As a trader you often keep an eye on various crypto coins and on trading strategies of colleagues. A common denominator is almost always a certain degree of complexity. Understandable above all in that a mysterious aura is an important sales argument. Nobody would spend money on a simple system with minimal logical parameters.
Personally, I like the simple ideas. Just as I recreate trout with lead and ropeworm, I don’t reinvent the wheel when trading, I use time-saving and stable setups like the following (from the 2015 archive, with updated example).
My guiding principle in trading has always been “don’t live to trade, but trade to live”. This comfort owed to a great urge for leisure has always led me to avoid all too complex trading approaches.
I like reading and I think I have an open mind. In my opinion, these are basic prerequisites for long-term success on the stock market.
But what I can’t grasp at a glance, or let’s say logically after 10 minutes, ends up in the file. A popular example is the Elliott wave theory. Too little tangible for me with too much scope for interpretation.
Or systems with several indicators that are also optimized for each parameter: far too susceptible to changing market conditions, and signals cannot be explained without these tools.
And what’s very important to me is the time it takes. My favorite strategies for stock or crypto trading require a maximum of one hour per day. And here the follow-up and preparation of the current and upcoming trading day is already included.
I hope that this article will give you a concrete example of my philosophy. Advanced and professional traders can safely skip this. However, beginners may be able to take some suggestions with them and thus add a small piece of the puzzle to the tedious development of a profitable trader.
As a chart technician I basically ask myself two questions when looking at a chart.
- Is a new swing in trend direction likely?
- and can I get in cheap?
So I scan the weekly charts of stocks or crypto coins for their strength or weakness. My goal, and this is always at the top before the setup starts, is to buy outperformers and shorten underperformers.
These must have undoubted trends and dynamics. The most likeable securities will be my trading candidates for the following trading week (usually the same shares remain on the watchlist for several weeks).
Key figures such as the relative strength according to Levy (RSL) or by putting the performance of the share in relation to the index are helpful for a quick preselection. With this weekend scan I limit the pool of underlyings to 4-10 values per page (long and short).
Exceptionally, a look at the fundamentals is also recommended here. Usually I’m only interested in the company figures for the next few days before making a concrete start. But for this setup we do not want to buy stocks in the medium and long term that currently have fundamental problems.
The concrete entry signals are then searched for in the daily chart, with order placement conveniently outside trading hours. A most favorable situation is bought for the long candidates, and vice versa, of course, for the shorts. I use stop-entry orders, which are only triggered the next day if it runs at least to some extent in my desired direction. For me, a new upswing in an upward trend must always be indicated by a bullish day candle, and vice versa by a bearish one for a short entry.
Usually I don’t chase another high. But if the dynamics in the weekly chart are clearly visible, I also place orders over smaller sideways phases in the daily chart and try to profit from the outbreak.
Unlike all my other setups, I do not use price targets for this longer-term positioning. The goal is not short-term small profits, but riding trends. Therefore I only use chart trailing stops, starting with the initial stop. The most recent local highs and lows are decisive for this trailing stop. They can also be a little further away, which shouldn’t make you nervous.
I choose very small position sizes, I risk a maximum of 0.2 % of my capital per entry. Because in this setup pyramidisation occurs, but only in profit: if further signals arise after the primary entry, and if a new stop can already be made in profit for the position, acquisitions are not only permitted, but even recommended.
I do this after the primary entry until the first time a stop occurs. This means that it is no longer relevant for the acquisitions whether the stock still appears on the current watch list of outperformers or underperformers. Once I have found a trendy stock and the first difficult entry is behind me, then I try to ride the bull until it throws me off.
Pros And Cons
The expenditure of time is really minimal. I scan the candidates at the weekend, and every day from 5:30 pm I check the signals in question. If necessary, and by no means every day, I send off the stop entry orders for the next day without stress and pull stops on current positions if new lows or highs have emerged.
Due to the large selection of candidates (which can be extended to other stock exchanges) you will always find exceptional stocks that are dynamically ahead of the index or hopelessly lagging behind. And the frequently occurring constellation of simultaneous long and short positions in the portfolio helps to smooth the capital curve, since everything never goes wrong.
However, the abandonment of price targets regularly leads to the fact that one has to be annoyed about profits that have been relinquished. Especially in sideways phases several false signals in succession are possible. The reward for using trailing stops alone is the rare big points, trends that are ridden for weeks and with several increases in positions.
As already mentioned at the beginning, this is certainly not a holy grail. Simply a simple idea (buy strength, sell weakness) straightforward and straightforward implemented. But staying power is often part of it, four weeks without trend or contrary to the ideas are not uncommon.
Don’t be patient, just as “plan your trade, trade your plan”.
Far more complex trading strategies can of course be more sophisticated and profitable. But they don’t have to, and especially beginners should be able to logically follow every step from the idea to the result. Simple but stable setups are the ideal starting point for your own personal strategy.