Custom Trading Strategies

Strategy 1: Trend-Following Swing Trading

Objective:

Capture medium-term price movements by riding strong trends.

Entry Criteria:

• Trend Identification: Use moving averages (e.g., 50-day and 200-day) to confirm trend direction. Enter a long position when the short-term average crosses above the long-term average (“golden cross”) and vice versa for a short position.

• Confirmation: Look for additional confirmation from price action (e.g., higher highs in an uptrend) and increased volume.

• Technical Indicator: Use RSI to ensure the market isn’t overbought (for longs) or oversold (for shorts) at entry.

Exit Criteria:

• Stop Loss: Place a stop loss below the recent swing low (for longs) or above the swing high (for shorts).

• Profit Target: Aim for a risk-reward ratio of at least 1:2 or 1:3. Use trailing stops as the trend develops.

• Reversal Signal: Exit if moving averages cross back or if price action signals a reversal.

Risk Management:

• Limit risk to 1-2% of trading capital per trade.

• Adjust position size based on the distance between entry and stop loss.

• Monitor broader market conditions to ensure the trend remains supported.

Strategy 2: Breakout Trading Using Price Action

Objective:

Exploit sharp price moves when the market breaks out of a defined consolidation range or chart pattern.

Entry Criteria:

• Range Identification: Identify consolidation ranges where price is confined between clear support and resistance.

• Breakout Confirmation: Enter when the price breaks above resistance (for long trades) or below support (for short trades), confirmed by significant volume. Consider a retest of the breakout level as added confirmation.

• Volatility Check: Use indicators like Bollinger Bands to confirm an end to a volatility squeeze.

Exit Criteria:

• Stop Loss: Place a stop loss just inside the consolidation zone.

• Profit Target: Use the measured move (height of the consolidation range) as a target or employ a trailing stop for extended moves.

• Momentum Check: Exit if volume diminishes or price action reverts, indicating a potential false breakout.

Risk Management:

• Risk 1-2% of capital per trade.

• Validate breakouts by confirming overall market conditions.

• Consider scaling into the trade if multiple confirmations occur.

Strategy 3: Counter-Trend (Reversal) Trading

Objective:

Exploit temporary overextensions by entering trades counter to the current trend, anticipating a reversal or correction.

Entry Criteria:

• Overbought/Oversold Conditions: Use oscillators such as RSI or Stochastic to detect extreme conditions (RSI above 70 for overbought, below 30 for oversold).

• Divergence: Look for divergence between price and indicators (e.g., price making new highs while RSI fails to follow).

• Reversal Patterns: Identify chart formations like double tops/bottoms or head and shoulders.

Exit Criteria:

• Stop Loss: Use tight stops just beyond recent swing points.

• Profit Target: Target a correction measured by the distance between key levels; aim for at least a 1:2 risk-reward ratio.

• Signal Fade: Exit if the reversal signal weakens or if price resumes the prevailing trend.

Risk Management:

• Use smaller position sizes (risking 1% or less of capital).

• Confirm setups with multiple indicators.

• Stay agile and be ready to exit if the market continues in the initial trend direction.

Strategy 4: Scalping with Order Flow and Level 2 Data

Objective:

Generate small, quick profits by exploiting minor price discrepancies and micro-level market movements.

Entry Criteria:

• Order Flow Analysis: Monitor Level 2 data and order book dynamics to identify imbalances between supply and demand.

• Short-Term Patterns: Look for rapid price fluctuations or “micro-breakouts” in highly liquid instruments.

• Fast Execution: Use direct market access platforms to enter and exit quickly.

Exit Criteria:

• Quick Exits: Close trades within minutes or seconds after a small profit is achieved.

• Stop Loss: Employ tight stop losses (a few ticks/pips away) to limit exposure.

• Time-Based Exit: If a trade does not move quickly, exit to avoid prolonged exposure in a volatile environment.

Risk Management:

• Limit trade risk to a fraction of 1% per trade.

• Use high-frequency, small position sizes to mitigate risk.

• Monitor transaction costs closely, as they can erode small scalping profits.

Strategy 5: Algorithmic & Quantitative Trading

Objective:

Utilize data-driven models and automated systems to identify and execute trades based on predefined criteria.

Entry Criteria:

• Model Development: Create a quantitative model using historical data, statistical indicators, or machine learning algorithms.

• Automated Signals: Program entry conditions such as moving average crossovers, momentum shifts, or mean reversion triggers.

• Backtesting: Rigorously backtest the strategy across various market conditions to ensure robustness.

Exit Criteria:

• Predefined Conditions: Exit automatically when the algorithm signals an end-of-trade condition (e.g., stop loss or profit target hit).

• Real-Time Monitoring: Adjust or terminate trades if market conditions change unexpectedly.

• Dynamic Adjustments: Incorporate dynamic risk controls, such as adjusting stop losses based on volatility measures.

Risk Management:

• Use portfolio diversification across multiple algorithmic strategies.

• Implement strict risk controls (e.g., maximum drawdown limits) within the algorithm.

