How do you create innovative trading strategies?

1 Research existing strategies

Before you start designing your own trading strategy, it is useful to research existing ones and learn from their strengths and weaknesses. You can find many sources of inspiration online, such as books, blogs, forums, podcasts, and courses. You can also use platforms like TradingView or MetaTrader to browse and test different strategies and indicators. Try to understand the logic and rationale behind each strategy, and how it performs in different market conditions and time frames.

2 Define your objectives and rules

Once you have some ideas and insights from your research, you need to define your objectives and rules for your trading strategy. What are your goals, risk tolerance, and trading style? How will you enter and exit trades, and how will you manage your position size and stop loss? How will you measure and evaluate your performance and results? These are some of the questions you need to answer and write down in a clear and concise trading plan.

3 Backtest and optimize your strategy

After you have a trading plan, you need to backtest and optimize your strategy to see how it would have performed in the past. Backtesting is the process of applying your rules and parameters to historical data and simulating the trades and outcomes. You can use tools like Excel, Python, or specialized software to conduct backtesting and optimization. You should also use robustness tests, such as Monte Carlo simulations or walk-forward analysis, to check the reliability and stability of your strategy.

4 Forward test and revise your strategy

Backtesting is not enough to guarantee the success of your strategy, as past performance does not always reflect future results. You also need to forward test and revise your strategy in real-time market conditions, using a demo or a small live account. Forward testing is the process of applying your strategy to current data and observing the trades and outcomes. You should also keep a trading journal to record your observations, emotions, and feedback. You may need to tweak or modify your strategy based on your forward testing results and experience.

5 Implement and monitor your strategy

Finally, after you have tested and refined your strategy, you can implement and monitor it in your live trading account. You should follow your trading plan and rules consistently and diligently, and avoid overtrading or deviating from your strategy. You should also monitor your strategy regularly and review its performance and results. You may need to adjust or update your strategy periodically, depending on the changing market conditions and your personal goals.

6 Keep learning and experimenting

Creating innovative trading strategies is an ongoing and dynamic process that requires continuous learning and experimenting. You should always be open to new ideas, methods, and technologies that can help you improve your trading skills and results. You should also keep track of the latest trends, news, and developments in the market and in the field of technical analysis. You should never stop challenging yourself and seeking new ways to create innovative trading strategies.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?