levels from price which will cause that we are protecting our benefits for possible falls of benefit.
MONEY MANAGEMENT
The management of the Money, tries to define a methodology to define the protections of benefits, lost and also it can establish the "size" of the entrance based on the probabilities that we have of success.
There are two very important aspects that they are the control of lost principles and the protection of our benefits:
1. - We will have to establish stops of lost in all the systems in such a way that never we risk more of a 2% newspaper with respect to the capital destined to each system.
2. - To make benefits, will be necessary to establish systems that allow us to make benefits in determined points, by means of stops, trail stops, etc.. all these we could be them seeing in TRADING Techniques.
MONEY MANAGEMENT
Money management, two only words to include an ample phantom of which it is translated like "management of the money". Applied to FOREX he is something very generic, it includes very many aspects as it is the diversification, adapted distribution of the money in ours "portfolio" or set of investments, handling of the risk, etc...
Basically Money Management is technique that it indicates to us, whatever is maximum that we can to lose in each position or day, with whichever contracts we must to initiate position, when we must leave, which hour strips are but propitious for the TRADING, etc.
The form simplest to control the lost ones is the one of simple stop of lost, whose function is obvious not to lose more than a certain amount when we invest. Thing that seems simple but that when examining we see it that stop too small can reduce reliability to us to our system, and stop too high can take to the ruin. Stop of lost is something that is due to calibrate very well for each system. Our portfolios of systems control the losses not surpassing every day a small percentage with respect to the invested capital, unless uncontrollable movements in the price take place.
Also we will establish techniques to protect the benefits, by means of progressive exits when we reach certain levels, trailing stops that will make us leave the position when we have reached benefits and we lose a percentage of them, etc.
