Last Updated on November 24, 2022 by Oddmund Groette
On this page, we have compiled all the trading strategies (trading systems) we have published since our start in 2012 (plus relevant trading strategy articles). The page contains 100+ free trading strategies plus articles about indicators and trading strategy-specific articles. We are confident you find a viable trading strategy among all these articles.
If you don’t want to browse through all the articles, we have compiled the code for all articles that contain testable strategies or hypotheses. Additionally, you get a description in “plain English”. Read more.
List of our best trading strategies
If you like our list of trading strategies on this page, you might be interested in our monthly subscription service where we provide our best trading strategies. We save our best strategies for our paying subscribers. Each month we publish a new “edge”/strategy – a 100% quantifiable trading idea that includes buy and sell signals in “plain” English plus code for Amibroker and Tradestation/Easy language. Please also have a peek inside our shop.
We have also many backtests and strategies on our landing page for technical indicators.
S&P 500 trading strategies (ES and SPY)
- The Turnaround Tuesday trading strategy
- Bull market trading strategy (backtest)
- Conclusions about trend-following the S&P 500
- A long-term pullback trading strategy in the S&P 500
- Lower highs and lower lows pattern (trading strategy)
- Higher highs and higher lows pattern (trading strategy)
- NR7 trading strategy – The Narrow Range 7 (we improved it)
- Four up days in a row – S&P 500
- A simple trend-following system/strategy on the S&P 500 (By Meb Faber and Paul Tudor Jones)
- S&P 500 mean reversion using IBS and RSI (Classical mean reversion strategy S&P 500)
- What is an unfilled gap in trading? Are they profitable? (Backtests and strategies)
- Buy when the S&P 500 makes new intraday high? (Intraday High Breakout Trading Strategy)
- RSI SPY trading strategy (RSI(2) on SPY)
- Monday Reversal Trading Strategy In The S&P 500 And Nasdaq (Trend Reversal)
- End of month trading strategy in the S&P 500 – update
- 3 day low trading strategy in ETFs
- Does volume really matter in the S&P 500? (A volume-based trading strategy in the S&P 500)
- When both Thursday and Friday are down in SPY (S&P 500 reversal trading strategy)
- The failed bounce trading strategy (A failed bounce is normally followed by rising prices)
- The high and low divergence day trading strategy
- The bottom of the range trading strategy
- The momentum day trading strategy in the S&P 500 (SPY) during the last hour
- The 5-day low and low of the range trading strategy (S&P 500 mean reversion)
- When SPY closes in the bottom of today’s range
- Gap Fill Trading Strategies – Opening Gaps in The SPY and S&P 500
- At what time of the day does SPY/S&P 500set high and low?
- The return during the last hour of trading
- The trend is not your friend in the S&P 500 (and other indices)
- The Tuesday reversal trading strategy (S&P 500 – SPY)
- Daily seasonalities in the S&P 500
- Intraday high and low in the S&P 500 by weekday
- Every open down trading strategy (Buy every open down?)
- MACD-histogram trading strategy
- Four down days in a row trading strategy
- S&P 500 weekly gains and losses distribution (strong mean reversion)
- Some performance facts about the S&P 500
Overnight trading systems in stocks
- Night strategies trading (overnight edges/strategies)
- How do you do overnight trading? (How to make money overnight trading)
- An overnight short trading strategy in the S&P 500
- 4 Overnight Trading Strategies In The S&P 500 (Strategies From Close To The Next Open)
- Overnight trading strategy in the S&P 500
- Monday Overnight Reversal In The S&P 500 (Short strategy)
- The 5-day low overnight trading strategy (S&P 500 overnight)
- The 3-day down overnight trading strategy in the S&P 500 (3 down days – and gap up?)
Volatility trading edges and strategies
- Volatility trading strategies – trade and make money on volatile markets (backtest)
- Using the VIX to trade S&P 500 (VIX trading strategies)
- What happens after an “extraordinary” big fall in the S&P 500?
- Stock Market Crash Trading Strategy — What Is It?
- What Day Of The Month Is Stocks’ Most Volatile?
