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Day trading strategy
Some commonly used forex trading strategies includes volatility breakouts, price channels breakouts, moving average crossovers, indicator-based systems, bar patterns, swing based strategies and so forth. Some are more complex than others and they all have a certain level of effectiveness and weaknesses. Traders will pick and choose to combine a few of these strategies that has worked for them in the past to trade on a regular basis. Hence, the basic considerations when selecting or devising a trading strategy is its objectivity, consistency and its completeness.
It is becoming very easy for a modern day trader to perform an optimization of a trading strategy and generate crucial data using the advanced computers and software available today. The manner in which these data was used and evaluated, however, may not be executed in a proper manner by the average trader.
'The Evaluation and Optimization of Trading Strategies' by Robert Pardo further support this observation, "It is precisely because it is so easy to perform an optimization but so difficult to evaluate it correctly and then successfully trade it in real time, however, that the reputation of optimization has been unfairly tainted by those ignorant of its correct procedure and evaluation."
What he stressed is that a system has to be verified and tested for a period of time before they are authenticated to be viable. How? The answer is to trade using those systems in a demo account while taking into considerations the aspects involved in live trades such as the emotional factors, spreads, and slippage that are otherwise deprived in demo accounts. Sure enough, a test of probability can be calculated by computers based on past performances, but then again, these does not have the above elements present in actual tradings.
Since an inaccurate simulation of strategy results will lead to wrong conclusion on the effectiveness of trading strategies, one have to exercise due cautions in running those simulations and not follow the results blindly. For example, it is always a good practice to follow a conservatice assumption rather than an over optimistic one. Also, there are always limitations in data and software performance that must be factored in when considering the result of a particular trading strategy.
Pardo summarized it best by stating, "the goal of any trading strategy is to enjoy long-lasting, real-time trading profit. Once the full cycle of trading strategy development has been successfully completed - namely, strategy formulation, testing, optimization, walk-forward analysis, and evaluation - then, and only then, can real-time trading safely begin.