Thursday, September 07, 2006

How To Build A Trading Strategy Using The Odds Maker (Part 2)

There's already positive feedback regarding this series of posts (Part I) that discuss techniques on getting the most out of our soon to be released add-on tool, The Odds Maker. In fact Dr. Brett Steenbarger offers some excellent advice on the type of trading hat a user should wear below. He is rapidly becoming an expert since downloading the beta version featuring The Odds Maker last week.

The Odds Maker changes the approach towards using Trade-Ideas. Some beta-users confide with us that's changing their trading plan too. Hopefully these insights translate into a better experience testing strategies.

How To Build A Trading Strategy Using The Odds Maker - Part II

  • Prepare yourself to run The Odds Maker many times and test many filter variables in order to find the strategy that works best for you in the current market. In our "lab environment" it can take anywhere from a couple of hours to a few days to finally get the metrics within the desired range (i.e., a high win percentage, large average winning trade to average losing trade ratio, etc.)
  • Be creative, use your imagination. Sometimes the best opportunities exist by exploiting situations that are not common. Try different alert and filter combinations. The only way to take full advantage of The Odds Maker is by understanding the Trade-Ideas filters - especially ones you don't regularly use. Reread the filter definitions of Trade-Ideas Online Help section:
  • Keep things simple with alerts. Start by using just one alert as an entry signal and work the filters around the alert to build the desired strategy
  • This tip is from Dr. Brett Steenbarger's comments earlier today on his TraderFeed blog:
    My experience, FWIW, is that you have to think like a market maker to come up with the good patterns. If you think like a trend follower or retail trader, you get randomness. The patterns I'm finding involve countertrend trading: buying dips under overall conditions of strength and selling bounces under conditions of weakness. Holding period is 30 min. I'll tweak and hopefully have something to share later this week. Have a great day.
If you read the comments to Brett's post you'll find an example of a strategy that's been working for Dan Mirkin. Here is another article from our blog on the theme of countertrend trading that's also called 'Mean Reversion'.

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