- Which Day Of The Week Is Stocks’ Most Volatile?
- Should You Buy Or Sell Stocks In A Volatile Market? (Backtest With Historical Data)
Nasdaq trading systems (NQ and QQQ free trading systems)
- RSI QQQ (RSI mean reversion trading strategy QQQ)
- Monday/Tuesday trade in Nasdaq
- Nasdaq (QQQ) mean reversion
Candlestick (patterns and formations)
- Do candlesticks work? A quantitative test of 23 candlestick patterns
- Engulfing trading strategy (backtest)
- Shooting Star candle strategy (backtest)
- 3 bullish candlestick patterns that work
- What is the success rate of candlestick patterns?
- What is the best time frame for candlesticks?
- How many candlestick patterns are there?
- Candlestick pattern – doji
Treasuries/bonds trading strategies (TLT trading systems)
- Calendar effects in long-term Treasuries (TLT seasonal trading strategies)
- Junk bond trading strategies (make money in junk bonds)
- Trend following strategies Treasuries
- Some monthly seasonalities in US Treasury bills
- Monthly seasonalities in long-term Treasuries
- Daily effects in long-term Treasuries (Day of the week trading strategy in TLT)
- What happens to stocks when bonds go down? (Trading strategy backtest)
- What happens to stocks when bonds go up? (Trading strategy backtest)
- What happens to stocks when interest rates go down? (Trading strategy backtest)
- What happens to stocks when interest rates go up? (Trading strategy backtest)
Day trading strategies
- A new potential day trading strategy, part2
- A new potential day trading strategy
- Day Trading Penny Stocks Strategy (Backtest)
- SPY sets low or high in the last hour – a day trading strategy
- The Best Day Trading Stocks Are The Most Boring Stocks
- Day Trading SPY: Returns In The First Hour, Middle of The Day, and The Last Hour
- Is It Possible to Make Money Day Trading? Can you make money day trading? (My numbers 2002-2012 – real money)
Russell 2000 (IWM) strategies
Seasonality in stocks (seasonalities, anomalies, abnormalities, and effects)
- Seasonal trading strategies – why use seasonalities and seasonality in trading
- The holiday effect in stock markets (Holiday effect on the stock market)
- Election Day Performance (Stock Markets – Backtest)
- The Martin Luther King Jr. Day holiday effect in trading
- The Easter Holiday effect in trading (Holy Thursday – best day of the year for stocks?)
- The Memorial Day Holiday Effect In Trading (Backtest)
- The 4th of July Holiday Effect In Trading (Independence Day Effect – Backtest)
- The Thanksgiving and Black Friday effect in the stock market
- The End Of The Year Rally In Stocks (Santa Claus Rally/Effect Strategy)
- The Friday jobs report trading strategy for stocks (and bonds)
- How to use the weekday effect in trading (Does the day of the week make a difference?)
- Even Vs. odd days trading strategy (S&P 500)
- Last trading day of the month trading strategy (last day of the month seasonality)
- The options expiration week effect (options week anomaly and seasonality)
- Quadruple witching day – what is it and is it bullish or bearish? (Backtest)
- Expiry trading strategies (expiry strategy backtest)
- Trading the week after options expiration day
- The congressional effect in stocks
- What trading hour is the best? When should you buy and sell during the day?
- What is the best day and month to own stocks?
- What Are The Worst Days To Trade Stocks?
- What Is The Weakest Month In The Stock Market?
- The turn of the month trading strategy (end of month effect)
- The January effect strategy that works
- The January effect in the S&P 500
- First trading day of the month trading strategy (first day of the month effect)
- The first day of month seasonality in the S&P 500 (Trading the first day of the month)
- What is the worst month of the year for stocks?
- Retail stock market seasonality trading strategy
- Sell in May and go away – OBX (Oslo Stock Exchange)
- The End of month rally/effect in stocks (S&P 500 seasonality)
- The Santa Claus Rally in Emerging Markets (End of year rally)
- December seasonality in OBX (Oslo Stock Exchange)
- Day of week seasonality in the S&P 500
- Sell in May and go away – myth or fact – the S&P 500 (trading seasonality)
- The average gain per trading day and day of the week since 1970 in the S&P 500
Stock and sector rotation strategies (momentum)
- Sector rotation strategy – what is it? Do stock rotational systems work?
