Buy Signals Sell Signals: Strategic Stock Market Entries and Exits pdfdrive com

How many trade signals will your system give you in your time frame?
The quantity of your trade signals will be as important as the quality of your
signals. You may find a great buy signal only to discover that your signal only
triggers once or twice a year. Two trades a year doesn’t work for most traders.
On the other side, a day trader may have too active of a signal that can cause 10
losses and 20 commissions to get in and out of trades in one day. That won’t
work well, either. A trader has to understand how many times a signal will
trigger on average in their time frame on their watch list, and calculate the
potential losses that could be caused during a losing streak while taking into
account their commission costs.
If you want a 30% annual return, you may only need 60 trades a year with a 50%
win rate if your winners created 2% returns, and your losers only amounted to a
1% loss on your total trading capital. Thirty wins that create a 60% return,
minus thirty losing trades that create 30% in losses may be all you need. This is
a basic example, but it demonstrates the big picture of trading frequency. The

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majority of traders have higher odds of profitability the less they trade. The more
you trade, the more commission costs and bid/ask spreads you have working
against you.
Do you trade enough markets for buy signal opportunities?
If you are trading trends, then you need to be trading enough markets to give
yourself the potential of capturing those trends. Systematic trend following
systems only work because they are trading diversified futures across all
markets: metal, agricultural commodities, energy, bonds, equities, interest rates,
currencies, etc. They limit their risk through diversification with small positions
for each signal entry, and profit by capturing the trend in whatever market that
has one.
Trend following doesn’t work as well if at all when trading only one or few
markets. The same thing is true for momentum stock strategies; you need a list
of at least 10 to 15 stocks if you are looking to buy the ones that breakout and
trend. You need to own the right one, but you have to watch enough so you don’t
miss that right one. For systematic trading to be successful, you need
diversification of opportunities to get the buy signals you are looking for.