Crafting Your Own High Probability Trading Strategy
The following is a book review of Robert Miner’s High Probability Trading Strategies: Entry-Exit Tactics for the Forex, Futures, and Stock Markets (Wiley Trading). The market is a dynamic place where emotions change in an instant and having a trading strategy is no longer enough, given the speed with which information reaches investors through real-time news, real-time reports and social networks. . He must be constantly learning new skills and honing his craft, and I’m always looking to add another strategy to my trading arsenal.
Too often I talk to traders who want me to analyze a stock chart to see if I can tell them what went wrong with their trade and one of my first questions is, “Why exactly did you buy these stocks?” Many times the answer is that they felt it was going to go up, but they didn’t really have an exit plan if the exchange went against them, or take it in case it moved in their direction. They are a little ready for the trip to see what happens. If you want to learn how to recognize optimal trading conditions, identify crystal clear entry and exit strategies, all while learning trade management skills, this is the book you’ve been looking for.
Miner’s book is essentially divided into 4 different sections and it even comes with a CD that you must use. only after reading the whole book. The examples used throughout the CD will not make any sense to you unless you understand your system from A to Z. Since a graphics reader needs to look at a lot of graphics to start trusting a system, the CD is a complementary tool. in the book.
Main sections of the book:
- Four strategies used to find a trade
- Business management rules
- Case studies of his students applying his methods
- Intangibles and market psychology
The heart of this book consists of the four strategies (seen below) that Robert Miner uses together to find a high-risk, high-reward trade. I would even say that these strategies are so solid that you could take one of them alone and develop a business plan around it. The author believes that to give you the best chance of success, you should use the four factors consisting of momentum, pattern, price, and time. This strategy applies to all markets and time frames.
Four dimensions of market position:
- Multiple time frame momentum strategy
- Elliot Wave Pattern Recognition
- Fibonacci retracements
- Dynamic time strategies
The first strategy is to use 2 different time frames determined by the person, depending on the type of trader you are, and then decide which indicator you want to use for your time signal. For example, if you want to use a fast stochastic move arising from an oversold condition on a daily chart, that would decide your general direction. Then you could use a 60 minute chart with that same indicator to find the point where you would execute your trade.
Having said that, there are 2 caveats to make here.
- This strategy is used in conjunction with the others to select the trades with the highest probability of success.
- It is important to adjust the settings of the indicators to eliminate errors in your operations. The only flaw that I found in this book is that the author presents his Dynamic Oscillator that he has developed and it is part of a general software package that you can buy. That is the indicator of choice you use for your momentum strategy. However, it is very clear that it is just as effective with the Macd or Stochastic indicators. I just prefer that when I buy a book there is no top sale.
The Miner then weaves basic Elliot Wave patterns to recognize continuation trends or potential reversal points to use in conjunction with the momentum strategy. I had to reread this chapter because I’m not a fan of this type of chart reading, but I can see the benefits of using these simple strategies to predict where a market is headed. Then add a new way to use Fibonacci to decide areas of support and resistance and learn the difference between internal and external retracements and alternative price projections.
Perhaps the most interesting of the four that I learned on my own were timing strategies that use time units to determine retracement levels.
Most of the ups and downs are done in proportion to one or more previous sections of the trend or countertrend. Time reversals are performed like price reversals but on the time axis, and use some of the same proportions that are used for price reversals.
These time reversals use many of the same relationships that are used in price retracement, namely the fiber retracement levels, .382, .50.618, 1.00, and 1.618. So instead of looking at the lies horizontally, I would use the lies vertically to predict a rally or a continuation.
Leading or lagging indicators?
The author notes that many traders use lagging indicators, such as oscillators or moving averages, to base their trading strategies. He uses a lagging indicator in his dual time frame method to find stocks that show a particular trend direction that he is looking for, but the other three are forecast in nature with predictive capabilities. If your trading plan is based solely on lagging indicators, you will be at the mercy of the market most of the time. His method, which has taken him more than 20 years to develop and perfect, will prepare him in advance for a probable commercial condition.
Most of the book after the disclosure of his full business plan shows how he ties it all together through examples and case studies from many of his students. Your system will take some time to learn and carry out as there is definitely a learning curve, but I think it lays a great foundation as it takes you step by step each strategy in kind of a small step, so no matter what. happens. your skill level will have everything you need to get started with your methods. I even got a fresh perspective on how to use a couple of indicators that I now use. The author told his editor that he would not write this book if he could not have it accompanied by a workshop CD and it is good that his readers have access to these examples because they really help to clarify many of the questions that you will eventually have after digesting this book. I would recommend this book to anyone who feels that their current trading strategy is not giving them the results they are looking for, or to the seasoned trader who is curious to learn a new technique.