- Is Meb Faber’s momentum/trend-following strategy in gold, stocks, and bonds still working?
- S&P 500 and gold miners rotation strategy/system
- S&P 500 and gold rotation strategy (SPY and GLD rotation)
- A simple pair trading strategy in liquid ETFs (pair trade ETFs)
Momentum trading strategies
- Market neutral momentum in SPY and EEM
- Monthly momentum in SPY and EEM
- Monthly momentum in SPY and TLT (rotation strategy)
- A monthly momentum strategy in ETFs (sector rotation in EEM, SPY, TLT)
Larry Connors Strategies
- Larry Connors’ Double Seven strategy (Double 7 trading strategy)
- Larry Connors’ multiple days up and multiple days down strategy
- Larry Connors’ %b strategy (Bollinger Bands)
- Larry Connors’ R3 strategy
- Larry Connors’ RSI 25 & RSI 75 strategy
- Larry Connors’ 3-day high/low strategy
Sentiment indicator trading strategies
- What Are Market Sentiment and Sentiment Indicators?
- TRIN – Arms Index Trading Strategy – What is it? (Backtest)
- What Is The Put Call Ratio? Does It Work? (Backtest And Strategy)
- NAAIM Exposure Index (Backtest Trading Strategy)
- AAII And Market Sentiment Indicators – How To Trade It (Examples And Backtests)
- Investors Intelligence Sentiment Index (Contrarian Sentiment Indicator)
- What Is The McClellan Oscillator And Summation Index? (Trading Strategy And Backtest)
Trend following indicator strategies
- The 200-day moving average trading strategy: How MA systems work (backtest and indicator)
- ADX indicator backtest (Strategies – does it work)?
- Donchian Channels – What is it and do they work? (Backtest commodities and S&P 500)
- DMI — What Is It? (Backtest And Trading Strategy)
- RSI momentum strategy (Does RSI momentum work? Backtest)
- The Best Moving Average – A Comparison and backtest of all variants of MAs
- Parabolic SAR (Trading Strategy And Backtest)
Bear market trading strategies
- Bear Market Trading Strategy — What Is It? (Backtest And Example)
- The anatomy of a bear market: 2000 -2003 (Nasdaq and the S&P 500)
Gold trading systems (GLD trading system)
- Gold weekend trading strategy (GLD swing trading)
- Trend-following system/strategy in gold (12-month moving average)
- The greatest gold stock system you should trade
- When gold gaps up or down (gold gap strategy)
- Gold silver chart ratio strategy (backtest)
Volatility indicator strategies
- Are the Bollinger Bands profitable? (Including strategies)
- Average True Range trading strategy (ATR indicator – how to use it)
- Keltner Bands strategies (Keltner Channels strategies)
- What is the VIX and how does it work? (VIX trading strategies)
- WilliamsVixFix explained – does it work? (Including trading strategies)
- Williams Volatility Channel — What Is It? (Trading Strategy)
Oscillating indicator strategies
- Which oscillating indicator is the best for trading strategies?
- The stochastic indicator – does it work? (Stochastic trading strategies)
- Williams %R explained – does it work? (Williams %R strategies)
- Does the MACD indicator work? (Including strategies)
- CCI Indicator — What is it? (Trading Strategy And Backtest)
- Ultimate Oscillator Indicator Trading Strategy (Backtest)
- DeMarker Indicator Strategy — What Is It? (Backtest)
- How the RSI indicator works (RSI trading strategies)
- Connors RSI — What Is It? (Trading Strategy and Indicator Backtest)
- Cutler’s RSI — What Is It? (Trading Strategy and Indicator Backtest)
- Weekly RSI vs daily RSI – what is best?
- Zweig Breadth Thrust Indicator – how to measure market breadth
- The internal bar strength (IBS) indicator
Random indicator strategies
- Which indicator is best for swing trading?
