Determine Your Time Frame for Trading - Step 4
I've covered this before, perhaps more than once, but I'm probably leading toward a longer-term system. In fact, I'll most likely be trading off of daily data. Given the cost my chosen broker has on automated trading and the fact that I will not be able to sit and watch a trading terminal to enter or exit positions, a long-term system that is relatively low maintenance is best for me.
I like the fact that long-term trading is more hands-off, as well as its potential simplicity and the fact that, according to Tharp, it is least stressful time frame.
The negatives of long-term trading are substantial. The ones that concern me the most are the whipsaws that happen, the low reliability, and the infrequency of trades. It will be psychologically difficult to take a relatively low number of trades and endure the frequent small losses en route to the big gainers. I like to be "right" and only being "right" less than 50% of the time would be a challenge for me. Of course that is where the confidence in my self-tested system will *hopefully* permit me to continue taking trades.
Tharp suggests that, to compensate for the infrequent trading, multiple markets should be traded. In my last post, I touched on the correlation of currency pairs and how that may negate the advantages of trading multiple markets. Its great to be able to have more opportunities in different pairs, but if they're all in the same wrong direction, I've only succeeded in losing money twice as fast. So in order for multiple pairs to work, I'll need to find some pairs with a low correlation to GBP/USD. That will probably lead to the crosses, which may be a bit sophisticated for me, at least at the advent. I'll most likely wait a predetermined amount of time, or trades before I venture into other pairs.
While I know I'm going to be going long term, eventually I'd like to also implement a short-term system. The first 2 advantages Tharp lists are what I like about the idea of short-term trading: lots of opportunities to trade and the stimulation induced thereby. The latter benefit is countered by Tharp, "excitement usually has nothing to do with making money -- it's a psychological need." While I want to believe I can stick to a long-term, patient, and uneventful approach, it will be difficult when looking at intraday charts and seeing all the volatility and potential trades I'm missing out on. However, this is where I hope the confidence in my system will allow me to stay the course.
I think I've reached the point now where I need to start plumbing some data. The next step requires looking at historical data, which should be easy enough to find on a daily basis.
Next time I'll go through Step 5.
I like the fact that long-term trading is more hands-off, as well as its potential simplicity and the fact that, according to Tharp, it is least stressful time frame.
The negatives of long-term trading are substantial. The ones that concern me the most are the whipsaws that happen, the low reliability, and the infrequency of trades. It will be psychologically difficult to take a relatively low number of trades and endure the frequent small losses en route to the big gainers. I like to be "right" and only being "right" less than 50% of the time would be a challenge for me. Of course that is where the confidence in my self-tested system will *hopefully* permit me to continue taking trades.
Tharp suggests that, to compensate for the infrequent trading, multiple markets should be traded. In my last post, I touched on the correlation of currency pairs and how that may negate the advantages of trading multiple markets. Its great to be able to have more opportunities in different pairs, but if they're all in the same wrong direction, I've only succeeded in losing money twice as fast. So in order for multiple pairs to work, I'll need to find some pairs with a low correlation to GBP/USD. That will probably lead to the crosses, which may be a bit sophisticated for me, at least at the advent. I'll most likely wait a predetermined amount of time, or trades before I venture into other pairs.
While I know I'm going to be going long term, eventually I'd like to also implement a short-term system. The first 2 advantages Tharp lists are what I like about the idea of short-term trading: lots of opportunities to trade and the stimulation induced thereby. The latter benefit is countered by Tharp, "excitement usually has nothing to do with making money -- it's a psychological need." While I want to believe I can stick to a long-term, patient, and uneventful approach, it will be difficult when looking at intraday charts and seeing all the volatility and potential trades I'm missing out on. However, this is where I hope the confidence in my system will allow me to stay the course.
I think I've reached the point now where I need to start plumbing some data. The next step requires looking at historical data, which should be easy enough to find on a daily basis.
Next time I'll go through Step 5.
posted by Young Pip at 1:58 PM
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