Consider These Strategy Building Basics

Recently, I began working with some talented programmers who deal with big data. They organize and manipulate data to identify trends and patterns. In my three-plus decades in the markets, I have met many traders from both schools of thought. Some are technical in nature, while others rely solely on fundamental analysis (supply and demand). I have researched and tested many technical tools as well learned the fundamentals that drive price action. I believe the ultimate trading system would incorporate fundamentals and technicals. With the use of artificial intelligence and horizontal and vertical measurements (technicals), the dream of creating a robust systematic trading strategy is more attainable now than ever.

When testing theory there is always a goal in mind and that goal never changes. We want profitable trades/investments with as little risk as possible. The origin for technical analysis lies in the available components of price and time. For every time frame there is an open, high, low and close. Technical tools and indicators are derived from these facts. 

Of the four components (OHLC) the question is, does one have more impact than the others? Alone, none of them lead to consistent profits. When combining them, trends become more prevalent. To create a short-term systematic approach, start analyzing data in the first and last 30 minutes of a trading session. When bulls are in command, there is a tendency to make lows very early in the day and highs late in the session. When bears are in charge, daily highs are often made in the first half hour of trading and lows are often made very late. This explains why candlesticks are so popular. The reason for this is logical. The open and closing 30 periods of the trading day are also the high-volume periods of the day. In other words, liquidity is at its peak during those times. When liquidity is high professional traders tend to be most active. And when institutional traders enter long positions, lows are made early and highs late and vice versa when the pros are selling. Capital flows move markets, so it is best to focus on signals when the professionals are apt to be most active.

John Seguin, Market Taker Mentoring

Trader Education