- Divergence Trading Strategy — What Is It? (Backtest)
- What is a Death Cross in Trading? Does it work?
- Double Death Cross Strategy — What Is It? (Backtest)
- Heikin Ashi explained (is it useful?)
- Rolling Returns For The S&P 500 – What Is It And How Do You Calculate It?
- Zig Zag Indicator Trading Strategy — What Is It? (Backtest And Example)
- Aroon indicator strategy (backtest and example)
- On-Balance Volume — What Is It? (Backtest And Trading Strategy
- Rate of Change Indicator Strategy – What Is It? (ROC strategy and backtest)
- Hindenburg Omen indicator: How to use it? Backtest, formula and what is it?
- The Elder Ray Indicator (with strategies): Does it work?
- Andrews Pitchfork Trading Strategy — What Is It? (Backtest And Example)
- The Chaikin Oscillator – does it work? (Chaikin Trading Strategies)
- Linear vs. logarithmic charts and scale – what is log scale chart (what is the difference?)
- What is contango? Examples and what causes it?
- What is backwardation? Examples and what causes it?
DAX 40, Euro Stoxx 50, and Bund
- Why trade the DAX? (How to trade it)
- Why trade the Euro Stoxx 50? (How to trade it)
- The Santa Claus Rally in DAX 40 and Euro Stoxx 50 (End of year rally)
- Trading the futures expiration week in DAX 40 and Euro Stoxx 50
- Trading the futures expiration week in Euro Bonds (FGBL)
- Trading the week after futures expiration in DAX 40
- Trading the week after futures expiration in Euro Stoxx 50
- Trading the week after futures expiration in Euro Bund
Short selling strategies
- Short selling strategies – is it possible to make money by shorting?
- Why is short selling difficult? (Why don’t short stocks)
- Is high short interest good or bad? How is short interest used in trading?
- Short Squeeze Trading Strategy — What Is It? (Example)
NIFTY 50 strategies and systems
- End of month effect in NIFTY 50 (turn of the month)
- The Santa Claus rally in NIFTY (The end of year rally)
OTC and penny stocks
- Can you get rich trading penny stocks? (Annual returns of penny stocks)
- Why are pump and dump strategies bad (Why avoid penny stocks)
- Why scalping is a waste of time (do this instead)
- Why are penny stocks bad? (why avoid them)
Technical analysis trading strategies and classical chart pattern (backtests and patterns)
- Head and shoulders trading strategy (backtest and example)
- Cup And Handle Pattern (backtest and example)
- Double Bottom Chart Pattern Strategy (How To Trade It – Backtest)
- Double Top Chart Pattern Strategy — What Is It? (Backtest)
- Harmonic Pattern Trading Strategy (Backtest And Example)
- Harmonic Bat Pattern Strategy (Backtest And Example)
- Cypher Pattern Trading Strategy — What Is It? (Backtest)
- Rectangle Chart Pattern Strategy (Backtest And Example)
- Pennant Trading Strategy – What Is It? (Backtest)
- Breakout Triangle Strategy — What Is It? (Backtest And Example)
- Ascending Triangle Pattern Strategy — What Is It? (Backtest And Example)
- Bear Flag Chart Pattern Strategy — What Is It? (Backtest And Example)
- Measured Move Chart Pattern Strategy – What Is It? (Backtest)
- Butterfly Harmonic Pattern Trading Strategy — What Is It? (Backtest)
- Crab Harmonic Pattern Trading Strategy (backtest)
- Gartley Pattern Trading Strategy — What Is It? (Backtest)
- Gann Fan Trading Strategy — What Is It? (Backtest)
- Elliott Wave Trading Strategy — What Is It? (Backtest)
- Claw Pattern Trading Strategy — What Is It? (Backtest)
- Wyckoff Trading Strategy — What Is It? (Backtest)
- Bump and Run Chart Pattern Strategy — What Is It? (Backtest And Example)
Sector trading strategies and systems
- Sector trading strategy (backtest and example)
- Industrials Sector Trading Strategy (Backtest And Example)
- Real Estate Sector Trading Strategy (Backtests And Examples)
- Consumer Discretionary Sector Trading Strategy (Backtest and example)
- Financial Services Sector Trading Strategy (Backtest And Example)
- Materials Sector Trading Strategy (Backtest And Example)
- Healthcare Sector Trading Strategy (Example And Backtest)
- Communication Services Sector Trading Strategy (Backtest And Example)
- Biotech trading strategy (backtest and example)
- Homebuilder trading strategy (Backtest and example)
Consumer staples (XLP free trading systems)
- XLP trading systems (Is XLP good for trading?)
