Tuesday, June 16, 2009

Questions

After making 3 assumptions to understand technical analysis, I think we should ask 3 questions when coming up with a trading strategy.

Trend following strategy
What is an objective way to measure trend direction?
What timeframe parameters to use for the method?
How to reduce false signals during whipsaws?

Countertrend strategy
What is an objective way to measure trend limits?
What timeframe parameters to use for the method?
How to reduce false signals during real trends?

What is common for both?
The need for objective measurements to give consistency
The decision on choice of timeframe for chosen method
The need to reduce damages from false signal trades