• Continuously monitor and refine the algorithm based on performance metrics.

Strategy 6: Mean Reversion Trading

Objective:

Profit from the tendency of prices to revert to their average or mean after significant deviations.

Entry Criteria:

• Statistical Indicators: Use moving averages, Bollinger Bands, or standard deviation channels to identify when price has deviated significantly from its mean.

• Overextension Signals: Enter a long position when the price is significantly below the mean (oversold) and a short position when above the mean (overbought).

• Confirmation: Look for convergence between the price and the mean, indicating an impending reversion.

Exit Criteria:

• Mean Target: Exit the trade when the price reverts to the mean or the moving average.

• Stop Loss: Place stops to protect against a sustained trend that might indicate a new equilibrium.

• Risk/Reward Ratio: Ensure a favorable risk-reward ratio before entering the trade.

Risk Management:

• Limit exposure to 1-2% of trading capital per trade.

• Use position sizing based on the distance from the mean.

• Continuously validate that the market environment is conducive to mean reversion.

Strategy 7: News-Based Trading

Objective:

Take advantage of market volatility resulting from economic news releases and geopolitical events.

Entry Criteria:

• News Calendar: Monitor economic calendars and news feeds for significant events (e.g., central bank announcements, GDP reports, employment data).

• Pre-Trade Preparation: Identify likely scenarios and set alerts for key news releases.

• Initial Reaction: Enter trades based on the market’s immediate reaction, confirmed by volume spikes and sharp price moves.

Exit Criteria:

• Quick Exits: Due to high volatility, aim for rapid profit-taking or use a tight trailing stop.

• Stop Loss: Use stops that are sensitive to rapid reversals post-news, ensuring losses are minimized.

• Event End: Exit before the market stabilizes if the trade no longer aligns with the initial reaction.

Risk Management:

• Trade only a small portion of capital during news events (typically 1% or less).

• Avoid overexposure during extremely volatile periods.

• Monitor market sentiment continuously as news reactions can be unpredictable.

Strategy 8: Options Trading Strategy (Volatility and Skew)

Objective:

Capitalize on mispricings in options markets, focusing on volatility and price skew.

Entry Criteria:

• Volatility Analysis: Use the implied volatility (IV) versus historical volatility (HV) to identify potential mispricings.

• Options Spreads: Set up spreads (such as vertical spreads or straddles) to capture value when IV is unusually high or low.

• Market Sentiment: Consider overall market sentiment and upcoming events that might affect volatility.

Exit Criteria:

• Profit Target: Exit when the trade reaches a predetermined profit target or when IV converges with HV.

• Time Decay: Monitor theta decay, and exit positions before time decay erodes the premium advantage.

• Stop Loss: Use a predefined loss threshold based on the options premium or changes in volatility.

Risk Management:

• Limit the portion of capital allocated to options trades.

• Use defined-risk strategies (spreads) to limit potential losses.

• Continuously monitor the Greeks (delta, gamma, theta, vega) to manage risk exposure.

Strategy 9: Multi-Market Diversification Strategy

Objective:

Reduce risk and improve risk-adjusted returns by diversifying across various asset classes and trading styles.

Entry Criteria:

• Asset Allocation: Allocate capital across different markets (stocks, bonds, currencies, commodities) based on current market conditions.

• Correlations: Identify assets with low or negative correlations to provide diversification benefits.

• Signal Alignment: Use a combination of technical and fundamental signals across markets to identify trading opportunities.

Exit Criteria:

• Portfolio Rebalancing: Regularly review and rebalance the portfolio to maintain the desired asset allocation.

• Individual Exits: Use standard exit criteria (e.g., stop loss, profit target, or trend reversal) on each individual trade.

• Market Changes: Exit or reduce positions if correlations change or if a market enters a prolonged downturn.

Risk Management:

• Diversify to ensure no single asset or market dominates risk exposure.

• Adjust position sizes based on volatility and market conditions.

• Monitor overall portfolio risk using measures such as Value at Risk (VaR).

Strategy 10: Risk Parity & Portfolio Rebalancing

Objective:

Achieve balanced risk distribution across asset classes to optimize long-term returns while minimizing volatility.

Entry Criteria:

• Risk Assessment: Evaluate the volatility and risk contribution of each asset in the portfolio.

• Initial Allocation: Allocate capital so that each asset contributes equally to overall portfolio risk.

• Market Environment: Use macroeconomic analysis to adjust allocations based on changes in market volatility.

Exit Criteria:

• Rebalancing Triggers: Regularly review the portfolio (monthly or quarterly) and rebalance if the risk contributions deviate significantly from target levels.

• Stop Loss: In volatile conditions, adjust allocations or use protective options to reduce risk exposure.

• Profit Taking: Gradually take profits from overperforming assets while rebalancing into underperforming ones to maintain risk parity.

Risk Management:

• Continuously monitor risk metrics and adjust the portfolio to maintain equal risk contribution.

• Use diversification and hedging strategies to protect against extreme market movements.

• Establish clear rebalancing rules to avoid emotional decision-making.