- Rubber Band Trading Strategy — What Is It? (Backtest)
- Internal bar strength trading strategy in consumer staples
- Trade the boring consumer stocks when they open down and yesterday was a down day – a day trading strategy
- When XLP diverges from recent high and low: A mean-reversion trading strategy
Consumer staples (XLU free trading strategies)
Trend following trading systems
- Trend following strategies and systems explained (including strategies)
- Does trend following work? Why does it work?
- Turtle Trading Strategies: Rules, Statistics, and Backtests – Does It Still Work?
- Is trend following dead (again)? Or just the normal out-of-favor cycle?
Buy and hold trading strategies (long-term strategies)
- The Best Performing Stock Markets In The World Since 1900
- Ray Dalio’s All Weather Portfolio investment strategy (what is it, returns, performance, backtests)
- The 60/40 Strategy Portfolio (Backtests, Alternatives, And Substitutes)
- Buy and hold vs market timing (Can you time stock investments?)
- How likely are you to go broke as retired or FIRE? (Sequence risk, diversification, and withdrawal rate)
- Dollar cost averaging vs. lump sum investing backtest – sequence of return risk (luck, skill, or magic?)
- How does war affect the stock market historically?
- S&P 500 Equal-Weight Trading Strategy — What Is It? (Backtest And Example)
- Do stocks outperform Treasury Bills? (Not what you expected)
- Buy the Dip Strategy — What Is It? (Backtest And Example)
International markets trading strategies
- Sweden Index Trading Strategy (OMX30) — What Is It? (Backtest And Example)
- China Trading Strategy (Backtest – FXI Strategy)
- India Trading Strategy (NIFTY Backtest And Example)
Forex trading strategies
- Forex Trading – 12 Reasons Why You Should Avoid It (Warning)
- Forex Basket Trading Strategy — What Is It? (Backtest And Example)
Pivot points trading strategies
- 6 Pivot Point Trading Strategies – A Backtest | How To Trade With Pivot Points?
- Camarilla Pivot Trading Strategy — What Is It? (Backtest)
Oil trading strategies
- Shorting oil when the dollar rises
- The Friday Seasonality in USO (oil)
- How to trade and invest in oil stocks (trading strategy and seasonality)
Bitcoin and crypto trading strategies
- Cryptocurrency Trading Strategy — What Is It? (Backtest)
- Bitcoin Crash Trading Strategy — What Is It? (Backtest)
- End of month effect in Bitcoin – does it exist? (Turn of the month)
- Bitcoin Cash Trading Strategy — What Is It? (Backtest)
- Trend following and momentum strategies on bitcoin (crypto) – capturing the trend (free bitcoin trading strategies)
- Does RSI work on crypto or Bitcoin trading? Is RSI good for crypto?
- Dogecoin Trading Strategy — What Is It? (Backtest)
- Does market timing work on Bitcoin? (Is it a good idea?)
- Cardano Trading Strategy (Backtest)
Sentiment trading strategies
- AAII And Market Sentiment Indicators – How To Trade It (Examples And Backtests)
- NAAIM Exposure Index (Backtest Trading Strategy)
- Consumer Confidence And Stock Market Returns (Strategy And Backtest)
- Advance-Decline Indicator (Strategy Backtest)
Options trading strategies
Dow Jones trading strategies
- Dow Jones trading strategy (Backtest)
ETF trading strategies
- ETF Trading SPY: 16 Things You Should Know
- ETF trading strategies
- Sector ETF performance per quarter
- Country ETF performance by quarter
- ETFs Vs. Futures: What Should You Trade – What’s The Difference?
Different trading systems and strategies
- Scale-In Trading Strategy – What Is It? (Backtest)
- Alexander Elder Trading Strategy — The Triple Screen Strategy (Backtest And Example)
- Nassim Nicholas Taleb – Trading Strategies, Philosophy And The Barbell Strategy
- Tail risk hedging strategies – what is it? (Tail hedge examples)
- S&P Midcap Trading Strategy (S&P 400 Index) — What Is It? (Backtest And Example)
- What percentage of traders fail
- CTA Trading Strategy — What Is It? (Backtest)
- Sell the Rip Strategy — What Is It? (Backtest)
- Commodity trading strategies
- HHLL Trading Strategy — What Is It? (Backtest)
- 52-week high strategy (backtest)
- Follow Through Day – What Is It? (Trading Strategy, Backtest, Meaning, and Example)
- Larry Williams trading strategies
- All-Time-Low Trading Strategy — What Is It? (Backtest And Example)
- Futures trading strategies
- High net worth strategies – what are they?
- Gap down strategy in stocks – going long
- Can I swing trade futures? (How much do I need?)
- In the long term it pays to be a contrarian trader and investor
- The Importance of Trading Records
- Investopedia trading strategies
- 3 free mean reversion trading system (backtested buy and sell signals)
- 10 free swing strategies that work (backtested buy and sell signals)
- Opening range breakout – what is ORB trading strategy – does it work (Day trading, daily, and weekly)
- Gap trading strategies (How to trade gaps with backtested examples)
- How to create a mean reversion trading strategy (pros and cons of mean reversion strategies)
- Does quant trading work? Is being a quant worth it?
- Good Trading Strategies In SPY Or SP500 (Profitable Strategies S&P 500)
- Breakout trading strategies (including examples)
- What happens when stock markets are oversold?
- What happens when stock markets are overbought?
- SWOT Trading Strategy — What Is It? (Backtest And Example)
- A pair trade in SPY and TLT (pairs trading strategies)
- How does pairs trading work? (Pairs trading strategies)
Our best Moving average strategies
- Moving Average Comparison. We backtest all variants of MAs
- Simple moving average (backtest strategy)
- Exponential moving average (backtest strategy)
- Hull moving average (backtest strategy)
- Linear-weighted moving average (backtest strategy)
- Adaptive moving average (backtest strategy)
- Smoothed moving average (backtest strategy)
- Variable moving average (backtest strategy)
- Weighted moving average (backtest strategy)
- Zero lag exponential moving average (backtest strategy)
- Volume weighted moving average (backtest strategy)
- Triple exponential moving average TEMA (backtest strategy)
- Variable Index Dynamic Average (backtest strategy)
- Triangular moving average (backtest strategy)
- Guppy multiple moving average (backtest strategy)
- McGinley Dynamic (backtest strategy)
- Geometric moving average GMA (backtest strategy)
- Fractal adaptive moving average FRAMA (backtest strategy)
- Fibonacci moving averages (backtest strategy)
- Double exponential moving average (backtest strategy)
- Moving average slope (backtest strategy)
- VWAP Trading Strategy — What Is It? (Backtest)
Finale: Some advice before you embark on your trading career
If you have clicked on one or several in the list of the profitable free trading strategies above, you might wonder what is the best way to approach trading. We have tried to answer that in many other articles, but below we give a very brief explanation of what should be your main considerations before you start trading:
Are you a trader or an investor?
First, you need to have a thorough understanding of what kind of investor you are. It might seem obvious, but many derail already before they start.
Sit down and think about what your aims and goals are. Are you a trader or an investor? Do you think you have the mindset and capabilities to deal with frequent profits and losses?
The alternative to trading is to invest in stocks and mutual funds for the long-term:
Position trading/buy and hold
By position trading we mean holding positions for a long time, close to or equal to “buy and hold”.
Should you trade at all? Trading is scalable, ie. you can make a lot of money in a relatively short period of time, but the fail ratio is much higher compared to buy and hold.
If you invest passively in a mutual fund you participate in the earnings and productivity growth in society and you are most likely well protected against inflation.
We recommend spending some time pondering where you should put your money.
What is a trading strategy?
A clearly defined trading strategy needs at least four elements:
- It needs to have defined/quantified buy/short criteria. That is, you need to know exactly when to buy. “Buy when touching resistance” is not a criterion – it’s vague and not clearly defined. You should not use anecdotal evidence in your decision-making!
- If you get a buy signal, how do you execute the buy/short order? Do you put in a limit order or do you buy at the market? In the trading strategies above, we mainly use at the close orders. Obviously, we only know the close price in hindsight. However, we start sending orders ten seconds before the close, and that works really well and gets very close to the results in our backtests.
- If you are in a position, you need to know when to sell/cover. Just like the buy criterion, this needs to be quantified to avoid second-guessing.
- The sell/short order should be executed at prices that are realistic compared to your backtests. Slippage and commissions are a big cost for a trader, and you need to minimize costs and make it as similar as possible to the backtest. We have been using at the close orders for years, just like when we buy and enter positions, and it works well for us.
Types of trading strategies: What kind of trader should you be?
If you start trading and are a beginner, you need to make plans and systems, and you need a trading strategy. This takes time, but hopefully, this is time well spent and at the same time enjoyable.
If you don’t have a particular interest in trading, you should invest for the long term and forget about trading. A great interest in trading is a prerequisite for success! Beginners often start with the goal of striking it rich, but this is a bad starting point.
Furthermore, your approach should be agnostic. First off, what kind of instruments and asset classes should you trade? Don’t limit yourself by focusing on a certain time frame or asset class.
There are many types of trading systems to choose from, but mainly we can argue they fall in two groups: day trading and swing trading.
Day trading strategies
Unfortunately, many want to be day traders in the hope they can make money faster. The reality is that most of them get poor pretty fast. It’s a fast way of departing your money if you don’t know what you’re doing.
Another downside with day trading is that you don’t benefit from the long-term tailwind in the stock market, as you do in swing trading:
Swing strategies (end-of-day trading)
Many argue they will day trade to avoid the overnight “risk” in the stock market. But the long-term trend suggests that you get well awarded for taking this “risk”: all the gains since 1993 have come from the close until the next day’s open (the overnight trading edge). There has been no money to be made intraday from the open to the close.
The overnight “risk” is a nice tailwind you can exploit!
The tailwind is particularly strong in stocks, and to some extent in gold. In most other asset classes, you don’t have this edge.
Other strategies and edges
Among prop traders long/short and pairs trading are popular. These are market-neutral trading strategies because you hold an equal amount of capital both long and short that should cancel each other out in case of adverse movements.
The idea behind pairs trading strategies is to trade on the value of the spread. For example, this could be shorting the strongest and buying the weakest on the assumption they will converge.
The downside of trading
If you buy a basket of mutual funds there is no much you need to do. Just buy the funds and forget about it. Get on with your life and save regularly and don’t interfere in your dollar-cost averaging. If history is any guide, you will be well rewarded as long as you are patient and let the capital compound.
With trading, you need to do a lot of work and research. It requires time to develop strategies, and when you are done developing you need to do the actual trading. It’s essential you like this process and find it enjoyable. If not, you will not make it as a trader.
However, if you use automated trading software you can “outsource” the trading to your computer. This gives you leverage to trade an “unlimited” number of strategies.
Which time frame is best for trading?
One of the most important things in trading is to have a portfolio of diversified strategies that correlate as little as possible. One way to do this is to trade several different time frames.
We believe we have given you a pretty wide variety in time frames in the systems and strategies we have presented above: from day trading to long-term position trading in the S&P 500.
However, most of the strategies are swing trades. Scalping and day trading is very difficult and only a few traders manage being profitable year in and year out. The longer the time frame, the more you utilize the long-term tailwind mentioned above (at least in the stock markets).
Which market is best for trading?
Because of inflation and earnings growth, a diversified basket of stocks, like for example owning the S&P 500, has proven to beat inflation in the long run. Just by owning stocks overnight, you manage a 0.04% return from the close until the next day’s open. We would say that the best place to start is by trading stocks. Stock trading has a long history and you can use the mentioned tailwind. Our experience indicates that the top and most successful traders operate in the stock market.
This is an edge, let’s call it tailwind, that you basically only get in the stock market. Very few other asset classes offer the same tailwind, perhaps gold being an exception.
Thus, we believe you stand better chances in stocks and stock indexes. We are no fans FOREX, for example, because of this. We are also careful with dipping our toes into crypto, mainly because of the short history. Likewise, options and many derivatives are hard to make money in as well.
Moreover, our research stock strategies are less prone to “blow off”, like for example happens frequently in the commodities markets. Likewise, the forex markets are very difficult to trade. If you manage to find commodity and forex trading strategies that last year in and year out – congratulations!
We recommend starting with stocks. Not only do you have a tailwind, but you can also choose among thousand of stocks in different sectors. Many of those have little competition from other traders. Compare this to forex trading strategies where you are competing against millions of traders just in the USD/EUR spread!
Swing trading strategy tips: What are you looking for in a trading strategy?
You want to have consistent profits, more like an income, but that is very tough to achieve. Some kind of lump-sum and erratic profits are inevitable. Most likely just a few days per month will generate most of the profits. The rest of the time you are scraping by and looking to avoid losses and disasters.
Trading is much like a slow grind where you have to show up day in and day out for years with some occasional big wins.
That said, you want a steady rising equity curve from the left to the right. You want a profit factor that is somewhere between 1.75 and 3. Likewise, you can have a look at the Sharpe Ratio of your trading strategy as well. Below is a an example of a trading strategy with a low profit factor:
Opposite, below is an example of a potentially good trading strategy with a high profit factor:
Because of the behavioral mistakes you are most likely to commit, most traders should make strategies that give the smoothest returns you can get. However, be aware of curve fitting!
We provide you with a last chart that shows you examples of drawdowns:
However, because of little or negative correlation between strategies, you might not be looking for the specific best trading strategies. Trading strategies can still be useful if they independently are not the best, but they complement each other.
Trade small size – be careful
Trading requires experience – lots of it. In order to survive, always make sure you are trading smaller position sizes than you would like.
Likewise, don’t put all your eggs in one basket. Spread your time frames, asset classes, and strategies are a good guide.
Why trade small?
You want to trade small because you want to make sure you can survive adverse movements against your position. Sooner or later you’ll experience days where all or most of your positions go against you.
Put aside money for a rainy day
Likewise, don’t put all your money in your trading account. We recommend setting aside money for long-term appreciation, preferably in mutual funds. Don’t try to be smart, make your investments simple.
Be careful with leverage:
It’s easy to get fooled by a backtest – it all looks so simple and easy in hindsight. Because of this, many use too much leverage by being greedy.
Leverage can put you out of business. Make sure you always think about how much you can lose, not what you can make. A 50% drop requires a 100% rise to get back to break-even.
Make sure you have a trading plan
This website is all about quantified trading strategies and trading systems. We believe as a guide that 100% quantified rules are what fits most traders.
The reason for this is simple: Although nothing is certain about the future, you at least have an opinion if your trading strategy performed well in the past. Additionally, it makes you disciplined and less prone to knee-jerk trades out of the blue.
Besides, by automating all your trading you theoretically can trade an almost unlimited amount of trading systems. You focus on developing strategies, and you let the computer do the rest.
Avoid obvious mistakes
Profits tend to take care of themselves as long as you avoid the biggest blunders. In tennis, this is called unforced errors. In professional tennis, most of the matches are won by the player who makes the least amount of unforced errors!
Make sure you understand yourself
It might sound like a cliche, but you need to understand yourself and the potential behavior mistakes you are prone to make. Even very profitable strategies won’t make you money if you buy and sell at the wrong time.
This page which contains our trading strategies and trading systems might give you input on how to start trading. Trading is not easy, and certainly much more demanding than long-term investing.
While trading offers scalability and huge profit potential, consider the time spent and the risk of ruin in trading. If you don’t know what you’re doing, you might lose your capital quickly.
Disclaimer: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.